Chapters 11 & 12Characteristics 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 homeo Coverage for inpatient services, outpatient services, physician's services, prescription drugs, ext. High Maximum (Lifetime) Limits- From the millions to no maximum limits Benefit Period- Length of time that benefits will be paid after the deductible is satisfiedo Typically a year Deductibles- Calendar yearo An aggregate deductible that has to be satisfied only once during the calendar year- Familyo Specifies that medical expenses for all family members are accumulated for purposes of satisfying the deductible. - Common-accidento 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 Limitso Ex: dollar limit on home health care servicesStop 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 lossCoinsurance (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 Premiumso Prevent Over-Utilization of Policy BenefitsLong-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 Policies1. Facility-only policy- Nursing home, assisted living facility, hospice 2. Home health care policy- Covers care outside of an institutiono i.e. adult day care- Respite careo occasional full time care that allows another full time caregiver to take a needed break 3. Comprehensive policyo 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 benefitso Range from $50 to $300 per day- Reimbursement Policies v. Per Diem Policieso 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- a waiting period during which time benefits are not paid. Eligibility for Benefits - Two Benefit Triggers 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 premiumo If policy lapses, insured gets some cash- Shortened benefit periodo If policy lapses, coverage continues but benefit period or maximum dollar amount is reduced. Taxation of Long-Term Care Insurance- Employer contributions are tax deductible by the employer- Benefits are income-tax freeDefinitions 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 twoyears, 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 insuranceo 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 selectiono If people could choose how much cheap insurance they get, the poor risks would over insure Minimum participation requirements- A minimum percentage of eligible employees must participate in the plan.- Noncontributoryo Premiums are paid entirely by the employer, and 100 percent of the eligible employees must be covered- Contributoryo 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 requirementso if a large portion of eligible employees participate, adverse selection is reducedo If a high proportion of eligible members participate, the expense rate per insured member can be reduced. Eligibility Requirements- Full time employeeo Usually 30+ hours a week- Satisfy probationary periodo a period of one to 6 months before a new employee can participate in a plan- Apply for insurance during eligibility periodo 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
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