Life & Health Chapter 13 | Health Chapter 4: Health and Accident Insurance

CHAPTER SUMMARY: HEALTH AND ACCIDENT INSURANCE

Covered Perils and Losses

 

Covered Perils

▪    Morbidity measures the probability or risk of getting sick or becoming disabled.

Illness (Sickness or Disease)

▪    Sickness (or illness) is often considered an internal occurrence that becomes manifest.

Accidents

▪    An accident is an unintended occurrence that results in a loss caused by an external source. It’s fixed in time and space.

Accidental Bodily Injury or “Accidental Result”    The insured may undertake the activity leading to the accident voluntarily, or that activity may itself have been unintended (accidental) as well. In either case, the “results” definition applies as long as the resulting outcome (loss) was not intended.

Accidental Means    Neither the activity that led to the accident nor the accident itself was intentional. The cause and result must both be accidental.

Covered Losses

The five distinct types of covered losses are medical expenses, disability, dental expense, accidental injury, and long-term care.

Medical Expense    Medical expense insurance covers the cost of medical care. These contracts are reimbursement contracts that cover one or more of the following losses:

▪      Hospital expenses

▪      Physician expenses

▪      Surgical expenses

▪      Outpatient care

Disability    Disability insurance protects against the loss of a person’s ability to earn an income.

▪    Insureds can decrease premiums by selecting longer elimination periods, which work like deductibles but are stated as lengths of time.

▪    Disability income benefits from individual disability policies are income-tax-free.

Dental Insurance    Dental insurance is a specialized form of health expense coverage that focuses on diagnostic and preventive treatment and is designed to pay for dental care.

Long-Term Care    Long-term care insurance covers the cost of caring for those who cannot perform activities of daily living (ADLs) or who have suffered a cognitive impairment.

Accident Insurance

Accident insurance pays a benefit when an insured suffers an injury. AD&D insurance pays a lump sum if an accident results in the insured’s death or dismemberment.

Classes of Health Insurance

Individual versus Group Contracts

Insurers issue individual policies as contracts with the individual insured and write group plans as contracts with the group sponsor, not the individual participants.

Insurers require individual insureds to provide evidence of insurability. In contrast, large group policies are based on their experience rating, and small group plans are priced based on the group’s community rating.

Compared to group plan participants, individual policyholders have wider latitude in selecting coverage options that best meet their needs.

Private versus Government (Social) Insurance

Private Insurance refers to self-insurance and coverage through private insurers.

Social insurance programs that are provided by the different levels of government include:

▪    Medicaid for low-income persons

▪    Medicare primarily for seniors

▪    Social Security Disability insurance

The Affordable Care Act (ACA) created state-based and state-administered health insurance exchanges.

TRI-CARE is the federal government health plan for active duty and retired service members, as well as their families, and survivors.

Comprehensive versus Limited

Comprehensive policies offer a broad range of coverages on an “open-peril” basis. On the other hand, limited health insurance policies provide limited coverage for specified accidents or illnesses.

Limited Insurance Policy Types    Limited risk policies cover a specific risk and include a “Notice to the Insured,” which states that the contract is a Limited Benefit Policy.

▪    A limited risk policy is different from a special risk contract.

▪    A special risk policy covers an unusual hazard that’s normally not covered.

▪    A limited risk policy covers a common risk but in a limited manner.

Limited Insurance Policy Types

Accident-Only

Accidental death and dismemberment (AD&D) insurance pays a lump-sum benefit amount in the event of accidental death or dismemberment.

Principal Sum    The principal sum is the death benefit that’s payable when death results from an accident. It’s both the policy’s face amount and the maximum benefit paid.

Capital Sum    The capital sum is the amount that’s payable (typically 50%) if a person suffers an accident that results in the permanent loss of hearing, sight, or dismemberment.

[EXAM TIP:  Treat any benefits that are paid to insureds who survive their injuries as capital sums, regardless of the amount paid—even if a benefit equals the face amount.]

Specified (Dread) Disease

Dread disease policies provide limited benefits for a specific disease, such as cancer or heart disease.

Critical Illness (Specified Conditions)

Critical illness contracts pay a lump sum to the insured upon the diagnosis and survival of critical illnesses, such as heart attacks and strokes. Insureds can use these benefits to cover non-medical expenses.

Hospital Indemnity (Income)

Hospital indemnity insurance policies pay a specified amount on a daily, weekly, or monthly basis directly to the insured while she’s in the hospital.

Credit Disability

Credit disability insurance covers the cost of monthly debt payments while the insured is disabled.

▪    The lender or creditor is the policy owner and also the beneficiary.

▪    The debtor is the insured and typically pays the premiums.

Blanket Insurance (E.g., Teams and Passengers)

Insurance carriers issue blanket health insurance policies to cover group or association members while they’re exposed to a defined set of risks. The covered group’s composition (individuals within the group) continually changes as different individuals become exposed.

Prescription Drugs

Prescription drug policies cover the cost of prescription drugs that are not dispensed in a hospital or extended care facility. 

Hearing Aid Coverage

Plans cover the costs of audiological tests, hearing aid evaluation, and partial or full coverage for hearing aids.

Vision Care

These plans pay for eye examinations and also partially cover the cost of contact lenses and eyeglasses.

Short-Term Medical Insurance

Insurance carriers write non-renewable, short-term insurance policies with coverage periods as short as 90 days and as long as 364 days (i.e., just under one year). Short-term plans CANNOT BE RENEWED; however, policyholders may apply for a new policy when coverage ends.

Short-term policies are stripped-down versions of a major medical expense contract. Consumers traditionally used these plans as interim coverage to bridge gaps.

Short-term policies offer lower premiums but include many restrictions that the ACA eliminated in major medical insurance policies.

Dental Insurance

Most dental plans require a review of suggested treatment, which is referred to as a predetermination, pre-certification, or prior authorization of benefits.

All dental plans include limitations, exclusions, and caps on annual benefits.

Other common exclusions include:

▪    Cosmetic procedures unless it’s due to an accident

▪    Services provided by governmental agencies

▪    Treatment covered by Workers’ Compensation

▪    Duplicate or replacement prosthetics, including dentures

▪    Oral hygiene instructions or similar types of training

▪    Exotic procedures

Categories of Dental Treatment

Dental insurance may be covered through an integrated medical and dental plan, with a single deductible. However, dental insurance may also be offered as a standalone plan.

All dental plans are also either scheduled or non-scheduled. Non-scheduled plans pay benefits on a usual, customary, and reasonable basis (UCR). Scheduled plans organize coverage into treatment categories with stated limits for each. All dental plans types cover diagnostic and preventive treatments.


 

Other categories of treatment are as follows:

▪    Restorative or Restoration Benefits – Fillings and crowns

▪    Oral Surgery – Surgery including tooth extraction

▪    Endodontics — Root canals and dental pulp disease

▪    Periodontics — Gum disease

▪    Prosthodontics — Artificial dentures and bridgework

▪    Orthodontics —Braces and retainers

▪    Pediatric Dentistry – For children and adolescents

▪    Oral Pathology – Biopsy for the treatment of oral diseases

Employer Group Dental Expense

This coverage is similar to individual dental plans. Although group dental plans are subject to COBRA requirements, they typically don’t have a conversion privilege.

Types of Plans

Scheduled Plans    Scheduled plans provide benefits for specific services and are based on a published schedule. They generally contain no deductibles or co-insurance and provide first-dollar coverage.

Non-Scheduled Plans    Non-scheduled plans—also referred to as comprehensive plans—include deductibles and co-insurance. They generally divide services into the following three categories:

  1. Routine or basic diagnostic and preventive services – generally covered 100%

  2. Restorative services (e.g., fillings, oral surgery, and periodontics) – covered at 80%

  3. Major services (e.g., crowns, orthodontics, facial reconstructions, or bridgework) – covered at 50%

Combination Plans    These plans combine the features of scheduled and non-scheduled plans.