health, disability and long term care insurance
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Chapter 11Health Disability and Long-termCare Insurance
McGraw-Hill/IrwinCopyri ght 2012 by The McGraw-H il l Companies, Inc. Al l r ights reserved.
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Chapter 11
Learning Objectives1. Explain why the costs of health insurance and
health care have been increasing
2. Define health insurance and disability incomeinsurance and explain their importance in financial
planning3. Analyze the benefits and limitations of the various
types of health care coverage4. Evaluate private sources of health insurance and
health care
5. Appraise the sources of government health careprograms
6. Recognize the need for disability income
insurance 11-2
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Health Care Costs
Object ive 1:Explain why costs of health insuranceand health care have been increasing
The US has the highest per capita medicalexpenditures of any industrialized country in theworld
$13,375 health care costs per person in 2009
This amount is twice as much spent on health careas the average for the 24 industrialized countries inEurope and North America
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Health Care Costs(continued)
Medical expenditures were 6% of the GDP in1965, but rose to 13.6 of our GDP in 1997 andfurther increased to 17.3 in 2008. This isexpected to continue growing to 20% in the
next 6 years.
High administrative costs
11% of health care dollar vs. 1% in Canada
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Health Care Reform
Patient Protection and Affordable Care Act-3/23/10
Health Care and Education Reconciliation Act-3/30/10 The Obama Administration believe that the health care reform
provided in the above Acts will:
Reduce long-term growth of health care costs
Protect families from bankruptcy or debt due to health carecosts
Guarantee choice of doctors and health plans
Invest in prevention and wellness
Improve patient safety and quality of care
Assure affordable, quality health coverage for all Americans
Maintain coverage upon losing or changing jobs.
Eliminate barriers due to pre-existing medical conditions
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Health Care Costs (continued)
WHY DOES HEALTH CARE COST SO MUCH? Use of sophisticated, expensive technologies
Duplication of tests and technologies
Increases in the variety and frequency of treatments
Increasing number and longevity of elderly people
Regulations that result in cost shifting rather than costreduction
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Health Care Costs (continued)WHY DOES HEALTH CARE COST SO MUCH?
(continued) Increasing number of accidents, crimes that require emergency
services
Limited competition, restrictive work rules in the health caredelivery system
Labor intensiveness, rapid earnings growth for health careprofessionals
Innovative treatments for AIDS, cancer
Built in inflation in health care delivery system
Malpractice Insurance
Aging baby boomers
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Health Care Costs(continued)
WHAT IS BEING DONE ABOUT THE HIGH COSTSOF HEALTH CARE?
Careful review of fees and charges
Establish incentives for...
Preventive care
Services provided out of the hospital where medicallyacceptable
Involve community in balancing health care needs, healthcare resources
Encourage prepaid group practices
Support community health education programs so peopletake better care of themselves 11-8
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Health Care Costs (continued)
WHAT CAN YOU DO TO REDUCE PERSONALHEALTH CARE COSTS?
Consider participating in a flexible spending account.
Consider a high-deductible health plan
Ask for less expensive generic drugs
Use a mail-order or on-line pharmacy for long term drugs
Review free or low-cost coverage for uninsured children
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Health Care Costs (continued)
WHAT CAN YOU DO TO REDUCE PERSONALHEALTH CARE COSTS?
Review state plans for prescription drug assistance
Review follow-up procedures with doctor Investigate non-urgent procedure
Review billing statements for errors
Appeal unfair decisions by your health plan
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Health Care Costs (continued)
WHAT CAN YOU DO TO REDUCE PERSONALHEALTH CARE COSTS? (continued)
Stay well - focus on prevention
Eat a balanced diet, keep your weight under control
Avoid smoking, dont drink to excess
Get enough rest, relaxation, and exercise
Drive carefully, watch out for accident and fire
hazards in the home
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Health Insurance andFinancial Planning
Object ive 2:Define health insurance anddisability income insurance and explain theirimportance in financial planning
Over 45 million Americans have no health
insurance An older student population is not covered by their
familys policy. 40% are older than age 25
Health insurance limits the financial burdens peoplesuffer due to illness or injury
Its part of your overall risk management plan tosafeguard your familys economic security
Disability income insurance protects your mostvaluable asset - your ability to earn an income
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Health Insurance andFinancial Planning (continued)
GROUP HEALTH INSURANCE
Group plans comprise more than 90% of all healthinsurance
Most group plans are employer sponsored;employer pays part or most of the cost
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Health Insurance andFinancial Planning (continued)
GROUP HEALTH INSURANCE (continued)
1996 Health Insurance Portability andAccountability Act provides federal portabilitystandards, nondiscrimination in health insurance,and guaranteed renewability
If you changes jobs you need not lose yourhealth insurance
Individual insurance is also available
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Health Insurance andFinancial Planning (continued)
You can supplement your group policy
The coordination of benefits provision in apolicy says that benefits received from all
sources are limited to 100% of allowablemedical expenses
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COBRA requires many employers to offer employeesand dependents the option to continue their groupcoverage for a set period of time following a divorce
The American Recovery and Reinvestment Act of 2009
(part of the governments economic stimulus package) Requires employers to provide health insurance to
employees terminated between 9/1/08 and 12/31/09.
Employees pay 35% of the premium.
Employer subsidizes 65% of the premium for up to 9months in exchange for a tax credit.
Health Insurance andFinancial Planning (continued)
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A Good Health Insurance Plan Should..
Offer basic coverage for hospital and doctor bills. Cover at least 120days hospital room and board.
Provide at least $1,000,000 lifetime maximum foreach family member.
Pay at least 80% of out-of-hospital expenses afteryearly deductible of $500-$1,000/person is met .
Impose no unreasonable exclusions.
Limit your out-of-pocket expenses to no more than$3,000 to $5,000 in a year, excluding dental,optical, and prescription costs.
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Types of Health InsuranceCoverage
Object ive 3:Analyze the benefits andlimitations of the various types of health carecoverage
TYPES OF MEDICAL COVERAGE
Hospital expense insurance- Hospital room and board and other charges
Surgical expense insurance- Surgeon's fee for an operation
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Types of Health InsuranceCoverage
TYPES OF MEDICAL COVERAGE (continued)
Physician expense insurance
- Pays for physicians care such as officevisits, lab tests and X-rays. It does notinclude surgery.
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Types of Health Insurance Coverage
(continued)
Major medical expense insurance
Covers expenses for a serious injury or long-term illness. Has a deductible, coinsurance,
and a stop-loss provision
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Types of Health Insurance Coverage
(continued)
Comprehensive major medical insurance
Low deductible offered without a separate, basic
plan. Covers hospital, surgical, and other bills Dread disease and cancer insurance policies
Focus on unrealistic fears, and only pays out forvery specific conditions. Often sold by people
working on commission, and poor value 11-21
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Types of Health Care Coverage(continued)
Hospital indemnity
Pays a fixed amount for each day you are in ahospital. Best for people in high-risk groups
Dental expense insurance
Covers exams, cleaning, x-rays, fillings, rootcanals, and oral surgery
Vision care
Exams, contact lenses, and glasses
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Types of Health Care Coverage(continued)
Long term care insurance
Virtually unknown 35 years ago
Growing faster than any other form of insurance
In 2010, estimated that 9 million men and womenover 65 years old will need long term care
insurance
Long term care insurance can be very expensive
National Average: 1 year in nursing home=$72,000
Premiums $1,000 to $16,000 per year11-23
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Types of Health Care Coverage(continued)
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
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Types of Health Care Coverage(continued)
MAJOR PROVISIONS IN A HEALTH INSURANCE POLICY
Co-payment Cost sharing in the form of a flat dollar amount
you pay, such as $15.00-$30.00 per office visit or$10.00-$25.00 per prescription
Service benefits vs. fixed $ amount
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Types of Health Care Coverage(continued)
Benefit limits - maximum $ amount or maximum # of daysin the hospital
Exclusions and limitations
Coordination of benefits - coverage under more than onepolicy
Guaranteed renewable
Cancellation and termination - explains the circumstances
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Types of Health Care Coverage(continued)
HEALTH INSURANCE TRADE-OFFS
Reimbursement versus indemnity
Internal limits versus aggregate limits
Deductibles and coinsurance
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Types of Health Care Coverage(continued)
HEALTH INSURANCE TRADE-OFFS (continued)
Out-of-pocket limit, or stop-loss
Benefits based on reasonable and customarycharges
Health information online canprovide information when you are comparing policies
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Private Sources of HealthInsurance and Health Care
Object ive 4:Evaluate private sources ofhealth insurance and health care
Private insurance companies
Individual policy
Group policy sold to an employer
Hospital and Medical service plans
Blue Cross - hospital care benefits
Blue Shield - surgical and medical servicesbenefits
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Private Sources of HealthInsurance and Health Care (continued)
Managed care
Prepaid health plan
Primary care physician
Health Maintenance Organization
Contracts with selected care providers
Fixed pre-paid monthly premium
Focus is on prevention and wellness
Basic and supplemental services
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Private Sources of HealthInsurance and Health Care (continued)
Preferred Provider Organization
Several providers to choose from
Costs more than a HMO, but you have more
choices, fewer restrictions If you go to a non PPO provider, you pay
more
Home Health Care Agencies Home health agencies, home care aide
organizations and hospices
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Private Sources of HealthInsurance and Health Care (continued)
Employer Self-funded Health Plans
Coverage made available by plans thatemployers, labor unions, fraternal societies, orcommunities administer
Self-funded plans often do not have the assetslike private insurance companies do
New Health Care Accounts
Health Savings Accounts
Health Reimbursement Accounts
Flex Spending Accounts
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Government Health CarePrograms
Medicare - federal program for those age 65 andolder, and certain disabled persons
Part AHospital Insurance
- Compulsory
- Covers hospital costs including doctor
Part BMedical insurance
- Voluntary if have proof of coverage
- Doctors visits and prescriptions
Part C - Medicare Advantage program
Part DMedicare Prescription Drug benefit
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Government Health Care Programs(continued)
Medigap - may pay what Medicare doesnt
Medicaid
Low income people of all ages
State administered with federal guidelines
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Medicare Fraud
You may get a reward of up to $1,000 if you meet
all of these conditions. You report suspected Medicare fraud
The Inspector Generals Office reviews your
suspicion.
The suspected fraud you report isnt alreadybeing investigated.
Your report leads directly to the recovery of atleast $100 of Medicare money.
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Patient Protection andAffordable Care Act of 2010
Process: set aside $635 Billion over the next 10 yearsfor reform.
Key provisions of the Act are: Offering tax credits for small businesses to make coverage more affordable
To prohibit denying coverage due to pre-existing medical conditions for children To provide access to affordable insurance for those with pre-existing medical
conditions
Prohibiting insurance companies from dropping coverage when people aresick.
Eliminating co-payments for preventive services
Requiring new health plans to allow persons up to age 26 to remain on theirparents insurance policy
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P ti t P t ti d
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Patient Protection andAffordable Care Act of 2010
(continued) Process: set aside $635 Billion over the next 10 years
for reform.
Key provisions of the Act are: Prohibiting health insurance from placing lifetime caps on coverage
Restricting the use of annual limits
Ensuring consumers have appeal options with the plan
Providing funds to states to set up consumer assistance offices
Increasing money for community health centers
Increasing investment for increases the number of health care workers
Requiring health insurance companies to justify all premium increases
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Government Consumer HealthInformation Web Sites
www.hhs.gov(Health Finder)
www.nlm.nih.gov(Medline Plus)
www.nih.gov(NIH Health Information)
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Disability Income Insurance
Object ive 6:Recognize the need for disability
income insurance
Disability is more likely than death at any age
Young, healthy people dont think about risksrelated to all their future earning potential
Provides regular cash income lost as the resultof an accident, illness or pregnancy
If you become disabled your income drops butyour expenses go up
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Disability Income Insurance(continued)
Carefully read a policys definition of disability May only pay if you cant work at anyjob
Look for a policy that pays if you are unable towork at your regularjob
Aim for a benefit that when added to your otherincome will equal 60-70% of your gross pay
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Disability Income Insurance(continued)
How long do benefits last? To age 65? For life?
How long is the waiting period? 30 days? 90days?
Look for a policy that is both noncancelable andguaranteed renewable.
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Disability Income Insurance
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Disability Income Insurance(continued)
SOURCES OF DISABILITY INCOME
Employer Group disability policy may be short or long term
Social Security Covers total disability that lasts more than twelve
months
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Disability Income Insurance
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Disability Income Insurance(continued)
SOURCES OF DISABILITY INCOME (continued)
Workmans Compensation If you are injured at work or your injury is a result of
your type of employment
Disability insurance Benefits limited to 70-80% of your take home pay
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