2. Insurance Planning. 6. Health Insurance Flashcards
Module Introduction
At 42, Christopher Reeve was in the prime of his life, and it was a good life. Most famous for starring as Superman in a series of movies, Reeve was the picture of good health and an ideal family man. Then on May 27, 1995, tragedy struck. While participating in an equestrian competition, Reeve was thrown off his horse and landed on his head, causing severe spinal cord damage and leaving him paralyzed from the neck down. Reeve’s family believed that the cost of his healthcare would be covered because he had an excellent health insurance policy. Unfortunately, he later learned that his full-coverage insurance policy had a lifetime cap of only $1.2 million.
Disability resulting from illness or accident is an even greater peril to a family than premature death because disability not only cuts off income but also may create large medical expenses.
The Health Insurance module will explain to you the importance of health insurance and familiarize you with various types of health policies and insurance providers.
The online portion of this module takes the average student approximately two hours to complete.
Upon completion of this module you should be able to:
* Describe the different types of health insurance coverage, and
* Identify the various providers of health insurance.
Private life insurance companies and non-life insurance companies, HMOs, and Blue Cross plans are the major providers of health insurance in the United States. Providers of managed care include Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs)
To ensure that you have an understanding of health insurance, the following lessons will be covered in this module:
* Types of Health Insurance
* Health Insurance Providers
Section 1 – Types of Health Insurance
Health insurance traces its background to accident policies. Losses caused by accidents are a good subject for insurance because these losses are definite, beyond the control of the insured, not subject to catastrophe, and produce losses of economic significance. It was natural for insurers with experience in providing protection against accidents to expand coverage to losses caused by illness. However, the peril of illness sometimes may be more subject to the insured’s control than is the peril of accident. Also, some cases of health impairment are not as definite as the results of accidental losses. Thus, illness (medical expense) insurance often is more susceptible to adverse selection than is accident coverage, and it must be underwritten with great care. Likewise, medical expense insurance policies must be drafted carefully to minimize the potential for legal conflicts between insurers and insureds.
Insurers sell the following five types of health insurance policies:
* Basic medical expense insurance
* Major medical insurance
* Disability income insurance
* Medicare supplement insurance
* Long-term care insurance
To ensure that you have an understanding of health insurance, the following topics will be covered in this lesson:
* Basic Medical Expense Insurance
* Medical Insurance Policies
* Major Medical Expense Insurance
* Medicare
* Medicare Supplement Insurance
Upon completion of this lesson, you should be able to:
* Explain basic medical expense insurance, major medical insurance, medicare supplement insurance,
* Identify common health insurance contract provisions, and
* Identify the provisions found in Medicare Part A, Part B, and Part D.
Basic medical expense insurance provides each of the following EXCEPT:
* Death Insurance
* Surgical Insurance
* Hospital Insurance
* Physician Expense Insurance
Death Insurance
* Basic medical expense insurance generally provides the first-dollar coverage with no deductible provision for expenses of hospitalization, doctor’s service, and surgical procedures.
If Julien Fernandes incurs $5,700 in expenses having his arm set in the emergency room, what percentage of the bill would basic medical insurance cover?
* 100%
* 50%
* 20%
* 80%
100%
* Basic medical insurance would cover the entire $5,700.
A $10,000 surgical schedule pays __ ____??____ __ for the most difficult operation and proportionately less for all other procedures.
* $10,000
* $0
* $7,500
* $5,000
$10,000
* Surgical schedules identify a maximum dollar amount for the most difficult procedure and provide a representative list of other procedures and their reimbursement rates.
* Therefore, a $10,000 surgical schedule will pay $10,000 for the most difficult operation.
Describe the Deductible Provision
Major medical policies cause an insured to pay an amount of medical bills equal to a substantial deductible. This deductible lowers the insurer’s costs since the first dollars of all losses are not covered.
In marginal cases where treatment may not be necessary, the insured has a strong incentive to avoid overuse of medical care. Some policies apply the deductible to each illness or accident, but limit the total amount deducted to some annual maximum.
Practitioner Advice: Remember, deductibles are a form of risk retention on the part of the insured. When an insured selects a higher deductible, the insurer does not have to provide coverage as soon, thus saving the insurer money. Insurers pass along some of these savings to those insured’s who choose higher deductibles in the form of lower premiums.
* The opposite, however, is also true. A lower deductible increases insurer cost, thus comes at a higher premium to the insured.
* So, when selecting the proper deductible, the insured must balance risk tolerance (based on probability, frequency, and severity of loss) with affordability.
Describe Participation Provision
With a major medical policy, the insurer agrees to pay a specified percentage of the insured’s bills and the insured must pay the difference. This sharing of costs is called the participation provision, or coinsurance. Typically, the insurer pays 75% to 80% of the bills after the deductible requirement is met. The insured pays the remaining 20% or 25%.
As with deductibles, the amount of coinsurance that the insured shares beyond the deductible is another form of risk retention. The more the insured shares, the lower the premium; the less shared, the higher the premium.
Exam Tip: The CFP Exam often tests concepts and definitions at the level of application by presenting a real-life scenarios. Health Insurance coverage provisions are commonly tested in this manner. Specifically, CFP Board may present a scenario in which the Health Insurance policy benefits will be accessed and ask the candidate to calculate the amounts paid by the insured and/or insurer. To do so with precision first requires an understanding of the core policy provisions and definitions (i.e., deductible, coinsurance provision, stop-loss, and maximum-out-of-pocket).
Listen in below for a comparison of stop-loss limits and maximum-out-of-pocket provisions.
Audio:
* A major medical policy has a deductible. Benefits don’t kick in until deductible has been met.
* After deductible is met, coinsurance kicks in (insurance may pay 80% and insured pays 20%)
* Stop-loss limits - the maximum amount of covered charges after the deductible has been paid to which the coinsurance provision applies.
* Ex. $1000 deductible. Stop-loss limit of $10,000. Insured will pay first $1000 (deductible). Then will pay 20% of the next $10,000 in eligible charges (insurance pays 80%).
* Total exposure is the sum of the two: deductible and coinsurance, which is Maximum-out-of-pocket provisions (MOOP).
The more the insured shares, the __ ____??____ __ the premium. The less the insured shares, the __ ____??____ __ the premium.
* lower; higher
* higher; lower
lower; higher
* The more the insured shares, the lower the premium; the less shared, the higher the premium.
J. Marshall Hendricks incurs $18,000 in medical expenses while being treated in a hospital. He has a $100,000 major medical policy with a $500 deductible and an 80/20 participation provision.
Based on his policy, how much will J. Marshall collect from his major medical insurance?
* $18,000
* $17,500
* $14,400
* $14,000
$14,000
* J. Marshall Hendricks will receive $14,000 from his major medical insurance policy, calculated as follows:
$18,000 (medical expenses) - $500 (deductible) = $17,500 (covered expenses)
$17,500 (covered expenses) x 0.80 (covered percentage) = $14,000 (insurance payment)
Describe the parts of Medicare
Medicare is health insurance for people age 65 or older, under 65 with certain disabilities, and individuals of any age with End-Stage Renal Disease which is permanent kidney failure requiring dialysis or a kidney transplant. The cost for Medicare will vary depending on the plan, coverage, and services used.
Most people get their Medicare health coverage in one of two ways, the original Medicare Plan or the Medicare Advantage plans like HMO’s and PPO’s which is called Part C.
The original Medicare Plan provides Part A (Hospital Insurance) and optional coverage for Part B (Medical Insurance), Part D (Prescription Drug coverage), and Medigap (Medicare Supplement Insurance) Policy. Most people are eligible for Part A coverage without having to pay a monthly payment/premium if they or a spouse paid enough Medicare taxes while working. If someone does not qualify for premium-free Part A they may be able to buy it, but they may have to enroll in Part B and pay a premium for it too.
Medicare Part A helps cover inpatient care in hospitals, including critical access hospitals and skilled nursing facilities, but not custodial or long term care. If you meet certain conditions it may cover hospice care and home health care as well.
Medicare Part B helps pay for medical services like doctors’ services, outpatient care, and other medical services that Part A doesn’t cover. Part B helps pay for covered medical services and items when they are medically necessary and some preventive services. Most people will pay the standard monthly Part B premium. However, as of January 1, 2007 the Part B premium is based on modified adjusted gross income once annual income exceeds a certain amount.
Medicare Part C alternative combines Part A (Hospital Insurance) and Part B (Medical Insurance). Most Part C plans cover prescription drugs. If it does not, then it may be possible to purchase Part D (Prescription Drug Coverage).
Medicare Part D (Prescription Drug Coverage) is available through private companies that work with Medicare to provide prescription coverage. There are different types of Drug Plans. Once enrolled in a plan you may switch plans from November 15-December 31 of each year. In most cases a separate monthly premium is paid. Premiums vary by plan. If you decide not to enroll in a Medicare drug plan when you are first eligible you may pay a penalty if you choose to join later. A co-payment or coinsurance, and in some cases, an annual deductible will also need to be paid. Prescriptions are filled with pharmacies that have contracts with Medicare.
Exam Tip: To score Medicare-related CFP exam points, know your ‘A-B-C-D’s!’ Each Part of Medicare has important characteristics, worthy of study, memorization, and practice. Listen in for an overview of each Medicare Parts in which key information is pointed out and examined.
Audio:
* Know the structure of Medicare and what is covered under the respective parts.
* A - hospitalizations - paid for during our working years.
* B - optional, but nearly everyone enrolls in part B (doctors, labs, radiology) - monthly premium based on income.
* C - alternative - HMO option, cost effective
* D - prescription Drugs - newest of the medicare coverages. Forever in a constant state of change.
Practitioner Advice: Your clients who are enrolled in Medicare can register at my.medicare.gov for information about their health claims, preventative services, and how to get the most out of their Medicare benefits. They can also call 1-800-MEDICARE for information.
What is the patient’s share of Medicare cost?
The patient’s share of Medicare cost is subject to change each year. To illustrate just one gap in Medicare coverage, consider inpatient hospital care.
Medicare Part A Costs Example:
In 2023, the patient is responsible for a one-time deductible of $1,600 for hospital stays for the first 60 days. For longer hospital stays, the patient’s co-payment increases to $400 each day for stays between 61 and 90 days. Finally, Medicare charges a co-payment of $800 each day for additional days taken from the 60-day reserve that a patient can only use once in his or her lifetime.
Moreover, other co-payments apply to such things as short-term stays in nursing homes and to certain charges by physicians and other service providers. Therefore, the great majority of Medicare beneficiaries have also purchased Medigap coverage. In recent years, more than 70% of the people enrolled under Medicare purchased some form of Medicare gap-filling coverage. Just 25 insurers earned almost 70% of the Medigap premiums.
Practitioner Advice: Understanding Medicare enrollment timeframes and associated costs can serve as a ‘value-add’ to your clients. The Medicare system is complex and navigating the process can be overwhelming for clients. Check out medicare.gov to view the current Medicare pricing on an annual basis and upon significant legislative changes.
In 2023, in the event of a hospital stay of 150 days, how much is the patient’s responsibility to pay under Medicare?
* $11,968
* $52,240
* $62,800
* $61,600
$61,600
* In the event of a hospital stay of 150 days, the patient’s responsibility to pay under Medicare in 2023 is calculated as follows:
$1,600 + (30 x $400) + (60 x $800) = $61,600
Section 1 – Types of Health Insurance Summary
In terms of financial burdens, nothing is more devastating than a catastrophic medical condition. Having quality health and disability coverage can at least lessen if not eliminate the increasing financial hardship that accompanies injury and illness. Individual or group health insurance policies can cover loss exposures due to lost income and medical expenses. In this lesson, we have covered the following:
* Basic Medical Expense Insurance: A combination of hospital insurance, surgical insurance, and physician insurance. Basic medical insurance policies often have no deductible provision and the insurer pays covered losses from the first dollar forward.
* Blue Cross and Blue Shield: Insurance organizations provide insurance policies that pay benefits directly to the service provider after the medical bills are submitted to the insurer by the hospital or physician.
- Surgical Contracts: Provide coverage for the costs of surgical procedures. Some specify a maximum amount of coverage for a representative group of surgical procedures.
- Major Medical Insurance covers medical costs beyond those covered by basic health insurance. The following three characteristics distinguish major medical coverage from basic medical plans: provision for substantial deductible, provision for participation, and high limit of liability.
- Medicare- is government provided health care benefits generally for people age 65 or older, which offers Parts A, B, C and D coverage. Coverage is provided for hospital care, outpatient medical services, and drug benefits.
- Medicare Supplement Insurance, also known as Medigap Policy, is designed specifically to supplement benefits provided under the Medicare program. It places a realistic limit on deductibles and co-insurance payments therefore it is an excellent choice.
Which of these combinations of insurance does basic health insurance include?
* Doctor, Hospital, Lab
* Physician, Hospital, Surgical
* Hospital, Surgical, Emergency room
* Surgical, Hospital, Nursing home
Physician, Hospital, Surgical
* Most health insurance includes a combination of hospital insurance, surgical insurance, and physician insurance.
* Each can be purchased separately, but they are usually combined and sold as basic medical expense insurance.
Kasandra’s husband has a long-term heart condition that requires surgery and will be covered by the Medicare supplement plan she has recently enrolled in. What is the condition covered by this provision called?
* Existing
* Pre-Existing
* Medical
* Health
Pre-Existing
* Medicare supplement policy states that if you have had a policy for at least six months prior to replacing it, your new policy will not have a waiting period for any pre-existing medical conditions.
Which of the following must an insurer adhere to when selling a Medigap policy?
I. Accept individuals age 65 or older who buy Medigap policies within 6 months of enrolling in Medicare, regardless of their health status, claims experience, or medical condition.
II. Accept individuals age 65 or older who buy Medigap policies within 6 months of enrolling in Medicare, but exclude benefits for conditions diagnosed within six months of issuing the policy.
III. Sell policy to insured already possessing a Medigap policy.
IV. Cancel a policy for nonpayment of premiums or material misrepresentation.
* I and IV
* II and III
* I and III
* II and IV
I and IV
* The standardized Medigap policy plan states that an insurer must accept individuals age 65 or older regardless of their health status, if they buy a policy within 6 months of enrolling in Medicare.
* Medigap policies can also be cancelled for non-payment of premiums or material misrepresentation.
* However, an insurer can sell a policy to a person already possessing one only if it is a replacement and can exclude benefits for conditions diagnosed six months before the issue.
Libby has a comprehensive major medical policy that has a $500 deductible and an 80% co-insurance clause that provides a maximum of $200,000 in lifetime benefits. Libby recently had minor surgery involving $2,000 of hospital room-and-board charges, $500 for the anesthetist, and $900 for the surgical fee. How much will the insurer pay for her medical expenses?
* $2,000
* $2,320
* $2,900
* $3,400
$2,320
* Libby’s total health care bill is $3,400.
Her deductible reduces the bill to $2,900 ($3,400 - $500).
Her insurer will pay 80% of $2,900 or $2,320 ($2,900 x 0.80 = $2,320).
Section 2 – Health Insurance Providers
Traditionally, Americans received health care from doctors and hospitals of their choice. When insured, their expenses were reimbursed by insurance companies or covered on a service basis by Blue Cross and Blue Shield plans. In 1982, traditional insurers provided about 95% of all health insurance. Recently, it was estimated that they provided less than 20% of this coverage.
The evolution of health care delivery systems results from the spectacular rise in health care costs. Health care cost increases led to the development of HMOs and PPOs and to other innovative arrangements. HMOs and PPOs now are estimated to cover over half the health insurance market.
To ensure that you have an understanding of health insurance providers, the following topics will be covered in this lesson:
* Blue Cross and Blue Shield
* Health Maintenance Organization (HMOs)
* Preferred Provider Organization (PPOs)
Upon completion of this lesson, you should be able to:
* Describe health maintenance organizations (HMOs), and preferred provider organizations (PPOs),
* Differentiate between HMOs from PPOs, and
* List the benefits of Blue Cross and Blue Shield.
