XCEL Chapter 17: Health insurance underwriting

Policy issue

Happens when the insurer "approves" the application, they are "issuing the policy". Technically a policy could be ISSUED and not delivered for days or weeks later

Tax treatment of health insurance premiums & benefits

Insurance premiums and benefits are taxed in one of two ways: 1. Premiums are tax deductible- paid before your paycheck is taxed/removed from your taxable income when you file taxes. In this case the benefits will be taxed (because you are already saving taxes on the premiums) 2. Premiums are NOT tax deductible- paid after your paycheck is taxed and are not removed from your taxable income. In this case, the benefits of the policy would be tax free

Concurrent (utilization) review

A health insurance company's opportunity to review a request for medical treatment to confirm that the plan provides coverage for your medical services

Medical report

A medical report is sometimes used for underwriting policies. If the information in the medical section warrants further investigation into the applicant's medical conditions, the underwriter may need an attending physician statement (APS).

Point-of-service plans

A point-of-service plan allows the insured to choose either an in-network or an out-of-network provider at the time care is needed

Suitability form

A suitability form ensures that the customer is best suited for the policy they are purchasing, and prevents the sale of unnecessary insurance

Credit report

An applicant's credit history is sometimes used for underwriting and to determine the likelihood of making premium payments. Fair credit reporting act - must inform applicant

Application part 1, 2 & 3

Application part I- general info, details about requested insurance and personal info Application part II- Medical info Application part III- Agent's report (statement), & includes the applicant's financial condition, character, background, purpose of sale, and how long agent has known the applicant.

Case management

Case management involves a specialist within the insurance company, such as a registered nurse, who reviews a potentially large claim as it develops to discuss treatment alternatives with the insured

Policy delivery v. personal delivery v. constructive delivery

Policy delivery- mailing policy to the agent; mailing the policy to applicant; and the agent personally delivering policy Personal delivery- allows the producer to explain the coverage to the insured (such as the riders, provisions, and options) Constructive delivery- if the insurance company intentionally relinquishes all control over the policy & turns it over to someone acting for the policyowner, including the company's own agent

Buyer's guide

Provides general info about the types of insurance policies available, in language that can be understood by the average person

Policy summary

Provides specific information about the policy purchased, such as the premium and benefits.

Policy design

The design or structure of a policy and its provisions can have an impact on an insurer's cost containment efforts. A higher deductible will help limit claims• Coinsurance is another important means of sharing the cost of medical care between the insured and the insurer. Shortened benefit periods can also prove beneficial from a cost containment standpoint

Effective date of coverage

The effective date identifies when the coverage is effective & establishes the date by which future annual premiums must be paid. If the initial premium is collected at the time of application, the effective date is dependent on the type of receipt given to the applicant

Pre-certification review

require policy owners to obtain approval from the insurer before entering a hospital for elective surgeries

Underwriting

Underwriting is the process of risk selection; the process used by an insurance company to determine whether or not an applicant is insurable and if so, how much to charge for premiums. Material facts can affect an applicant being accepted/rejected. One of the main responsibilities of an underwriter is to protect the insurer against adverse selection. The underwriting process involves reviewing and evaluating information about the applicant and establishing individual against the insurer's standards and guidelines for insurability and premium rates.

Mandatory second opinions

a provision requiring the insured to obtain a second opinion before receiving elective surgery

Applicant statements

warranties and representations

Taxation of medical expense insurance

• Incurred medical expenses that are reimbursed by insurance may not be deducted from an individual's federal income tax • Incurred medical expenses that are not reimbursed by insurance may only be deducted to the extent they exceed 7.5% of the insured's adjusted gross

Group insurance premium taxation

• Premiums paid by an employer for the benefit of employees are tax deductible to the employer. • Premiums paid by the employer are NOT tax deductible nor are they taxable to the employee.

Taxation of disability income insurance

• Premiums paid for personal disability income insurance are not deductible by the individual insured, but the disability benefits are tax-free to the recipient • When a group disability income insurance plan is paid for entirely by the employer and benefits are paid directly to individual employees who qualify, the premiums are deductible by the employer. The benefits, in turn, are taxable to the recipient • If an employee contributes to any portion of the premium, her benefit will be received tax-free in proportion to the premium contributed

USA Patriot Act (2001)

• The USA Patriot Act was enacted in 2001. • It requires insurance companies to establish formal anti-money laundering programs. The purpose of the act is to detect and deter terrorism.

Signatures

• The agent and the applicant are required to sign the application • If the applicant is someone other than the proposed insured, except for a minor child, the proposed insured must also sign the application • Having an applicant that is different from the insured (parent and minor child) is considered third party ownership

Statement of good health

• Verifies that the insured has not become ill, injured or disabled during the policy approval process (time between submitting application and delivery of the policy) • Is used when the applicant did not submit the initial premium with the application • Common company practice requires that, before leaving the policy, the agent must collect the premium and obtain from the insured a signed statement attesting to the insured's continued good health • Also used when reinstating a policy

Inspection reports

Companies are allowed to obtain inspection reports under The Fair Credit Reporting Act. The Fair Credit Reporting Act of 1970 (FCRA) regulates the way credit information is collected and used to protect the rights of consumers for whom an inspection or credit report has been requested.

Conditional receipt v. binding receipt

Conditional receipt- when the application & premium are collected Binding receipt- coverage is guaranteed until the insurer formally rejects the application

Medical cost management

Defined as the process of controlling how policy owners utilize their policies. There are four general approaches insurers use for cost management: mandatory second opinions, pre-certification review, ambulatory surgery, and case management.

Field underwriting procedures

Field underwriting is completed by the agent. Unlike the insurer, the agent has face-to-face contact with the applicant which can aid the insurer in risk selection. As field underwriters, agents help reduce the chance of adverse selection by: • Assuring application's filled out completely & correctly • Collect the initial premium • Forwarding the application to insurer on time • Seeking additional info about the applicant's medical history if requested • Notifying the insurer of any suspected misstatements • Delivering the policy

Application errors

If an agent realizes that an applicant has made an error on an application, the agent must correct the info & have the applicant initial the changes. An incomplete application will be returned to the agent. The agent can NEVER change the application without the customer present to initial the changes

Special questionnaires

Special questionnaires are used for applicants involved in special circumstances, such as aviation, military service, or hazardous occupations or hobbies. The questionnaire provides details on how much of the applicant's time is spent in these activities.

Medical Information Bureau (MIB)

The MIB is a nonprofit trade organization which maintains medical information about individuals. Information from the MIB is used by life and health insurers.

Ambulatory surgery

The advances in medicine now permit many surgical procedures to be performed on an outpatient basis where once an overnight hospital stay was required these outpatient procedures are commonly referred to as ambulatory surgery.