CH 17. Health insurance underwriting

Which of these noncontributory group plans would a claim likely result in the payment of federal income taxes?

Disability income Federal income taxes will apply to disability proceeds received from a noncontributory plan.

Secondary premium factors

-The benefits provided under the policy • Past claims experience • The age and sex of the insured • The insured's occupation and hobbies

ambulatory surgery

-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 refereed to as ambulatory surgery

managed care

1. Policy Design--design or structure of a policy and its provisions can have an impact on an insurers cost containment efforts -higher deductible will help limit claims and contain costs -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 2. Medical Cost Management--controlling how policy owners utilize their polices. four general approaches insurers use for cost management: mandatory second opinions, pre certification review, ambulatory surgery, and case management

4 Risk classifications

1. Standard Risk-- usullay issued a policy at standard terms and rates 2. Preferred risk-- generally receive lower rates than standard risk, reflecting the fact that people in this class have a better-than-standard-risk profile Uninsurable Risk-- usually rejected and denied coverage Substandard Risk-- those who pose a higher-than-average risk for one or more reasons; they are treated differently. the insurer can either reject the risk, charge a higher premium (rating), or attach a rider excluding specified coverage

tax treatment of health plans

1.. 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 the 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, the benefit will be received tax-free in proportion to the premium contributed 2. Taxation of Medical Expenses -incurred medical expenses that are reimbursed by insurance may NOT be deducted from an individuals 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 insureds adjusted gross income (AGI) -benefits received by an insured under a medical expense policy are NOT included in gross income because they are paid to offset losses incurred -for self-employed people, 100% of their health insurance premium is tax deductible

Mary is the sole proprietor of her business and has a family health plan. She would like to deduct the premiums from her taxes. What percentage of her premiums are tax deductible?

100% Self-employed persons are allowed to deduct from their gross incomes 100% of the amount they pay for health insurance (including qualified long-term care insurance).

What does a Mandatory Second Surgical Opinion provision provide to an employer-paid health insurance plan?

Containment of the employers premium cost An employer normally can expect a mandatory second surgical opinion option to contain the employer's cost of the group medical plan.

Reductions in coverage are one feature of _______ in Health insurance policies.

Cost containment In Health insurance policies, reductions in coverage is one feature of cost containment.

Which of the following are used by most insurers when determining the premiums for large groups?

Experience rating When determining the premiums for a large groups, most insurance companies use experience rating.

Which of these is NOT a factor during the health insurance underwriting process?

Former residence

Mandatory Second Opinions

In an effort to reduce unnecessary surgical operations, many health policies today contain a provision requiring the insured to obtain a second opinion before receiving elective surgery Under the mandatory second surgical opinion provision, an insured typically will pay more out-of-pocket expenses for surgeries for which only one opinion was obtained The mandatory second surgical option provision can help contain the cost of a group medical plan

A health insurance underwriter will most likely view alcohol abuse as a(n)

Increased exposure to risk

Who must sign a rider attached to a health insurance policy in order for it to be valid?

Insured and producer To be valid, a rider attached to a health insurance policy must be signed by the insured and the producer.

Health care costs can be better controlled by utilizing preadmission testing. Preadmission testing can reduce the

Length of hospitalization Preadmission testing helps control health care costs primarily by reducing the length of hospitalization.

Risk Factors

Physical condition-- important when evaluating health risks Moral Hazards age-- older the person, higher the risk sex-- men show a slower rate of disability than women, except at the upper ages. women are sometimes required to undergo a Pap test, which is used for detecting cervical cancer medical and family history avocations-- activity someone does as a hobby outside of work, like skydiving or moutain climbing, that may increase his/her risk to the insurer.

How is a community rating used for underwriting purposes?

The same rates are charged for individual and group plans in the same geographical area A community rating requires a health insurer to charge the same rates for individual and group insurance plans in the same geographical area, regardless of their health status.

Precertification Review

To control hospital claims, many policies today require policy owners to obtain approval from the insurer before entering a hospital on a non emergency basis A per-hospitalization authorization program (pre-certification) determines whether the requested treatment is medically necessary in an emergency situation, hospital pre-admission certification typically requires notification be given after the patient is admitted to the hospital pre-admission, pre-hospitalization, and pre-certification are all common names used for this particular type of managed care pre-admission testing usually involves evaluating an individuals overall health prior to being hospitalized for surgery pre admission testing helps control health care costs primarily by reducing the length of hospitalization failure to obtain a pre admission certification in non-emergency situations reduces or eliminates the health care providers obligation to pay for services rendered

Moral Hazard

habits or lifestyles of applicants also can flash warning signals that there may be additional risk for the insurer personalities and attitudes may draw attention in the underwriting process. excessive drinking and use of drugs represent serious moral hazards applicants who are seen as accident prone or potential malingerers (faking a continuous disability in order to collect benefits) likewise might be heavy risks, particular those applying for disability income insurance poor credit rating or dishonest business practices are other signs of high moral hazard

case mangement

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 purpose is to let the insurer take an active role in the management of what could potentially become a very expensive claim concurrent review is a case management provision used to monitor and evaluate a patients length of stay in a hospital

Insurable Interest

this exists if the applicant is in a position to suffer a loss if they incur medical expenses or become unable to work due to a disability as with life insurance, insurable interest is a prerequistie for issuing a health insruance policy.

Morbidity

whereas mortality rates show the average number of persons within a large group of people who can be expected to die within a given year at a given age, morbidity rates show the expected incidence of sickness or disability within a given group during a given period of time