Financial Literacy Chapter 11

Most insurers limit disability benefits from all sources to ______ of your take-home pay.

70% to 80%

A "good" health insurance plan pays at least Blank______ percent of out-of-hospital expenses once a yearly deductible for the individual and family have been met.

80

LO11-1 Explain why the costs of health insurance and health care have been increasing.

Among the reasons for high and rising health car costs are the use of expensive technologies, duplication of test and sometimes technologies, increases in the variety and frequency of treatment, unnecessary tests, the increasing number and longevity of elderly people, regulations that shift rather than reduce costs, the increasing number of accidents and crimes requiring emergency services, limited competition, and restrictive work rules in the health care delivery system, rapid earnings growth among health care professionals, built-in inflation in the health care delivery system, and other factors.

Sarah's comprehensive major medical health insurance plan at work has a deductible of $750. The policy pays 85 percent of any amount above the deductible. While on a hiking trip, she contracted a rare bacterial disease. Her medical costs for treatment, including medicines, tests, and a six-day hospital stay, totaled $8,893. A friend told her that she would have paid less if she had a policy with a stop-loss feature that capped her out-of-pocket expenses at $3,000. The policy with the stop-loss feature has the same deductible and coinsurance requirement as Sarah's current policy. Determine which policy would have cost Sarah less and by how much. Note: Round your intermediate calculations and final answer to 2 decimal places. multiple choice: a. Current policy b. Stop-loss feature c. No difference in Sarah's cost for this claim.

Answer: No difference in Sarah's cost for this claim. Difference amount $0 Current policy: Coinsurance expenses = Total expenses − Deductible = $8,893 − $750 = $8,143 Insured's costs = Deductible + [(1 − Insurance percent) × Coinsurance expenses] = $750 + [(1 − 0.85) × $8,143] = $1,971.45 Sarah's costs would also be $1,971.45 with the stop-loss policy since her total costs are less than $3,000.

______ cuts down on paperwork and time by allowing your insurance company to pay the hospital before you receive the bill from them.

Assigning benefits

Name an independent membership corporation that provides protection against the cost of hospital care:

Blue Cross

The coinsurance clause, when related to health insurance, is a provision in which:

Both the insured and the insurer share the covered costs of medical treatment.

The Kelleher family has health insurance coverage that pays 80 percent of out-of-hospital expenses after a $500 deductible per person. If one family member has doctor and prescription medication expenses of $1,100, what amount would the insurance company pay?

Coinsurance expenses = Total expenses − Deductible = $1,100 − $500 = $600 Insurance payment = Coinsurance percent × Coinsurance expenses = 0.80 × $600 = $480

Ariana's health insurance policy includes an $800 deductible and a coinsurance provision requiring her to pay 20 percent of all bills. Her total bill is $3,800. What is Ariana's total cost?

Coinsurance expenses = Total expenses − Deductible = $3,800 − $800 = $3,000 Insured's cost = Deductible + (Coinsurance percent × Coinsurance expenses) = $800 + (0.20 × $3,000) = $1,400

Georgia, a widow, has take-home pay of $600 a week from her part-time job. Her disability insurance coverage replaces 70 percent of her earnings after a four-week waiting period. What amount would she receive in disability benefits if an illness kept her off work for 16 weeks?

Disability benefit = Weekly benefit × Covered weeks = (Insurance percent × Take-home pay) × (Weeks off work − Waiting period) = (0.70 × $600) × (16 − 4) = $5,040

LO11-6 Recognize the need for disability income insurance.

Disability income insurance provides regular cash income you lose as the result of an accident or illness. Sources of disability income insurance include the employer, social Security, worker's compensation, the Veterans Administration, the federal and state governments, unions, and private insurance.

Select all that apply Identify ways in which you can personally reduce your health care costs.

Eat a balanced diet to keep weight under control. Avoid smoking. Rest.

If per capita spending on health care was about $8,000 and if this amount increased by 5 percent a year, what would be the amount of per capita spending on health care in 10 years? Use (Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, Exhibit 1-D) Note: Use appropriate factor(s) from the tables provided. Round time value factor to 3 decimal places and final answer to the nearest whole number.

FV = PV × Future value factor(Exhibit 1-A), 5%, 10 = $8,000 × 1.629 = $13,032

True or false: Administration costs for health care in the United States are less than in nations such as Canada and Mexico.

False. Administration costs in the United States are much higher than in countries such as Canada.

True or false: Most private insurance companies do not provide group policies.

False. Private insurers typically provide group policies.

_____ _____ insurance provides regular cash income lost by employees as a result of an accident or illness.

Field 1: Disability Field 2: Income

_____ compiles websites from nonprofits, federal and local websites, and many other sources to present a complete health resources website.

Field 1: Healthfinder

_____ -term care insurance provides day-in day-out care for extended illness or disability.

Field 1: Long

_____ medical expense insurance pays most of the costs exceeding those covered by the hospital, surgical, and physician expense policies.

Field 1: Major

_____ was designed to provide medical assistance to groups or categories of persons who are eligible to receive payments under one of the cash assistance programs.

Field 1: Medicaid

_____ insurance makes up the difference between Medicare payments and medical costs not covered by providing supplemental insurance that can be purchased.

Field 1: Medigap or MedSup

In order to contain health care costs, physicians are encouraging consumers to pay with _____ for routine medical care and lab services.

Field 1: cash or debit

Most private insurance companies are providers of _____ health insurance policies through employers.

Field 1: group

When you assign benefits, you sign a paper allowing your insurance company to make payments to your _____ or _____.

Field 1: hospital Field 2: doctor, physician, or provider

Blue Cross is an independent, nonprofit membership corporation that provides protection against the cost of _____ care.

Field 1: hospital, medical, or health

The added use of technology, use of prescription drugs, life expectancy of the elderly, and accidents and crimes all lead to _____ health care costs.

Field 1: increased, higher, greater, rising, increasing, or high

A(n) _____ policy provides specified benefits regardless of whether the actual expenses are greater or less than the benefits. A(n) _____ policy provides benefits based on the actual expense.

Field 1: indemnity Field 2: reimbursement

With disability plans, the longer the waiting period, the _____ the premiums.

Field 1: lower or smaller

A preferred provider organization (PPO) is a group of doctors and hospitals that agree to provide health care to members at _____ fees that are slightly higher than those for health maintenance organizations.

Field 1: prearranged, predetermined, set, fixed, given, approved, flat, or negotiated

Managed care refers to _____ health plans that provide comprehensive health care to members.

Field 1: prepaid

Health insurance provides _____ to alleviate the financial burden individuals suffer from illness or injury.

Field 1: protection, coverage, benefits, money, or security

A poor disability plan pays you only when you are _____ to work at any job.

Field 1: unable, disable, or disabled

The money in a flexible spending account must be used for health care and used by the end of the _____.

Field 1: year

The Carter family has health insurance coverage that covers 90% of out-of-hospital expenses once a deductible of $300 (per person) is paid. Chris Carter has medical bills of $2,500. How much will the insurance company pay?

First, subtract the $300 annual deductible from the $2,500 medical bill, which equals $2,200. Then multiply $2,200 by 90%, which equals $1,980. Ninety percent represents the percentage of the bill the insurance company will pay after the policyholder has paid the annual deductible.

LO11-3 Analyze the benefits and limitations of the various types of health car coverage.

Five basic typed of health insurance are available to you under group and individual policies: hospital expanse insurance, surgical expense insurance, physician's expense insurance major medical expense insurance, and comprehensive major medical indurance. The benefits and limitations of each policy differ. Ideally, you should get a basic plan and a major medical supplementary plan, or a comprehensive major medical policy that combines the values of both of these plans in a single policy. Major provisions of a health insurance policy include eligibility requirements, assigned benefits, inside limits, copayment, service benefits, benefit limits, exclusions and limitations, coordination of benefits, guaranteed renewability, and cancellation and termination.

LO11-4 Evaluate private sources of health insurance and health care.

Health insurance and health care are available from private insurance companies, hospital and medical service plans such as Blue Cross Blue Shield, health maintenance organizations (HMOs), preferred provider organizations (PPOs), exclusive provider organizations (EPOs), point-of-service (POSs), home health care agencies, and employer self-funded health plans.

LO11-2 Define health insurance and disability income insurance and explain their importance in financial planning

Health insurance is protection that provides payment of benefits for a covered sickness or injury. Disability income insurance protects your most valuable asset: the ability to earn income. Both are protections against economic losses due to illness, accident, or disability. Both protections should be part of your overall insurance program to safeguard your family's economic security.

What program was designed to provide medical assistance to low-income individuals and families?

Medicaid

Which insurance supplements Medicare by filling the difference between Medicare payments and medical costs not covered by Medicare? Multiple choice question.

Medigap insurance

______ work like HMOs, except the networks are managed by doctors and hospitals. Multiple choice question.

PPOs

Select all that apply Identify ways in which you can personally reduce your health care costs.

Rest. Eat a balanced diet to keep weight under control. Avoid smoking.

Select all that apply What are the sources of disability income coverage? Multiple select question.

Social Security worker's compensation employer plans

The Carter family has health insurance coverage that covers 90% of out-of-hospital expenses once a deductible of $300 (per person) is paid. Chris Carter had a serious illness that required hospitalization, with total medical bills amounting to $55,000. Assume there was a stop-loss provision of $5,000. How much will the Carter family pay?

Step 1: Subtract the $300 annual deductible from $55,000, which equals $54,700. Step 2: Multiply $54,700 by 10%, which equals $5,470. Step 3: Add the $300 deductible and the $5,470 amount obtained in Step 2, which equals $5,770. Since this amount exceeds the stop-loss provision of $5,000, the Carter family would be responsible for $5,000 (the amount of the stop-loss provision) and the insurance company would pay the remainder.

LO11-5 Appraise the source of government health care programs.

The federal and state government offer health coverage in accordance with laws that define the premiums and benefits. Two well-known government health programs are Medicare and Medicaid.

Select all that apply What are some of the factors that have led to increasing health care costs?

The use of expensive technologies An increased number of crimes and accidents

Which of the following is not true about hospital expense coverage?

These policies pay all costs of being hospitalized with no limits.

Copayment is the provision under which the insured pays a flat dollar amount each time a covered medical service is received.

True. Copayment is a type of cost sharing. You pay a flat or set amount each time you receive a covered medical service.

Health insurance is one way people protect themselves against economic losses due to illness, accident, or disability. True false question.

True. Economic losses due to illness, accident, or disability can be devastating to many people. Health insurance can protect people from these losses.

True or false: Healthfinder includes links to more than 1,600 websites operated by government and nonprofit organizations.

True. Healthfinder is a great resource.

True or false: Insurers limit benefits from all sources to 70%-80% of your take-home pay because you no longer incur work-related expenses and your taxes are much lower, if not zero. True false question.

True. Taxes are lower and expenses are not present, therefore it is limited to 70%-80%.

Select all that apply Physician expense insurance provides benefits for which of the following? Multiple select question.

X-rays lab tests doctors' fees for nonsurgical care

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 requires employers to offer employees and dependents, who would otherwise lose group health insurance, the option to continue their group health coverage for: Multiple choice question.

a certain amount of time.

What might a person who is uninsured experience during times of illness and injury?

a financial burden

Select all that apply A good health insurance provides which of the following? Multiple select question.

a provision so the policyholder will pay no more than $6,000 out of pocket a year at least $1 million lifetime maximum for each family member

Select all that apply Health insurance is one way people protect themselves against economic losses due to ______.

accident illness disability

Ronald started his new job as a controller with Aerosystems today. Carole, the employee benefits clerk, gave Ronald a packet that contained information on the company's health insurance options. Aerosystems offers its employees the choice between a private insurance company plan (Blue Cross or Blue Shield), an HMO, and a PPO. Ronald needs to review the packet and make a decision on which health care program best fits his needs. The following is an overview of that information. a. The monthly premium cost for Ronald for the Blue Cross or Blue Shield plan will be $42.32. For all doctor office visits, prescriptions, and major medical charges, Ronald will be responsible for 20 percent and the insurance company will cover 80 percent of the covered charges. The annual deductible is $500.

b. The HMO is provided to employees free of charge. The copayment for doctors' office visits and major medical charges is $10. Prescription copayments are $5. The HMO pays 100 percent after Ronald's copayment. There is no annual deductible. c. The POS requires that the employees pay $24.44 per month to supplement the cost of the program with the company's payment. If Ronald uses health care providers within the plan, he pays the copayments as described above for the HMO. He can also choose to use a health care provider outside of the service and pay 20 percent of the covered charges after he pays a $500 deductible. The POS will pay for 80 percent of those covered visits. There is no annual deductible for in-network expenses. Ronald decided to review his medical bills from the previous year to see what costs he had incurred and to help him evaluate his choices. He visited his general physician four times during the year at a cost of $125 for each visit. He also spent $65 and $89 on prescriptions during the year. (For the purposes of the POS computation, assume that Ronald visited a physician outside of the network plan. Assume he had his prescriptions filled at a network-approved pharmacy.) What annual medical costs will Ronald pay using the sample medical expenses provided if he were to enroll in the Blue Cross or Blue Shield plan? Coinsurance expenses = Total expenses − Deductible = [(Physician visits × Cost per visit) + Prescription costs] − Deductible = [(4 × $125) + ($65 + $89)] − $500 = $154 Annual medical costs = Annual premiums + Deductible + Coinsurance cost = (Monthly premium × 12) + Deductible + (Coinsurance percent × Coinsurance expenses) = ($42.32 × 12) + $500 + (0.20 × $154) = $1,038.64

A combination of hospital expense insurance, physician expense insurance, and surgical expense insurance is called ______.

basic health insurance

Select all that apply A good disability plan would pay you when you ______.

can only work part-time at your regular job are unable to work your regular job

A provision under which the insurer and insured share the covered losses is called ______.

coinsurance

A provision under which the insured pays a flat dollar amount each time a covered medical service is received is called:

copayment

Which insurance provides payments to replace income when an insured person is unable to work for a long period of time?

disability income insurance. Disability income insurance provides regular cash income lost by employees as a result of an accident or illness.

The Patient Protection and Affordable Care Act bans insurance companies from ______ coverage when they get sick. Multiple choice question.

dropping people from

Age, marital status, and dependency requirements are usually specified in the ______ provision of an insurance policy. Multiple choice question.

eligibility. Age, marital status, and dependency requirements are usually specified in the eligibility provision of an insurance policy.

The federal Consolidated Omnibus Budget Reconciliation Act of 1986 requires many employers to offer group health benefits to: Multiple choice question.

employees and dependents who would normally lose group health insurance.

Select all that apply Administrative costs in the United States are much higher than those in other nations due to activities such as:

enrolling beneficiaries in a health plan. checking eligibility. paying health insurance premiums. filing reimbursement claims.

Select all that apply Administrative costs in the United States are much higher than those in other nations due to activities such as:

enrolling beneficiaries in a health plan. paying health insurance premiums. filing reimbursement claims. checking eligibility.

By exercising, not smoking, getting rest, and driving carefully, individuals can greatly reduce their ______.

health care costs. By exercising, not smoking, getting rest, and driving carefully, individuals can greatly reduce their health care costs.

For surgical expense insurance, larger maximum fees allowed for each surgery will cause the premiums to be ______. Multiple choice question.

higher

Rising hospital care costs, new medical technology, and the increasing number of elderly people have helped make ______ one of the fastest-growing areas of the health care industry.

home health providers

Which type of insurance pays part or all of hospital bills for room, board, and other charges?

hospital expense insurance

Select all that apply Which of the following activities have been undertaken by health care professionals and consumers to keep the overall cost of health care down?

initiating community health education programs getting involved in community health planning offering incentives to encourage preventive care

The eligibility provision defines who:

is entitled to benefits under the policy.

Match the waiting periods and premiums for disability plans.

long waiting period matches lower premiums short waiting period matches higher premiums

Which type of insurance is the fastest growing type of insurance today? Multiple choice question.

long-term care

Which type of insurance pays the larger expenses of a serious injury or long illness, including those covered by the hospital, surgical, and physician expense policies? Multiple choice question.

major medical expense insurance

Prepaid health plans that provide comprehensive health care to members are called ______.

managed care

Select all that apply The reasons for the increased need for home health care include ______.

older U.S. population new medical technology rising hospital costs

Self-insurance is an arrangement in which a company collects premiums from employees and ______.

pays medical benefits as needed

Select all that apply Basic health insurance coverage is a combination of:

physician expense insurance. surgical expense insurance. hospital expense insurance.

Which type of insurance provides benefits for doctors' fees for nonsurgical care, X-rays, and lab tests?

physician expense insurance. The type of insurance that provides benefits for doctors' fees for nonsurgical care, X-rays, and lab tests is called physician expense insurance.

Coinsurance is a provision under which the Blank______ share the covered losses. Multiple choice question.

policyholder and the insurer

Coinsurance is a provision under which the ______ share the covered losses. Multiple choice question.

policyholder and the insurer

Flexible spending accounts allow you to contribute ______ dollars to an account managed by your employer. Multiple choice question.

pretax.

Select all that apply Key provisions in the Patient Protection and Affordable Care Act of 2010 include ______. Multiple select question.

prohibiting lifetime caps on coverage providing tax credits for small businesses to make employee coverage affordable banning companies from dropping people when they get sick

Which policy provides benefits based on the actual expense incurred?

reimbursement

The main risk involved with a ______ health plan is the financial burden if the medical bills are greater than the amount covered by premium income. Multiple choice question.

self-funded. The main risk involved with a self-funded health plan is the financial burden if the medical bills are greater than the amount covered by premium income.

Which type of insurance pays part or all of the surgeon's fees for an operation?

surgical expense insurance

Disability income insurance may also be provided by your employer, Social Security, or ______. Multiple choice question.

worker's compensation