Chapter 8 - Health Basics

Upon receipt of an application for insurance, the insurer's underwriter will take one of the following actions:

- Issued as a preferred risk : a lower rate will be used if the insured meets the insurance company's qualifications as a preferred risk, or lower than average risk - Standard risk : The coverage requested at the rate that was quoted. Health insurance may only be issued as standard coverages. Premium increases are only permitted for tobacco users. - substandard risk : Issued rated-up : issue the coverage requested but at a higher rate. - exclustions/limitations : May be temporary or permanent; limits the insurer's obligation to pay. The rider used to exclude coverage for existing conditions is sometimes referred to as an Impairment Rider - Rejection

Methods to Help Reduce Adverse Selection

- exclusions or limitations on pre-existing conditions - deductibles - coinsurance - Probationary Periods - definitions

Individual underwriting factors include:

-Age -Gender -smoking -occupation and hobbies - Physical condition/health history -other insurance -plan applied for -Geographical area of residence - if more than 1 occupation use the most hazardous for rating -

Lightning Facts

1. Health insurance provides coverage for both accidental injuries and medical losses due to disease or other illnesses. 2. Disability Income insurance pays weekly or monthly benefits due to insured accidents or illnesses. The benefit is either a percentage of the insured's past earnings or a flat dollar amount. 3. Accidental Results defines loss only on the basis of an unintended result, even if an injury might have been an expected outcome of a person's actions . Although the insured may have contributed to or even caused the loss, if the injury was not intentional, it will be covered. 5. The Morbidity Table shows the mathematical probability of a loss due to a sickness and is comparable to the Mortality Table used for rating life insurance. 6. Preexisting conditions are those for which a person received treatment, advice, or diagnosis within a specified period before the policy's effective date. 7. A probationary period defines the number of days beginning with the first day of a new health insurance policy during which there will be no coverage for medical claims due to sickness. 8. Sickness is any non-accidental disease or illness, commencing after the policy has been in force for at least 30 days. 9. Health insurance claims are generally subject to subrogation - an insurer's legal right of recovery. Losses which are the responsibility of a third party will be covered, but the insurer has the right to reimbursement from the responsible third party for up to 100% of its paid losses. 11. A "principal sum" is the maximum benefit payable under the terms of the AD&D policy and is payable for accidental death or double dismemberment. 12. A "capital sum" is the amount payable for lesser accidental dismemberment losses. 13. Health insurance is available in both individual and group forms. Coverage is primarily available from private health insurers, but there are also governmental plans available to persons with limited or no resources to pay premiums, suchc as Medicare, Medicaid, etc. 14. Health and disability insurance is generally classified as either limited or comprehensive, based on the type and or amount of benefits payable . Comprehensive plans cover a broader range of losses and have larger policy limits. 17. Health insurance is more susceptible to adverse selection than life insurance, and for this reasons producers are relied upon by their insurers to probe beyond the stated questions. This is known as a field underwriting and is the initial step in determining a person's insurability 18. The producer and the applicant are required to sign the application for health or disability insurance. Some companies require the applicant to fill out the application in the agent's presence and other companies require the agent to complete the application. 19. Incomplete applications may delay the insurer's underwriting and issuance of the policy. Applicants must understand that they are responsible for providing only information that is true and complete to the best of their knowledge. 21. Consideration in the form of the first premium payment is required for coverage to be in effect. Coverage begins when the application is approved and the policy has been issued. 22. Health insurance applications are subject to standard notices of information collection practices. The Medical Information Bureau (MIB) will provide, upon request, the explanations for why coverage was denied, which allows the applicant to check the accuracy of the MIB's information.

A disability income policy may provide a benefit for loss of time from employment in which of these ways?

A flat benefit amount or a percentage of pre-tax income.

copayment

A stated dollar amount that applies per claim in addition to any other cost-sharing.

Medical Expense

Contract that covers the various expenses which an insured may incur due to an accident or sickness

Self-funded employee health care benefit plans which are not fully insured are governed under which of the following federal acts?

ERISA

Classification of Risks Premium Determination and Rating

Health insurance requires underwriting similar to life insurance, but the risk to the insurance company is different. Underwriters are concerned about the possibility of illness or injury rather than death.

Outline of Coverage

Includes benefits, premiums, and other relevant information regarding the sale of the policy. Must be provided to a prospective buyer of health insurance at the time of application or policy delivery.

All of the following are alternatives an insurer has when asked to insure a substandard risk EXCEPT:

Issue the policy with a waiting period after which the insurer may cancel the policy

In an AD&D policy, the capital sum provides benefits for which of the following losses?

Loss of limb or eyesight from accidental causes

Replacement of health or disability insurance generally requires that the new policy must do which of these?

Materially improve the insured's position in all or nearly all respects

Errors and Omissions

Professional liability insurance covering the liability of an agent. Claims are filed due to client reports for a number of reasons. The two most common examples of complaints are: - inadequacy, failing to obtain proper type or amount of coverage for a client - negligence

Probationary Period

Specified period of time after the effective date and before new coverage goes into effect for specified conditions, such as losses due to a sickness or pre-existing conditions.

Waiting Period

Specified period of time set by an employer before an employee is eligible to enroll for group benefits (30,60,or 90 days) NOTE: sometimes referred to as the employer's probationary period.

Eligibility Period

Specified period of time that follows an employer's waiting period where an employee must choose to enroll or decline coverage. This would only apply in a contriubtory plan. This does not require evidence of insurability.

Coinsurance

The cost sharing between the insurer and the insured stated as a percentage of the claim amount, payable after the deductible has been met.

Note

The family policy conversion period operates similar to the group policy conversion period. They are both 31 days and both may be less favorable to the insured once converted and will generally cost more.

Deductible

The initial amount payable by the insured before insurance benefit applies.

Who pays for any reports or Medical Exams required as part of the underwriting process for insurance?

The insurance company

Morbidity Table

The mathematical likelihood of an illness, injury, or disability occurring Determines insurance premiums

Individual Health Insurance Underwriting

The policyowner is the person applying for insurance coverage and is responsible for completing an application. The owner may or may not be the insured, or the person being covered for a loss under the policy.

Underwriting

The process of selection, classificiation, and rating

Subrogation

Transfers an insured's legal right of recovery to the insurer that has paid a claim, and prevents the insured from collecting twice for the same loss. This holds the 3rd party accountable for the loss.

Certain disability and health care insurance products may be subject to specific advertising regulations. In general, insurance producers should do which of these?

Use only company-provided adverstisements for each product they wish to market

Disability Income (Loss of Time or Income)

Valued contract that pays weekly or monthly benefits due to injury or sickness. The benefit is a percentage of the insured's past earnings or a flat dollar amount.

Answers to questions in applications for health and disability insurance are considered representations and not warranties. If an applicant later realizes he/she answered a question incorrectly, how may the answer be changed?

Wrong information may be corrected at any time prior to issuance of the policy

Part 3 - Agents Report

a personal statement submitted by the agent to the insurer regarding the applicant's financial condition, any personal knowledge of the applicant, etc. Remains confidential between the agent and the insurer, and does not become part of the entire contract.

Application: Part 1

contains general questions about the applicant, such as sex, marital status, residence, date of birth, occupation, and past and present life insurance.

Part 2 of the Application Process

contains questions pertaining to medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.

Factors in premium determination

include the morbidity charge, which is based on the risk factor of the insured, less any interest credited to the insurance company based on the prepaid premium plus insurance company expenses. Gross premium = Morbidity - interest + expenses

Which one of the following is the initial source of underwriting information?

the application