Chapter 11: Health, Disability, and Long-Term Care Insurance

11.0 Introduction

Insurance safeguards against physical incapacitation can be a valuable resource.

11.1 Health Care Costs

Health insurance, protecting against physical incapacitation losses, is offered by employers (group health insurance), companies, organizations, and government programs.

Cost Background

Rising health insurance costs have prompted public action.

  • Obama's 2010 healthcare acts aimed to reduce cost growth, protect families from debt, improve wellness, care quality, and job security, and increase health insurance accessibility. 

  • Health care reform remains divisive due to economic and efficiency debates.

  • Key cost factors: unhealthy population, prescription drug costs, and medical technology.

The U.S. has the highest per capita medical expenditures globally, estimated at $12,641 (18.2% of GDP), with 8% (26.1 million people) uninsured. Health spending is projected to grow by 5.4% annually.

Administrative costs (beneficiary care, premiums, eligibility, referrals, claims) contribute to higher prices: 11% of U.S. health care expenditures versus Canada's 1%.

Cost Factors

  • New technologies

  • Test, treatment duplication

  • Longevity

  • Higher accident, crime rates

  • Limited competition

  • Labor intensiveness, earnings

  • Overuse

  • Inflation

  • Fraud

  • Administrative waste

  • Malpractice insurance

  • Excessive surgeries

  • Price variations

  • Greed

The GAO notes fraud and abuse account for nearly 10% of all health care dollars. Large amounts of third-party payments from insurers and the government lead to and allow for inefficiency.

Cost Reduction

Governmental Action

  • Healthcare fee and charge review programs

  • Preventative care incentives

  • Community health planning

  • Prepaid group practice encouragement

  • Community health education

  • Cash payments for routine care and tests

Personal Action

  • Use flexible spending accounts if offered.

  • Use high-deductible plans with savings opportunities.

  • Ask about generics.

  • Use mail-order or online pharmacies.

  • Insure children under 19 with state coverage.

  • Utilize state pharmacy assistance programs.

  • Avoid unnecessary follow-ups or conduct phone visits.

  • Evaluate procedure necessity.

  • Review billing statements.

  • Appeal health plan decisions.

  • Focus on preventative care.

    • Prevention is the best way to avoid costs. Eat well, avoid smoking and drinking, rest, drive safely, maintain a healthy lifestyle, get screenings, and manage conditions.

Debt and Denial

Upon Coverage Denial

  1. Review policy and benefit explanations.

  2. Contact insurer (keep records).

  3. Get supporting documents from your doctor and employer.

  4. Write a complaint letter explaining the denial and appeal reason.

  5. If denied, file a claim with the state insurance department.

Managing Debt

  1. Review bills carefully with their provider names and dates. Get itemized bills for complex procedures.

  2. Document everything. Dispute in writing with copies of official documents, not original documents.

  3. Ensure the provider has current insurance info. Know your coverage.

  4. Act quickly to resolve or dispute bills.

  5. Negotiate bills (immediate payment discounts, no-insurance rates, no-interest installments).

  6. Seek "charity care" assistance (check deadlines) if needed.

  7. Avoid credit card payments (high interest); request low/no-interest plans.

11.2 Care Planning

Health insurance protects against financial burdens from illness/injury.

  • It includes medical expense and disability income insurance, sharing losses via premiums based on group risk analysis.

  • Shape plans based on needs. Many families simplify insurance due to existing work group health insurance.


Group Plans

Group plans comprise about 90% of all plans by health and life insurance companies, with many being employer sponsored.

  • The Tax Cuts and Jobs Act of 2017 requires employers with more than 50 employees to provide coverage. Rising premiums cause employers to pass on higher share costs or offer cheaper plans.

  • Association Health Plans (AHPs) allow many small businesses or self-employed workers to obtain coverage like a large employer, reducing costs. They can't charge higher premiums or deny coverage for pre-existing conditions or cancel coverage due to illness.

  • Unions or professional insurance can offer group plans with less stringent requirements.

HIPAA

HIPAA (1996) regulates insurance portability, renewability, and nondiscrimination, provides tax breaks for long-term care insurance, and authorizes government oversight. It allows workers to keep health insurance without lapses and higher premiums and funds fraud control.


Individual Coverage

Supplement inadequate group insurance with individual health insurance. It can be obtained through:

  • Job-based group coverage

  • Parent's plan (under 26 years old)

  • Direct purchase from the insurer

  • Government programs, VA/TRICARE (military)

  • State plans

  • COBRA (temporary employer coverage)

Individual health insurance caters to one person or family. Shop carefully for the best plans, avoiding overinsurance.

Group contracts may have a coordination of benefits provision, limiting benefits received to 100% of allowable expenses. Maintain coverage if you lose your job.

Post-divorce, coverage under an ex-spouse's plan can continue for three years (company with 20+ employees, individual pays premiums).

COBRA Limitations

COBRA (1986) mandates private/non-federal governments to offer continued coverage to employees/dependents for a fee.

  • Notices are required upon coverage ends to allow you to take COBRA coverage.

  • Sign-up is generally within 60 days after coverage ends.

  • Coverage lasts 18 to 36 months. Those who lost employer health coverage may be allowed a 65% premium reduction for up to 15 months.

  • For companies with less than 20 employees, similar state laws may apply. Contact the state department of insurance if needed.

11.3 Coverage Types

Health insurance plans should cover as much as is affordable, with:

  • Basic hospital and doctor bill coverage

  • At least 120 days’ hospital room and board

  • At least a $1 million lifetime maximum for each family member

  • Coverage for at least 80% of out-of-hospital expenses

  • No unreasonable exclusions

  • A $4,000 to $6,000 out of pocket limit per year, excluding dental, optical, and prescription costs


Coverage Types

  • Hospital Expense Insurance: Pays in part or in full hospital bills (with day and allowance limits). This is the most common type of insurance.

  • Surgical Expense Insurance: Pays in part or in full surgeon's fees (with operation fee limits). Higher fee coverage equates to higher premiums. This is usually bought with hospital expense insurance.

  • Physician Expense Insurance: Pays for non-surgical care, including doctor's visits, X-rays, and lab tests.

    • The above three combined are considered Basic Health Insurance.

  • Major Medical Expense Insurance: Protects against serious injury and illness expenses, adding to basic coverage (often up to $1 million).

    • Deductible: Basic amount paid before benefits.

    • Coinsurance: Shared expenses beyond the deductible.

    • Stop-loss: Pays 100% of expenses after a certain amount has been paid out of pocket.

  • Comprehensive Major Medical Insurance: Low deductible without a separate basic plan but with maximums for certain expenses.

  • Hospital Indemnity Policy: Pays cash benefits only when hospitalized, supplementing basic and major medical insurance. Should not be used to earn money.

  • Dental Expense Insurance: Reimburses dental services and supplies (exams or procedures), often with a deductible and coinsurance.

  • Vision Care Insurance: Covers eye disease diagnosis and treatment. May be uneconomical.

  • Long-Term Care Insurance: Covers daily assistance for illness and disability with higher premiums given age. Employer-paid premiums can be tax-deductible under HIPAA.

  • Other Insurance: Often based on unrealistic fears. Avoid as a substitute for comprehensive insurance.


Policy Characteristics

  • Eligibility: Defines benefit eligibility based on age, marital status, and dependency.

  • Assigned Benefits: Allows insurance companies to directly pay providers.

  • Internal Limits: Fixed payment amounts regardless of actual rate.

  • Copayment: A fixed dollar amount paid after meeting the deductible.

  • Service Benefits: Entitlement to receive care rather than a fixed dollar amount. This is more preferable.

  • Benefit Limits: Maximum benefits in dollars or days.

  • Exclusions and Limitations: Conditions not covered (e.g., cosmetic surgery, routine checkups).

  • Coordination of Benefits: Prevents overpayment from multiple group policies, allowing up to 100% payment of charges.

  • Guaranteed Renewable: No cancellation unless premiums unpaid; premiums can't rise unless for all in a group.

  • Cancellation and Termination: Rules for company termination and how you can convert a group to an individual contract.


Benefit Trade-Offs

  • Reimbursement vs. Indemnity: Actual expense vs. fixed benefit.

  • Internal Limits: Maximums for specific expenses, or only total coverage limits.

  • Deductibles and Coinsurance: Affect cost.

  • Out-of-Pocket Limits: Lower risk, higher premiums.

  • Geographical Area: Standardized costs may limit coverage.

Base your coverage on affordability, desired benefits, and employer coverage. There are three types:

  1. Basic

  2. Major medical

  3. Both basic and major medical

Limited budgets may allow one or the other; major medical is better for catastrophic costs, but ideally, you should get both or a comprehensive policy,

11.4 Private Care Sources

800+ private insurance companies offer health insurance, alongside service plans, HMOs, PPOs, government programs, fraternal organizations, and trade unions.

Private Health Insurance

Private health insurance comes through either group or individual policies. Group policies make up about 90% of medical expense insurance and about 80% of disability income insurance. Payments reimburse the insured or the provider. HIPAA requires records on plan coverage and a summary of plan benefits and coverage.

Insurance Associations

Blue Cross Blue Shield Association: Health insurance to 106+ million Americans via Blue Cross (hospital care) and Blue Shield (surgical and medical services). This association is a federation of multiple companies that extends to each state and even internationally.

Managed Care

Managed Care: Prepaid health plans offering comprehensive care, preventative services, and health management information.

HMOs

  • Health Maintenance Organizations (HMOs): Employ/contract professionals for services in exchange for fixed premiums. Includes checkups, screenings, tests, and immunizations.

    • Basic health services: Inpatient, outpatient, maternity, mental health, substance abuse, and emergency care.

    • Supplemental services: Vision, hearing, and pharmaceutical care (additional fee).

PPOs

  • Preferred Provider Organizations (PPOs): Network of doctors and hospitals providing care at insurer-approved rates for prompt payment and more patients. Higher premiums but discounted rates. They allow the choice of providers based on need, unlike HMOs which have only a few professionals in-network.

    • Exclusive Provider Organizations (EPOs): Reimbursement only with affiliated providers (extreme PPO).

    • Point of Service (POS) Plans: Combines HMO and PPO traits using a network. In-network providers are low- or no-cost without claims; out-of-plan providers are still reimbursed but have higher payments.

Managed care plans are combining features, making specific model characterization harder.

Alternative Care Options

  • Home Health Care Providers: Growing due to rising hospital costs, technology, elderly populations, insurer support, and Medicare promotion. Includes home health agencies, aide organizations, and hospices,

  • Self-Insurance: Companies can run their own insurance plan, collecting premiums and paying benefits. Costs exceeding premiums must be covered, which can be disastrous.

Health Care Accounts

Health Care Accounts: Provided by employers, they have rules on spending, saving, and taxing.

  • Flexible Spending Accounts (FSAs): Pretax dollars to employer-managed accounts for health spending (lost at year-end).

  • Health Reimbursement Accounts (HRAs): Tied to high-deductible policies, employer-funded for health care. Carried over year-to-year but lost upon job change.

  • Health Savings Accounts (HSAs): Tax-free account for out-of-pocket health expenses with high-deductible policies. Funds can be invested but only used for health care, remaining year-to-year and taken when leaving the company. Contributions stop upon Medicare, but funds can still be used for expenses.

CARES Act (2020): Allows OTC medical purchases/menstrual care products with health accounts, starting January 1, 2020.

11.5 Government Aid

Medicare and Medicaid

The United States government has federal and state government healthcare programs. The most common programs are Medicare and Medicaid.

Medicare

  • Federal health insurance for those 65+, any age with permanent kidney failure, and certain disabilities (established 1965).

    • Part A: Hospital insurance. Financed by Social Security taxes and annual deductibles.

    • Part B: Medical insurance. Pays for doctors' services and supplies not covered by Part A. It has an 80% coverage after meeting the deductible, and is voluntary, financed by premiums and federal revenues.

    • Part C: Medicare Advantage, where private providers get a set amount from Medicare. Created by the Balanced Budget Act of 1997 as Medicare+Choice which allowed wider availability of HMOs and other health plans.

    • Part D: Prescription drug benefits. Created 2006, it is voluntary and comprehensive, costing $50 per month with a copay and coinsurance alongside a penalty for late enrollment. Has low-income assistance.

    • Challenges facing Medicare include affordability, long-term care, and financing; debates over public vs. private roles. Also note that Medicare does not cover some expenses; check your coverage details to ensure financial security.

    • Medigap: Private policies that cover costs Medicare doesn't. Most states have 10 standardized policies.

Medicaid

  • Assistance for low-income individuals (established 1965). Administered by states with federal and state funding. Covers Medicare costs for low-income individuals with more comprehensive benefits.

PPACA (2010)

  • Patient Protection and Affordable Care Act (2010): Reforms for affordable, high-quality healthcare, with:

    • Small business tax credits

    • Prohibited denial of child coverage based on pre-existing conditions

    • Insurance access to those with pre-existing conditions through temporary subsidized high-risk pools

    • Prohibited denial of coverage to sickness

    • Eliminated copays and deductibles for preventive services

    • Allowed young adults to stay on parents' insurance until 26

    • Prohibited lifetime caps on coverage

    • Restricted annual caps

    • Aided states in establishing health insurance assistance offices

    • Increased community health center funding

    • Invested in practitioner numbers

    • Required insurers to justify premium increases

    • Created state-based health insurance marketplaces with low-income subsidies

    • Expanded Medicaid

    • Required employers with 20+ employees to provide insurance or pay penalties

    • Created shared responsibilities between all parties for minimum essential coverage for health insurance


Healthcare in College

  • Student Health Plan: Sometimes offered by schools as a valid form of coverage.

  • Marketplace Health Plan: Purchased through the Health Insurance marketplace. Financial help is available.

  • Parents’ Plans: Allowed coverage until age 26.

  • High-Deductible Health Plans: For those under 30.

  • Medicaid and CHIP: For the low-income up to age 19 that may earn too much for Medicaid.


Addressing Misconduct

70% believe Medicare wouldn't be in trouble without fraud, but 80% are unaware of reduction efforts.

  • 1997 Medicare and Medicaid Anti-Waste, Fraud and Abuse Act: Established requirements for providers wishing to participate in the program.

  • Up to $1,000 reward for reporting suspected fraud if:

    1. Inspector General reviews suspicion.

    2. Report isn't already under investigation.

    3. Report leads to $100+ Medicare recovery.

Health Information

  • Healthfinder: Links to websites.

  • MedlinePlus: National Library of Medicine information.

  • National Institutes of Health: Has databases.

  • Food and Drug Administration: Food, drug, cosmetic, and device safety information.

  • Websites with .gov, .edu, .org (typically organizations, but can change), and journals are reliable. Avoid .com sites (typically commercial, but can change as well).

11.6 Disability Insurance

Disability insurance protects income-earning ability, paying regular cash income, and is needed more often than death insurance.

  • Disability is defined as the inability to do regular work. Disability plans should pay if you can't work at your regular job (not just any job) and make partial payments upon returning part-time.

  • When purchasing, consider:

    • Waiting and Elimination Period: How long disability should last before benefits are disbursed (longer periods have lower premiums).

    • Benefit Duration: How long benefits last (aim for lifetime).

    • Benefit Amount: 60-70% of gross pay (higher benefits have higher costs).

    • Guaranteed Renewability: Guaranteed coverage regardless of health and no premiums while disabled. Look for plans that coordinate with other benefits.


Existing Disability Care

Existing disability coverage may come from:

  • Employers: Wage continuation or employee group disability.

  • Social Security: Strict requirements with a 12-month wait, permanent disability.

  • Worker’s Compensation: Job-related accidents based on earnings and work history.

  • Other sources: Seek information if not covered.

Health Insurance Tips

  • Pay quarterly or annually for cheaper premiums.

  • Policies should be delivered in 30 days (if not in 60 days, contact the state department of insurance).

  • Use the "free-look" provision (10 days for a refund).

  • Review contracts yearly to align benefits with medical costs (unnecessary with no internal costs).

  • Avoid switching policies (new waiting periods and exclusions). Add only if needed. However, don’t stick to policies for loyalty, either.

  • Avoid overlapping insurance (coordination-of-benefits clauses limit this).

  • Use your health emergency fund for small expenses.

  • Avoid "dread disease" policies (get full coverage first).

  • Don't lie about pre-existing conditions.

  • Keep insurance up to date and compare costs annually (inflation is a major factor).

  • Complete every question on the application fully before signing.


Coverage Necessity

Ensure benefits meet your needs (approaching after-tax income). If insufficient, buy more insurance. Full salary isn't necessary (may be limited to 70-80% take-home pay) because expenses and taxes decrease when you don't work.