Chapters 11 12 Characteristics of major medical insurance 2 Q What is Major Medical Insurance Covers expenses of catastrophic injury illness Covers losses not usually covered by basic plans Broad Coverage Covers eligible expenses incurred while in the hospital in the doctor s office or at home o Coverage for inpatient services outpatient services physician s services Length of time that benefits will be paid after the deductible is satisfied High Maximum Lifetime Limits prescription drugs ext From the millions to no maximum limits Benefit Period o Typically a year Deductibles Calendar year year Family o An aggregate deductible that has to be satisfied only once during the calendar o Specifies that medical expenses for all family members are accumulated for purposes of satisfying the deductible Common accident o Only one deductible has to be satisfied if two or more family members are injured in a common accident Exclusions Dental eye hearing war cosmetic and experimental surgery Internal Limits o Ex dollar limit on home health care services Stop loss limits 1 Q What is a Stop Loss Limit and what is its purpose The insurer will pay 100 percent of eligible medical expenses once the insured incurs a certain amount of out of pocket expenses o Purpose to reduce the financial burden of catastrophic loss Coinsurance 1 Q Coinsurance Percentage Participation What is coinsurance o A provision that requires the insured to pay a certain percentage of eligible medical expenses in excess of the deductible What is the purpose of Coinsurance Provision o Reduce Premiums o Prevent Over Utilization of Policy Benefits Long term care insurance 1 Q What is long term care insurance Pays a daily or monthly benefit for medical or custodial care received in a nursing facility hospital or at home Chances of entering a nursing home are 44 Average length of stay is 2 5 years Types of Policies 1 Facility only policy Nursing home assisted living facility hospice 2 Home health care policy Covers care outside of an institution o i e adult day care Respite care o occasional full time care that allows another full time caregiver to take a 3 Comprehensive policy needed break o Covers care at a nursing home assisted living facility and hospice and additional optional benefits for home health care and adult day care Choice of Benefits Daily benefits o Range from 50 to 300 per day Reimbursement Policies v Per Diem Policies o Reimbursement policies reimburse the insured for actual charges up to a specified daily limit o Per Diem Policies pay a fixed amount regardless of the actual charges incurred Elimination Period Eligibility for Benefits Two Benefit Triggers a waiting period during which time benefits are not paid o Unable to perform Activities of Daily Living eating bathing dressing and using the toilet o Severe Cognitive Impairment Non forfeiture Benefits optional Return of premium o If policy lapses insured gets some cash Shortened benefit period Taxation of Long Term Care Insurance amount is reduced Employer contributions are tax deductible by the employer Benefits are income tax free o If policy lapses coverage continues but benefit period or maximum dollar Definitions of disability 1 Q Inability to perform all duties of the insured s own occupation Own Occ Inability to perform the duties of any occupation for which the insured is reasonably fitted by education training and experience Any Occ Inability to perform the duties of any gainful occupation Income is reduced as a result of sickness or accident Note that many insurance contracts combine the first two definitions i e for the first two years of disability Own Occ Definition applies and after the first two years Any Occ Definition applies Partial Disability The inability of the insured to perform one or more important duties of his or her occupation Residual Disability A pro rata disability benefit is paid to an insured whose earned income is reduced because of an accident or sickness You are engaged in your regular or another occupation and your income is reduced because of an accident or sickness by at least 20 percent of your prior income o This reduction in income would trigger disability payments Group health insurance 2 Q Coverage of many persons under one contract Usually costs less than comparable insurance purchased individually Employers usually pay all or part of the premium which reduces the cost to the employees Individual evidence of insurability is usually not required Experience Rating is used in group insurance the actual loss experience of the group is a major factor Insurance incidental to the group i e the group should not be formed for the purpose of obtaining insurance o Purpose to reduce adverse selection Flow of persons through the group there should be a flow of younger person into the group an a flow of older persons out of the group Automatic determination of benefits Benefits should be determined automatically by some formula that prevents individual selection of insurance amounts o Ex earnings length of service position ext Purpose is to reduce adverse selection o If people could choose how much cheap insurance they get the poor risks would Minimum participation requirements over insure A minimum percentage of eligible employees must participate in the plan Noncontributory o Premiums are paid entirely by the employer and 100 percent of the eligible employees must be covered Contributory o The employee pays part or all of the cost and a large portion of the eligible employees must elect to participate in the plan Two reasons for minimum participation requirements o if a large portion of eligible employees participate adverse selection is reduced o If a high proportion of eligible members participate the expense rate per insured member can be reduced Eligibility Requirements Full time employee o Usually 30 hours a week Satisfy probationary period o a period of one to 6 months before a new employee can participate in a plan Apply for insurance during eligibility period o A period of time usually 31 days during which the employee can sign up for insurance without providing evidence of insurability Be actively at work when insurance becomes effective or commencement of employment o Usually only applicable for disability products Basic Medical Expense Insurance generic name for group plans that provide only basic benefits usually covers hospital expenses surgical expenses physician s visits and miscellaneous benefits X rays MRIs
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