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									 9      Health and Disability Income Insurance

• Eases the financial burden people may experience as a result of
  illness or injury (pay a premium to transfer risk of loss)
   – Medical expense insurance- pays actual medical costs
   – Disability income insurance- provides replacement income

• Group and individual health insurance coverage available

   – Requires many employers to offer employees and dependents the option
     to continue their group coverage for a set period of time following a layoff

• The Health Insurance Portability and Accountability Act
   – Established federal portability standards
   – If you change jobs, you need not lose your health insurance
   Sources of Health Care Plans

• Health Care Plan- generic name for any
 program that pays or provides reimbursement
 for health care expenses
• Group Health Care Plan – health coverage
 sold collectively to an entire group of persons
 rather than to individuals
• Open Enrollment Period – during this time,
 you can begin or make changes in coverage or
 switch among alternative plans
  – Requirements are generally waived for family
    changes (e.g., birth of a child, adoption, marriage)
                     Objective 1
         Recognize the Importance of Health
           Insurance in Financial Planning

• Group Plans:
  – Covers most individuals
  – Usually employer sponsored (also unions, trade groups)

  – Employer pays part or most of cost

• Coordination of Benefits: combine benefits from >1
  – Benefits received from all sources limited to 100% of
    allowable medical expenses
  – Married couples/partners need to consider
 Objective 2
 Analyze the Costs and Benefits of Various
 Types of Health Insurance as well as Major
 Provisions in Health Insurance Policies

             Types of Health Insurance Coverage
  Major medical
• Basic Health Insurance
  – Hospital Expense Insurance
     • Hospital room, board, and other charges (usually with a cap)
  – Surgical Expense Insurance
     • Surgeon's fee for an operation (often specify amount per service)
  – Physician Expense (Medical Expense) Insurance
     • Pays for physician’s care that does not include surgery, such as
       office visits, lab tests, X-rays (often specify amount per service)   9-4
  Types of Health Insurance Coverage

• Major Medical Expense Insurance
  – Covers expenses for serious injury or long-term illness
  – Goes beyond what basic health insurance pays
  – May include a deductible (initial amount paid before
    insurance co. pays), coinsurance (e.g., 20% to 25% of
    expenses after deductible), and a stop-loss provision
  – Policy limits of $1 million are common
  – Stop-loss: policyholder pays coinsurance up to a
    certain amount, after which insurance company pays
    100% (typically $3,000 and $5,000)
  – Comprehensive Health Insurance- combines basic
    health insurance and major medical into a single policy
  Types of Health Insurance Coverage
• Hospital Indemnity
   – Pays you a fixed amount for each day you are hospitalized
   – Does not cover medical costs
   – Supplement to the other plans

• Dental Expense Insurance
   – Covers exams, cleaning, x-rays, fillings, root canals, and oral surgery
• Vision Care
   – Exams, contact lenses, and glasses
• Dread Disease Policies
   – Pays out for very specific conditions (e.g., cancer)
   – Illegal in many states
• Long-Term Care Insurance
   – Virtually unknown 25 years ago
   – Covers daily help if seriously ill or disabled
   – Nursing home or in-home care

     Major Provisions in a Health
          Insurance Policy
• Eligibility
   – Varies with age, marital status, and dependency
• Assigned Benefits
   – Insurance pays your doctor or hospital directly
• Internal Limits
   – Fixed amount per day for a hospital room
• Copayment
   – Cost sharing in the form of a flat dollar amount
     you pay, such as $15 per office visit or $10 per
   – NOT the same as co-insurance, which is a
     percentage of expenses                             9-7
     Major Provisions in a Health
          Insurance Policy
• Service Benefits
   – Entitlement to specific services
• Benefit Limits
   – Maximum dollar amount or maximum number of days
     in the hospital
• Exclusions and Limitations
   – Pre-existing conditions
   – Cosmetic surgery
• Guaranteed Renewable (can’t cancel policy unless
  fail to pay premiums; insurer can’t raise premiums for
  one person unless raised for an entire group)
• Cancellation and Termination
   – Explains the circumstances under which policy can be
     canceled and/ or converted
                       Objective 3
      Assess the Trade-offs of Different
          Health Insurance Plans
         Trade-Offs in Choosing a Policy
• Reimbursement versus indemnity
   – Reimbursement pays actual costs
   – Indemnity pays specific amounts (regardless of expenses)
• Internal (fixed amount per expense) vs. aggregate limits
• Deductibles and coinsurance
• Out-of-pocket limits (after reach limit, get 100% coverage)
• Benefits based on reasonable and customary
  charges (policy won’t pay more than that amount)
Health Insurance Must-Haves

                Objective 4
 Evaluate the Differences Among Health
Care Plans Offered by Private Companies
        and by the Government

Private Health Care Plans
• Private Insurance Companies
  – Individual policy
  – Group policy sold to an employer
• Hospital and Medical Service Plans
  – Blue Cross = hospital care
  – Blue Shield = surgical and medical services

    Private Health Care Plans

• Health Maintenance Organization
  – Managed care
    • Prepaid health plan
    • Primary care physician
  – Contracts with selected care providers
  – Fixed pre-paid monthly premium
  – Focus is on prevention and wellness
  – Usually pay small copayment to see doctor   9-12
        Private Health Care Plans
• Preferred Provider Organization (PPO)
   –   Several providers to choose from
   –   Costs more than an HMO
   –   More choices, fewer restrictions than an HMO
   –   If you go to a non-PPO provider, you pay more
   –   Example: NJ Direct for state of NJ employees

• Point-of-Service (POS)
   – Combines features of HMOs and PPOs

• Home Health Care Agencies
   – Medical care in a home setting for a fraction of the cost of hospitals

• Employer Self-Funded Health Plans
   – Company runs self-insured insurance program
   – Collects premiums from employees
   – Pays medical benefits as needed                                          9-13
    New Health Care Accounts
• Health Spending Accounts (HSA)
  – Money contributed to pre-tax dollar account
  – Must have a high-deductible policy
• Health Reimbursement Accounts (HRA)
  – Also tied to high-deductible policies
  – Funded solely by employer
  – Unused funds carried over to next year
• Flexible Spending Accounts (FSA)
  – Workers contribute pre-tax dollars
  – Funds managed by employer
  – Unused funds forfeited at year end            9-14
 Government Health Care Programs

• Medicare
   – Federally funded health insurance program
   – Covers those age 65+ and certain disabled persons
   – Does not cover everything
   – Patient liable for the difference in costs
   – Program in financial trouble; needs changes
   – 4 parts: A, B, C, D
• Medicaid- health care program for the poor that is
  jointly administered and funded by the federal and
  state governments

• Part A:
  – Hospital insurance helps pay for inpatient care in a hospital or skilled
    nursing facility (following a hospital stay), some home health care, and
    hospice care (paid for by workers’ payroll deductions)

• Part B:
  – Medical insurance helps pay for doctors’ services and many other
    medical services and supplies not covered by hospital insurance
  – Beneficiaries pay a monthly premium (varies according to income)

• Part C:
  – Medicare Advantage plans available in many areas
  – Those with Parts A and B can choose to receive all of their health care
    services through one of these provider organizations under Part C
• Part D:
  – Prescription drug coverage helps pay for medications doctors prescribe
    for treatment
   Government Consumer Health
      Information Websites

• Healthfinder:
• Medline Plus:
• NIH Health Information Page:
• FDA:
• Medicare:
                 Objective 5
   Explain the Importance of Disability
 Income Insurance in Financial Planning
        and Identify its Sources
         Disability Income Insurance
• Designed to protect against loss of income;
  protects your “earning power”
• Most overlooked type of insurance
• Young, healthy people don’t consider the risks
  related to their future earning potential
• Provides regular cash income lost by
  employees as the result of an accident or illness
   Sources of Disability Income
• Workman’s Compensation
  – Disability from on-the-job accident or illness
• Employer Plans
  – Short or long-term group disability policy
• Social Security
  – Covers total disability lasting > 12 months
  – Starts in the 6th month
  – Strict definition of disability to qualify
• Private Income Insurance Programs
  – Supplements other disability income sources
  – Normally provides 40-60% of income (up to 75%)
         Disability Income Insurance
• Policy’s definition of disability
    – Own Occupation- can no longer perform previous job
    – Any Occupation- can’t work at any job
• Waiting or elimination Period
• Duration of benefits
• Amount of benefits
• Accident and sickness coverage (want payment for both; accidents are
   not the only cause of disability!)
• Guaranteed renewable (guarantees coverage as long as you pay your
   premium, but premiums can change for you within a class of insureds)
• Noncancellable- Better but more expensive; no future change in premium
• Cost-of-Living Adjustments (adjusts benefit for inflation)
• Partial benefits (pays benefit if person can only work part-time)
                Objective 6
     Explain Why the Costs of Health
  Insurance and Health Care have been

• 2009 Health care costs ≈ $2.56 trillion
• U.S. has highest per capita health care
  cost of any country in the world.
• Rapid increase in medical expenditures
  – 16.9% of GDP in 2009
• High administrative costs
  – Administration = 26% of costs
    Reasons for High Health Care Costs
•   Sophisticated technologies
•   Duplicate tests
•   Variety and frequency of treatments
•   Increasing number and longevity of elderly
•   Regulations
•   Increase in emergency treatments
•   Limited competition
•   Rapid earnings growth for health care professionals
•   Using more unnecessary medical care
•   Built-in inflation in the health care system
•   Aging baby boomers
•   Other major factors: fraud, waste
    What Can You Do to Reduce
    Personal Health Care Costs ?
•   Eat a balanced diet
•   Keep weight under control
•   Avoid smoking
•   Don’t drink excessively
•   Get sufficient rest, relaxation, and
•   Drive carefully
•   Protect yourself from medical ID theft
•   Carefully review health care fees
•   Community health education programs      9-23
Wrap Up

• Chapter Quiz
• Concept Check 9-1- True or False?
• Concept Check 9-2- Health Insurance
• Concept Check 9-3- What Trade-offs
  Would You Consider?
• Concept Check 9-5- Disability Insurance

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