Healthcare Reform and Individual Health Insurance Coverages
FSU College of Business
Dr. William T. Hold/The Alliance's Program in Risk Management & Insurance
Principles of Risk Management and Insurance, Fourteenth Edition
Chapter 15: Healthcare Reform: Individual Health Insurance Coverages
Learning Objectives (1 of 2)
15.1 Identify the major defects in the U.S. healthcare system.
15.2 Explain the basic provisions of the Affordable Care Act that affect individuals and families.
15.3 Describe the major provisions of individual medical expense insurance.
15.4 Explain the meaning of “managed care” in individual medical expense plans.
15.5 Describe the basic characteristics of health savings accounts (HSAs).
Learning Objectives (2 of 2)
15.6 Explain the key characteristics of long-term care insurance.
15.7 Describe the major characteristics of disability income insurance contracts.
15.8 Identify the major policy provisions that deal with the following:
a. Renewal of the policy
b. Provisions that are mandatory or required by law
Defects in the Healthcare System in the United States
The U.S. healthcare delivery system faces four significant problems:
Rising healthcare expenditures.
Large number of uninsured in the population.
Considerable waste and inefficiency.
Harmful insurer practices.
Healthcare Problems in the United States (1 of 4)
Problem 1: Rising Healthcare Expenditures
Healthcare expenditures have substantially increased over time, growing faster than the national economy.
Estimated national health expenditures totaled $3.9 trillion in 2019, accounting for 18.3% of the nation’s GDP.
Approximately one in five dollars of the nation’s income is spent on healthcare.
Exhibit 15.1 Health Care System Performance Scores
Source: The Commonwealth Fund, July 2017
Healthcare Problems in the United States (2 of 4)
Reasons for the increase in spending include:
Advances in technology.
Cost insulation due to third-party payers.
Employer-sponsored health insurance.
Fee-for-service defects.
High administrative costs.
Lack of transparency in cost and quality information.
State-mandated benefits.
Cost-shifting by Medicare and Medicaid.
Rising prices in the healthcare sector.
Defensive medicine practices.
Healthcare Problems in the United States (3 of 4)
Problem 2: Lack of Health Insurance Coverage
In 2016, 28.1 million people, or 8.8% of the U.S. population, were uninsured.
High cost remains the major obstacle for uninsured individuals seeking coverage.
Many low-income individuals eligible for Medicaid are not aware of their eligibility.
Healthcare Problems in the United States (4 of 4)
Harmful Insurer Practices
Practices that adversely affect both policyholders and insurance applicants include:
Exclusions for preexisting conditions.
Rescission of insurance contracts to limit benefits.
Imposing lifetime or annual limits on benefits.
Basic Provisions of the Affordable Care Act (1 of 12)
The Affordable Care Act (ACA):
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 aimed at lowering healthcare costs in the long run.
Basic Provisions of the Affordable Care Act (2 of 12)
Consumer-Friendly Insurer Practices:
Lifetime and annual limits on benefits are prohibited.
Preexisting conditions cannot be excluded.
Coverage retention is allowed until the age of 26.
Guaranteed access to health insurance is ensured.
Grandfathered plans are recognized.
An 80/20 Rule, mandating a minimum medical loss ratio, is established.
Basic Provisions of the Affordable Care Act (3 of 12)
Individual Mandate:
Beginning in 2014, most citizens and legal residents must hold qualifying health insurance or face a financial penalty.
For 2018, the penalty was the higher of $695 or 2.5% of household income.
Since 2019, penalties for being uninsured have been eliminated.
The ACA provides premium tax credits to encourage insurance enrollment.
Specific groups are exempted from these mandates.
Basic Provisions of the Affordable Care Act (4 of 12)
Essential Health Benefits:
All new medical expense policies (except stand-alone dental, vision, and certain other policies) must provide a comprehensive package of benefits.
Basic Provisions of the Affordable Care Act (5 of 12)
Health Insurance Marketplace:
The ACA established a Marketplace in each state for purchasing affordable, qualified health insurance plans.
Exchanges are designed to be transparent and competitive, allowing individuals and small firms to compare plans.
Access is limited to U.S. citizens and legal residents not incarcerated.
Basic Provisions of the Affordable Care Act (6 of 12)
Premium Tax Credits:
The ACA provides premium tax credits for eligible individuals making health coverage more affordable.
Eligibility is limited to U.S. citizens and legal immigrants who meet income criteria.
Employees with accessible employer-sponsored health insurance plans are usually ineligible unless the employer's plan does not cover at least 60% of costs.
Basic Provisions of the Affordable Care Act (7 of 12)
Cost-Sharing Reductions:
These reductions lower out-of-pocket payments for deductibles, coinsurance, and other expenses.
To qualify, household income must be between 100-400% of the poverty line.
Cost-sharing reductions do not cover plan premiums or noncovered services.
Basic Provisions of the Affordable Care Act (8 of 12)
Tax Credits for Small Employers:
Small employers with fewer than 25 full-time equivalent employees may qualify for tax credits under the ACA.
A credit of up to 50% of employer contributions is available if the employer contributes at least 50% of total premiums.
Employers must offer coverage through the Small Business Health Options Program (SHOP).
Basic Provisions of the Affordable Care Act (9 of 12)
Medicaid Expansion:
The ACA expands Medicaid to include adults with incomes up to 138% of the federal poverty level.
Millions of previously uninsured individuals gained Medicaid coverage through the expansion.
The Supreme Court ruled that states cannot be coerced into expanding Medicaid.
Basic Provisions of the Affordable Care Act (10 of 12)
Quality Improvement and Cost-Reduction Provisions:
Initiatives include:
Rebuilding the primary care workforce.
A Prevention and Public Health Fund for investment in health maintenance programs.
Establishing a patient-centered outcomes research institute.
Basic Provisions of the Affordable Care Act (11 of 12)
Further quality and cost-control measures:
Strengthening community health centers.
Addressing healthcare fraud.
Encouraging collective physician groups known as accountable care organizations.
Reducing administration paperwork and costs.
Transitioning physician compensation to be based on value instead of volume.
Basic Provisions of the Affordable Care Act (12 of 12)
Fiscal Impact of the ACA:
In 2017, the Congressional Budget Office (CBO) projected that the ACA would generate a net cost to the federal government of $1.4 trillion for the period 2017-2026.
This sum will partially be offset by penalties and tax increases associated with coverage expansion.
Funding sources include:
Savings from Medicare and Medicaid programs.
Reduced payments to Medicare Advantage plans.
Annual fees levied on pharmaceuticals and health insurers.
Various taxes and penalties.
Individual Medical Expense Insurance (1 of 11)
Purpose:
Individual medical expense insurance protects against medical expenses incurred due to illness or injury for individuals and families.
Policies are often purchased by non-employed individuals, retirees, and students.
Insurers in the Health Insurance Marketplace must cover essential benefits and:
Cannot impose annual limits.
Cannot impose lifetime dollar limits.
Individual Medical Expense Insurance (2 of 11)
Essential Health Benefits Covered by Insurers:
Ambulatory patient services.
Emergency services.
Hospitalization.
Maternity and newborn care.
Mental health and substance use disorder services.
Prescription drugs.
Rehabilitative services and devices.
Individual Medical Expense Insurance (3 of 11)
Continued essential health benefits include:
Laboratory services.
Preventive and wellness services and chronic disease management.
Pediatric services, including oral and vision care.
Individual Medical Expense Insurance (4 of 11)
Benefit Categories Available for Applicants:
Bronze Plan: Covers 60% of benefit costs.
Silver Plan: Covers 70% of benefit costs.
Gold Plan: Covers 80% of benefit costs.
Platinum Plan: Covers 90% of benefit costs.
Individual Medical Expense Insurance (5 of 11)
Out-of-Pocket Limits:
Each plan has yearly limits on out-of-pocket expenses for deductibles, coinsurance, etc.
Catastrophic Plans: Cover less than 60% of average total costs.
Such plans are only available to specific groups.
Individual Medical Expense Insurance (6 of 11)
Broad Range of Benefits Provided:
Inpatient hospital benefits.
Outpatient benefits.
Physician benefits.
Preventive services.
Outpatient prescription drugs.
Individual Medical Expense Insurance (7 of 11)
Deductibles:
Marketplace policies feature a calendar-year deductible that must be met once per year.
All covered medical expenses apply towards this deductible,
The purpose of the deductible is to eliminate negligible claims and reduce administrative overhead.
Individual Medical Expense Insurance (8 of 11)
Coinsurance Provision:
Specifies that a percentage of the bill exceeding the deductible is the insured's out-of-pocket responsibility, capped at a maximum dollar limit.
Coinsurance aims to lower premiums and deter overutilization of services.
Copayment:
A fixed amount required from the insured for specific services, like office visits or generic drugs.
Individual Medical Expense Insurance (9 of 11)
Limitations & Exclusions:
Total out-of-pocket spending is subject to an annual out-of-pocket limit (stop-loss limit), after which insurers cover 100% of eligible expenses.
Common exclusions encompass cosmetic surgeries, long-term care, hearing aids, and weight-loss programs.
Insurers must furnish uniform information for plan comparisons.
Individual Medical Expense Insurance (10 of 11)
Advantages for Uninsured Individuals and Families:
Access to comprehensive benefits.
Significant reductions in the uninsured rate.
Subsidies for many insured individuals.
Economic benefits such as protection against catastrophic medical bills.
Individual Medical Expense Insurance (11 of 11)
Disadvantages of the Affordable Care Act:
Complexity and administrative burdens.
Often high premiums and deductibles.
Limited choice of individual benefits.
Typically few insurers participating in marketplace plans.
Lack of political popularity.
Managed Care Plans
Characteristics of Managed Care Plans:
Most individual medical expense plans sold today are classified as managed care plans.
A managed care plan provides medical services to members in a cost-effective manner, focusing on cost control.
Preferred Provider Organization (PPO):
A PPO is a prominent type of managed care plan that contracts with healthcare providers to deliver medical services at discounted fees.
Health Savings Accounts (1 of 2)
Definition of Health Savings Accounts (HSAs):
An HSA is a tax-exempt account specifically for qualified medical expense payments.
Beneficiaries must be covered under a high-deductible health plan (HDHP) to address significant medical expenses.
Contributions can be made by individual account holders, employers, and family members, all subject to maximum limits.
Health Savings Accounts (2 of 2)
HSA Features:
Account holders can withdraw funds tax-free for medical expenses.
HSAs provide favorable tax treatment for investment accounts in qualifying plans.
Proponents' View:
HSAs may reduce healthcare costs as they promote consumer cost sensitivity and the avoidance of unnecessary services.
Critics' View:
HSAs may lead insured individuals to disregard preventative care due to cost concerns.
Long-Term Care Insurance (1 of 8)
Purpose of Long-Term Care Insurance:
Provides daily or monthly benefits for medical or custodial care in various settings (nursing facility, hospital, or home).
Statistics: 44% of men and 58% of women over age 65 will require nursing home care in their lifetime.
Most long-term care (LTC) insurance policies are tax-qualified.
Long-Term Care Insurance (2 of 8)
Common Types of LTC Policies:
Expense-Incurred (Reimbursement) Policies:
Reimburse actual charges up to daily limits.
Daily benefits range from $50 to $350, with variability based on care facility type.
Policies may limit total lifetime payouts.
Indemnity Policies:
Pay a set daily amount regardless of expenses.
Long-Term Care Insurance (3 of 8)
Integration with Life Insurance:
Some life insurance policies offer LTC coverage in various forms:
Long-term care riders.
Accelerated death benefits provisions.
Withdrawal of cash value for LTC expenses.
Fixed benefits post-annuity value depletion.
Alternative care provisions.
Long-Term Care Insurance (4 of 8)
Covered Services Include:
Nursing home care.
Home healthcare.
Respite care for caregivers.
Hospice care.
Personal care at home.
Services in assisted living and community centers.
An elimination (waiting) period may apply before benefits commence.
Long-Term Care Insurance (5 of 8)
Benefits Trigger:
In a qualified LTC plan, benefits become payable upon meeting conditions:
Inability to perform certain activities of daily living (ADLs).
Need for substantial supervision due to cognitive impairments.
Nontax-qualified policies may have looser requirements, requiring medical necessity.
Long-Term Care Insurance (6 of 8)
Policy Features:
Some plans offer automatic increases to benefits to keep pace with inflation.
Policies must be guaranteed renewable.
However, coverage can be expensive.
General exclusions apply, such as:
Specific mental health conditions.
Substance abuse disorders.
Illnesses resulting from wartime actions.
Government-funded treatments.
Attempted suicide or self-inflicted injuries.
Long-Term Care Insurance (7 of 8)
Nonforfeiture Benefits:
Many insurers provide optional nonforfeiture benefits that allow benefits if the policy is lapsed.
Common options include:
Return of premium benefits.
Shortened benefit periods.
LTC insurance that fulfills certain criteria may enjoy favorable tax treatment.
Long-Term Care Insurance (8 of 8)
State Partnership Programs:
Some states have devised LTC partnership programs aimed at reducing Medicaid costs by encouraging private LTC insurance uptake.
These programs can protect part or all of an individual's assets against Medicaid spend-down rules.
Disability-Income Insurance (1 of 6)
Financial Impact of Disability:
Total disability can significantly hurt savings, assets, and income potential.
Disability income insurance provides payments when the insured cannot work due to sickness or injury.
Benefits typically range from 60-70% of gross earnings.
Disability-Income Insurance (2 of 6)
Definitions of Total Disability:
Common definitions include:
Inability to perform significant duties of one’s regular occupation.
Inability to perform the duties of any occupation based on education, training, and experience.
Broad interpretation: inability to perform any gainful work.
Loss-of-income test (specific financial criteria).
Disability-Income Insurance (3 of 6)
Partial Disability:
Defined as being able to perform some duties of one’s occupation but not all.
Policies may offer partial benefits that follow total disability events.
These benefits are usually paid at a reduced rate for a limited time.
Disability-Income Insurance (4 of 6)
Residual Disability Benefits:
Defined as receiving a benefit when gainfully employed but losing at least 15% of prior income due to an accident or sickness.
Compensation paid is on a pro-rata basis based on income reduction.
Disability-Income Insurance (5 of 6)
Benefit Period:
The span during which disability payments are available post-elimination period.
Many individual policies include an elimination period before benefits are triggered.
Most policies feature a waiver-of-premium provision:
If fully disabled for 90 days, future premiums are waived as long as the disability persists.
Typically includes rehab provisions for returning to work.
Disability-Income Insurance (6 of 6)
Additional Policy Features:
Some policies provide benefits for accidental death or dismemberment.
Optional benefits can consist of:
Cost-of-living adjustments based on inflation.
Additional insurance purchase options in the future.
Additional support for those rejected for Social Security Disability benefits.
Return of premiums if the policyholder has favorable claims history.
Individual Health Insurance Contractual Provisions (1 of 5)
Guaranteed Renewable Policy:
An insurer agrees to renew the policy at each anniversary date, subject to premium increases relevant to the underwriting class.
Noncancellable Policy:
The insurer cannot cancel or refuse renewal while premiums are paid on time; premiums or rate structures cannot be altered.
Individual Health Insurance Contractual Provisions (2 of 5)
Conditionally Renewable Policy:
The policyholder may renew until a specified age; however, the insurer may refuse renewal under specified situations.
Nonrenewable Policies:
Expire at the end of their protection period without contractual renewal rights.
As of 2014, guaranteed issue and renewal are mandatory for applicants.
Individual Health Insurance Contractual Provisions (3 of 5)
Uniform Individual Accident and Sickness Policy Provisions Act:
Requires certain provisions in all individual health insurance policies:
Entire contract includes the policy, application, and riders.
Time limit on defenses states that after two years in force, misstatements (except fraud) cannot void the policy or deny claims.
Grace period: 31-day interval post due-date for premium payment.
Individual Health Insurance Contractual Provisions (4 of 5)
Key Provisions Include:
Reinstatement Provision:
Allows for reactivation of lapsing policies.
Notice of Claim Provision:
Policyholders must inform the insurer of covered losses within 20 days.
Claim Forms Provision:
Insurers must send claim forms within 15 days upon notice of a claim.
Proof-of-Loss Provision:
Must provide written proof within 90 days post-incident.
Time of Payment of Claims Provision:
Insurers must settle claims immediately after proof is validated.
Individual Health Insurance Contractual Provisions (5 of 5)
Additional Provisions:
Payment of Claims:
Death benefits are channeled to the beneficiary.
Physical Exam and Autopsy Provision:
Allows insurer assessments at their expense during active claims.
Legal Action Provision:
Legal actions against insurers can only commence 60 days after proof is provided.
Change of Beneficiary Provision:
Irrevocable beneficiary designations require prior consent for changes.
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