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

• COBRA – 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 insurance9-1

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)

Health Insurance Sources

• Employers

• Private Market (Individual/Family Policy)

• Government-Facilitated Exchanges

• Government Programs

• 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 plan– Benefits received from all sources limited to 100% of

allowable medical expenses

– Married couples/partners need to consider

Group Health Insurance

9-4

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 25-30 years ago– Covers daily help if seriously ill or disabled– Nursing home or in-home care

9-5

Health Literacy Quiz• Do You Understand Health Insurance? 

• Which of the following describes an (in-network) Out-of-Pocket Maximum? Assume that all the responses refer to in-network expenses.• After meeting the out-of-pocket maximum, all medical expenses are covered 100% • After meeting the in-network out-of-pocket maximum, copays must still be paid, but all other medical expenses are covered 100% • After meeting the out-of-pocket maximum, you must pay 100% of your medical expenses • I’m not sure

• Which of the following best describes Coinsurance?• A specified dollar amount you pay for a specific service • The total amount you are required to pay until you reach your deductible • The percent of the cost of medical services that the insurer pays • The amount the employer contributes to paying for your health premium • I’m not sure

• Which of the following best describes a Copayment (Copay)?• A specific dollar amount you pay for a specific service • A specific dollar amount your insurer pays for a specific service • A fixed percent of the cost of a procedure that you have to pay (insurer pays the remainder) • The amount your employer contributes to paying for your health premium • I’m not sure

• Which best describes a Deductible? • An amount deducted from your paycheck to pay for your insurance premium • The amount deducted (covered) out of your total yearly medical expenses • The amount you pay before your insurance company pays benefits • The amount you pay before your health expenses are covered in full • I’m not sure •  

Policy Features That Limit Coverage

• Benefit coordination clauses

• Deductible

• Elimination period

• Co-payment

• Co-insurance

• Policy limit

Private Health Care Plans

• Health Maintenance Organization (HMO)

– Contracts with selected care providers

– Requires a PCP and referrals

– Does not pay for out of network care

– Focus is on prevention and wellness

– Usually pay small copayment to see doctor

9-8

Private Health Care Plans• Preferred Provider Organization (PPO)

– Network of 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 (referrals, out of network claims)

• Exclusive Provider Organization (EPO)– Exclusive network of providers; does not require PCP and referrals

• Employer Self-Funded Health Plans– Company runs self-insured insurance program

– Collects premiums from employees; pays medical benefits as needed

9-9

• Consumers are mandated to purchase insurance

• Creates Marketplaces (Exchanges) where consumers can choose among affordable plans, offering tax credits to some who qualify by income

• Builds on current employer-employee fringe benefit insurance arrangement and mandates large employers to offer adequate and affordable plans

• Intended to expand states’ Medicaid programs to include all individuals and families under 138% of FPL ($15,856 for individual, $32,499 for family of four (2013)

ACA Goal: Decreasing the Number of Uninsured Americans

Requiring insurance companies to take all seeking insurance

• No more exclusions for consumers who have pre-existing conditions

• No more cancellation of policies for someone being too sick

• No more lifetime maximums on the amount paid for care for essential benefits

• No more annual maximums on the amount paid for care for essential benefits

ACA Goal: Decreasing the Number of Uninsured Americans

The Consumer Protections

Essential Health Benefits

Qualified Health Plans in the Marketplace must cover:

Ambulatory patient services Maternity and newborn care

Emergency services Prescription drugs

Mental health and substance use disorder services

Laboratory services

Rehabilitative and habilitative services and devices

Chronic disease management

Preventive and wellness services

Pediatric services, including oral and vision care

Different Levels of Plans• 4 Levels of Coverage – “The Metals”: Bronze,

Silver, Gold, and Platinum• Each has a different value for level of coverage

• Bronze: 60%. Silver: 70%. Gold: 80%. Platinum: 90% (Refers to adequacy values: how much plan vs. insured pays)

• Any costs not covered by the plan are paid by individuals through deductibles, co-pays, co-insurance (not including monthly premium)

• Each plan level must cover the same set of minimum essential health benefits• What differs is amount of cost-sharing required• Example: The bronze plan will have the least generous

coverage (60%) with more out-of-pocket costs

http://www.healthcare.gov for more information

Employer- based insurance is deemed

affordable if the annual premium for a self-only

plan (not a family plan) costs less than 9.5% of a

person’s annual household gross income.

Example: < $3,325 with a $35,000 gross income

Insurance Affordability

Insurance is deemed adequate if it is a 60/40

plan. No more than 40% of total health care costs

in a year would be expected to be paid by the

average person insured in this type of plan.

Example: No > $4,000 paid by an insured person

with $10,000 of total health care expenses

Insurance Adequacy

• By March 31, 2014, Americans must be enrolled in a health insurance plan

• With few exceptions, if you are not insured, and income is >138% of the FPL, you will be required to pay a penalty (tax).

– Penalty for no coverage will rise from $95 for adults or 1% of family income, whichever is greater (2014) to $695 or 2.5% of income, whichever is greater (2016) http://kff.org/infographic/the-requirement-to-buy-coverage-under-the-affordable-care-act/

• Children are required to be insured through

– Public insurance (e.g. state’s Children’s Health Insurance Program) or parents’ obligations (employer or private purchase)

– Fines for uninsured children are half that of adults up to a family maximum of $285 for 2014.and $2,085 in 2016

• Tax will be assessed on federal income tax return

– May need to adjust estimated payments and/or W-4

ACA Provisions for Consumers: Individual Mandate

Compare Available Options

Benefits Premier Plan Standard Plan

In Network Deductible $500 / $1,000 $1,000 / $2,000

Out of Network Deductible $1,000 / $2,000 $1,500 / $3,000

In – Network Co-Pay per

Office Visit

Co-insurance

$20 PCP/ $40 Specialist

90% after deductible

$30 PCP /$50 Specialist

80% after deductible

Out of Network Co-insurance 70% after deductible 60% after deductible

17

Compare Available Compare Available OptionsOptions

Tier 1

Tier 2

Tier 3

RETAIL

$10 Co-pay30 Day Supply

$30 Co-pay30 Day Supply

$50 Co-pay30 Day Supply

MAIL ORDER

$20 Co-pay90 Day Supply

$60 Co-pay90 Day Supply

$100 Co-pay90 Day Supply

University of MaryLand Extension Smart Choice

Health Insurance Workbook

• https://www.extension.umd.edu/sites/default/files/_images/programs/insure/My%20Smart%20Choice%20Health%20Insurance%20Guide%204-3-13.pdf

• Uses “Rule of Three” approach (3 options)

19

Health Care Savings Accounts

• Health Spending Accounts (HSAs)– Money contributed to pre-tax dollar account

– Must have a high-deductible policy

• Health Reimbursement Accounts (HRAs)– Also tied to high-deductible policies

– Funded solely by employer

– Unused funds carried over to next year

• Flexible Spending Accounts (FSAs)– Workers contribute pre-tax dollars

– Funds managed by employer– Unused funds forfeited at year-end 9-20

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

9-21

MEDICARE• 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 treatment9-22

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

9-23

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%)

9-24

Disability Income Insurance Trade-Offs

• 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)

9-25

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 exercise

• Drive carefully

• Protect yourself from medical ID theft

• Carefully review health care fees

• Community health education programs9-26

Wrap Up

• Chapter Quiz

• Concept Check 9-1- True or False?

• Concept Check 9-2- Health Insurance Terminology

• Concept Check 9-3- What Trade-offs Would You Consider?

• Concept Check 9-5- Disability Insurance Terminology