Chapter 15: Healthcare Reform: Individual Health Insurance Coverages
Healthcare Problems in the United States
the U.S. Healthcare delivery system has four major problems:
-rising healthcare expenditures
-large number of uninsured in the population
-considerable waste and inefficiency
-harmful insurer practices
Problem 1: Rising Healthcare expenditures
-healthcare expenditures in the United States have increased substantially over time and are growing faster than the national economy
-estimated national health expenditures will total $3.4 trillion in 2016, or 17.7 percent of the nation’s GDP
-more than one in six dollars of the nation’s income is spent on healthcare
Reasons for the increase in spending include:
-advances in technology
-cost insulation because of third party payers
-employer-sponsored health insurance
-fee for service defects
-high administrative costs
-lack of transparency in cost and quality information
-cost shifting by Medicare and Medicaid
-rising prices in the healthcare sector
-defensive medicine
Problem 2: many people do not have health insurance coverage
-33 million people, or 10.4 percent of the US population had no health insurance coverage in 2015
-about 11 million adults became newly insured under the ACA by December 2014
-many people are uninsured because the coverage is not affordable
-many uninsured people did not explore new coverage options and available financial assistance under the ACA
-37 percent of people who were eligible for coverage were told they were ineligible
-many low income people who are eligible for Medicaid are not aware they are eligible
Problem 3: waste and inefficiency
-as much as 30 percent of healthcare spending each year is wasted or unnecessary
Sources of wasteful spending include:
-duplication of tests
-medical errors that are largely preventable
-unnecessary tests due to fear of lawsuits
-high administrative costs and excessive and redundant paperwork
-readmissions into hospitals because of inadequate or ineffective initial treatment\
-hospitalizations for preventable conditions
-fraud and over billing by healthcare providers
-overuse of expensive medical technology and emergency rooms
Problem 4: Harmful insurer practices
-some insurer practices are harmful to both policyholders and applicants for insurance
examples include:
-exclusions for preexisting conditions
-rescission of insurance contracts to limit benefits
-lifetime or annual limits on benefits
Basic Provisions of the Affordable Care Act
The Affordable Care Act:
-has made health insurance available to millions of uninsured Americans
-provides substantial subsidies to uninsured individuals and small businesses to make insurance more affordable
-contains provisions to lower health-care costs in the long run
The Act promotes more consumer-friendly insurer practices:
-lifetime limits and annual limits prohibited
-preexisting conditions prohibited
-rescission of insurance policies prohibited
-retention of coverage until age 26
-guaranteed across to health insurance
-grandfathered plans
-minimum medical loss ratio
-limited waiting periods
Individual mandate
-beginning in 2014, most citizens and legal residents must have qualifying health insurance or pay a financial penalty
-in 2016, the penalty is the higher of $696 or 2.5% of income
-the new law also provides premium tax credits so that eligible individuals can purchase affordable health insurance and comply with the law
-certain groups are exempted
The ACA creates a Health Insurance Marketplace in each state
-the exchange is a new transparent and competitive insurance marketplace where individuals and small firms can purchase affordable and qualified health insurance plans
-access to a Marketplace exchange is limited to US citizens and legal residents who are not incarcerated
-states exchanges will enable people to comparison shop for health insurance
the new law provides premium credits to eligible individuals to make coverage more affordable
-eligibility is limited to US citizens and legal immigrants who meet the income limits
-employees who have access to health insurance through an employer’s plan are not eligible unless the plan does not cover at least 60% of costs
-premium tax credits and cost-sharing subsidies are available to certain eligible low-income individuals and families
-beginning in 2015, firms with more than 100 employees must pay a fine for each employee that obtains subsidized insurance through an exchange
eligible small employers can receive significant tax credits under the new law
-a tax credit of up to 50% of the employer’s contribution is available if the employer contributes at least 50% of total premiums
-the employer must offer coverage to full-time employees through the Small Business Health Options Program (SHOP)
The ACA expands Medicaid to include adults with incomes up to 138 percent of the federal poverty level
-millions of formerly uninsured persons have acquired Medicaid coverage
-the Supreme Court ruled that a state cannot be coerced into expanding its Medicaid program under the ACA
the new law contains many provisions that will improve the quality of health care and lower costs, including:
-new incentives to rebuild the primary care workforce
-a prevention and public health fund that will invest in programs designed to keep Americans healthy
-establishing a patient-centered outcomes research institute
-strengthening community health centers
-enhanced screening procedures for health-care providers to eliminate fraud and abuse
-incentives for physicians to join together to form “accountable care organizations”
-reducing paperwork and administrative expenses
-paying physicians based on value and not volume
in 2015, the CBO projected the Affordable Care Act will cost more than 1.7 trillion dollars over the period 2016-2025
-the amount will be partly offset by penalties and tax increases related to coverage
funding for the new law comes from:
-savings in the Medicare and Medicaid programs
-reduced payments to Medicare Advantage plans
-new fees on pharmaceutical firms and health insurers
-other taxes and penalties
Individual Health Insurance Coverages
individual medical expense insurance protects an individual or family for covered medical expenses because of sickness or injury
-plans are purchased by people who are not employed, retired workers, and students
insurers selling policies in the Health Insurance Marketplace must cover a package of essential benefits and
-cannot impose an annual limit on benefits
-cannot impose a lifetime dollar limit
Basic Provisions of the Affordable Care Act
The Act requires insurers to cover essential health benefits:
-ambulatory patient services
-emergency services
-hospitalization
-maternity and newborn care
-metal health and substance use disorder services
-prescription drugs
-rehabilitative services and devices
-laboratory services
-preventive and wellness services and chronic disease management
-pediatric services, including oral and vision care
applicants have a choice of four benefit categories:
-the bronze plan covers 60% of the benefit costs
-the silver plan covers 70% of the benefit costs
-the gold plan covers 80% of the benefit costs
-the platinum plan covers 90% of the benefit costs
each plan has annual out-of-pocket limits that limit the amount insureds must pay in the form of deductibles, coinsurance, copayments, etc
catastrophic plans cover, on average, less than 60 of the total average cost of care and are available only to certain people
Individual Health Insurance Coverages
individual expense plans provide a broad range of benefits, including
-inpatient hospital benefits
-outpatient benefits
-physician benefits
-preventive services
-outpatient prescription drugs
marketplace policies contain a calendar-year deductible that has to be satisfied only once during the calendar year
-all covered medical expenses can be applied toward the deductible
the purpose of the deductible is to eliminate small claims and the high administrative cost of processing them
a coinsurance provision states a percentage of the bill in excess of the deductible , which the insured must pay out of pocket up to some maximum annual dollar limit
-the purpose of coinsurance is to reduce premiums and prevent over utilization of plan benefits
a copayment is a flat amount the insured must pay for certain benefits, such as an office visit or generic drug
the insured’s total out of pocket spending is limited by an annual out pocket limit (also called a stop loss limit), after which the insurer pays 100 percent of eligible expenses
common exclusions to Marketplace policies include cosmetic surgery, long term care, hearing aids, and weight loss programs
insurers must provide consumers with uniform information so that an accurate comparison of plans can be easily made
Individual Medical Expense Plans and Managed Care
most individual medical expense plans sold today are managed care plans
-a managed care plan provides covered medical services to the members in a cost effective manner, with heavy emphasis on cost control
the most popular plan today is a preferred provider organization (PPO)
-a PPO contracts with physicians, hospitals, and other health care providers to provide covered medical services to policyholders at discounted fees
Health Savings Accounts
a health savings account (HSA) is a tax exempt account established exclusively for the purpose of paying qualified medical expenses
-the beneficiary must be covered under a high-deductible health plan to cover catastrophic medical bills
-contributions can be made by individuals, their employers, and family members
-contributions and annual out of pocket expenses are subject to maximum limits
-the account holder can withdraw money from the HSA tax-free for medical costs
-an HSA investment account in a qualified plan receives favorable tax treatment
-proponents argue that HSAs can help keep health care costs down because consumers will be more sensitive to costs, will avoid unnecessary services, and will shop around
-critics argue that HSAs will encourage insureds to forego preventative care
Long-Term Care Insurance
long-term care insurance pays a daily or monthly benefit for medical or custodial care received in a nursing facility, in a hospital, or at home
-44 percent of men over age 65 and 58 percent of women will need nursing home care sometime during their lifetime
most LTC insurance policies sold today are tax qualified
expense incurred (or reimbursement) policies are the most common type of LTC insurance policies
-these policies reimburse for actual charges up to a daily limit
-consumers have a choice of daily benefits, which range from 50 to 350 dollars or more
-policies may cover a different amount depending on the type of facility
-policies may have limits on the total amount paid over the lifetime of the policy
indemnity policies (or per diem policies) pay a flat dollar amount per day regardless of actual expenses
some life insurance and deferred annuity policies (also known as hybrid policies) include coverage for certain LTC expenses
LTC coverage is added to these policies in several different ways, including:
-adding a long-term care rider
-through an accelerated death benefits provision
-allowing the policyholder to withdraw part of the current cash value to cover LTC expenses
-providing a fixed amount of coverage after the annuity value is spent on LTC expenses
-through an alternative plan of care provision
depending on the policy, LTC insurance policies cover a wide range of services including:
-nursing home care
-home healthcare
-respite care for a caregiver
-hospice care
-personal care in the home
-services in assisted living facilities, adult daycare centers, and other community services
an elimination period is a waiting period during which time benefits are not paid
in a qualified LTC plan, a benefit trigger must be met to receive benefits, either,
-the insured is unable to perform a certain number of activities of daily living (ADLs) or
-the insured needs substantial supervision to be protected against threats to health and safety because of a severe cognitive impairment
non-tax qualified policies often have more liberal eligibly requirements and make benefits available if a medical necessity trigger is met
some plans offer automatic benefit increases to keep up with inflation
policies are guaranteed renewable
coverage is expensive
exclusions typically include:
-certain mental and nervous disorders
-alcoholism and drug addiction
-illnesses cause by an act of war
-treatment paid by the government
-attempted suicide or self-inflicted injury
most insurers offer optional nonforfeiture benefits, which provides benefits if the insured lapses the policy
examples of common nonforfeiture benefits include:
- a return of premium benefit
-a shortened benefit period
long term care insurance that meets certain requirements receives favorable income tax treatment
some states have long term care partnership programs designed to reduce Medicaid expenditures by eliminating or reducing incentives of some people to rely on Medicaid to pay for long-term care
to encourage people to purchase private partnership policies, part or all of their assets are protected from the Medicaid spend down requirements
Disability Income Insurance
the financial impact of total disability on present savings, assets, and ability to earn an income can be devastating
disability-income insurance provides income payments when the insured is unable to work because of sickness or injury
-income payments are typically limited to 60-70 percent of gross earnings
the most common definitions of total disability are:
-inability to perform the material and substantial duties of your regular occupation
-inability to perform the material and substantial duties of your occupation, and are not engaged in any other occupation
-inability to perform the duties of any occupation for which you are reasonably fitted by education, training, and experience
-inability to perform the duties of any gainful occupation
-loss of income test, your income is reduced as a result of sickness or accident
partial disability means that you can perform some but not all of the duties of your occupation
some policies offer partial disability benefits
-usually, partial disability benefits must follow total disability
-the partial disability benefits are paid at a reduced rate for a shorter period
residual disability applies when you are gainfully employed and not totally disabled but, solely because of sickness or injury, your loss of income is at least 15% of your prior income
-a pro rata disability benefit is paid to an insured whose earned income is reduced because of an accident or sickness
the benefit period is the length of time that disability payments are payable after the elimination period is met
individual policies normally contain an elimination period (waiting period), during which time benefits are not paid
most policies automatically include a waiver of premium provision
-if the insured is totally disabled for 90 days, future premiums will be waived as long as the insured remains disabled
policies typically include a rehabilitation provision
some policies pay accidental death, dismemberment, and loss of sight benefits
optional benefits include:
-under a cost of living rider, the insurer periodically adjusts benefits for increases in the cost of living
-some insurers provide an option to purchase additional insurance in the future
-a social security rider pays an additional amount if the policyholder is turned down for SS disability benefits
-a return of premiums rider, refunds part or all of the premiums if they policyholder’s claim experience is favorable
Individual Health Insurance Contractual Provisions
a guaranteed renewable policy is one in which the insurer guarantees to renew the policy at each anniversary date
-premiums can be increased for the underwriting class
under a non cancellable policy, the insurer cannot change, cancel, or refuse to renew the policy as long as premiums are paid on time
-the insurer cannot change the premiums or the rate structure specified in the policy
under a conditionally renewable policy, the policyholder can renew the policy until a specified age
-the insurer has the right to decline renewal under conditions specified in the contract
some policies are nonrenewable and expire at the end of he protection period
-the policyholder does not have the contractual right to renew the policy
beginning in 2014, applicants for medical expense insurance have guaranteed issue of coverage and renewal
the Uniform Individual Accident and Sickness Policy Provisions Act by the NAIC requires certain provisions for all individual health insurance policies:
-the entire contract consists of the policy, the application, and any riders
-the time limit on certain defenses states that after the policy has been in force for 2 years, the insurer cannot void the policy or deny a claim on the basis of misstatements in the application, except for fraudulent misstatements
-the grace period is a 31 day period after the premium due date to pay an overdue premium
some contractual provisions address claims:
-notice of claim provision: the insured must give written notice to the insurer within 20 days after a covered loss occurs-claim forms provision: the insurer is required to send the insured a claim form within 15 days after notice is received
-proof of loss provision: the insured must send written proof of loss to the insurer within 90 days after a covered loss occurs
-time of payment of claims provision: the insurer must pay all claims immediately after receiving proof of loss
payment of claims: death benefits are paid to the beneficiary
physical exam and autopsy provision: gives the insurer the right to examine the insured at its own expense when a claim is pending
legal action provision: requires the insured to wait at least 60 days after proof of loss is submitted before legal action can be brought against the insurer
change of beneficiary: consent of the beneficiary is not required unless the beneficiary designation is irrevocable