Chapter 8- Health Basics

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?

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

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. Premiums are calculated using the following: Morbidity Interest Expenses Gross Premium = Morbidity - Interest (Net Premium) +Expenses

Sickness

- A sickness or disease contracted and commencing after the policy has been in force at least 30 days - A sickness first manifesting itself while the policy is in force

Underwriting Actions and Classification

- Issued as a Preferred Risk - a lower rate will be used if the insured meets the insurance company's qualifications as preferred risk, or lower than the average risk. - Issued as a 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. - Issued as a Substandard Risk: A. Issued Rated-Up- Issue the coverage requested but at a higher rate. Higher premiums are required due to the greater potential for a larger number of claims B. Issued with with Exclusions /Limitations- may be temporary or permanent, limits the insurers' obligations to pay. The rider used to exclude coverage for existing conditions is sometimes referred to as an impairment rider. -Rejection- The policy is not issued and will be declined since the applicant is considered an excessive risk. - Methods to Help Reduce Adverse Selection- Insurers use the following to help contain benefit costs and reduce adverse selection and over utilization of health care benefits. - Exclusions or limitations on pre-existing conditions - Deductibles -Coinsurance - Probationary Periods - Definitions

Dental Expense

A form of Medical Expense health insurance covering the treatment and care of dental disease and injury affecting the insured's teeth.

Insured

A person covered by an insurance policy

Nonmedical Application

A policy requested when the applicant's age, medical history or amount of coverage does not require a medical examination for underwriting. Health questions on the application are asked by the producer and are the only medical information required.

Home Health Care

Benefits for limited nursing services, home health aide, light housekeeping, and related expenses may be available in both medical expense insurance and long-term care insurance

Required Signatures

Both the agent and the proposed insured (usually the applicant) must sign the application.

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

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

All of the following are individual underwriting factors; EXCEPT:

C. Marital status A. Age B. Gender D. Tobacco Use

Medical Expense

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

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

D. Loss of limb or eyesight from accidental causes

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

D. Use company-provided advertisements for each product they wish to market

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. Upon receipt of the necessary information, the home office underwriters analyze the information and determine if the applicant is an acceptable risk, looking at accident and illness history, exposure to environmental hazards, and working conditions. If acceptable, underwriters determine the classification to be used in the calculation of the premium.

Replacement

If replacing an individual Health or Disability policy, care must be taken to compare limits of coverage, benefits and exclusions. The process of replacement includes canceling an old policy upon the purchase of a new policy. The new policy may require underwriting to prove evidence of insurability which can affect the coverage and premiums of the new policy. Upon issue of a new policy, there may be a new waiting period (probationary period) for pre-existing conditions or the policy may be issued with lower benefits, limitations or exclusions of coverage the insured had in the old policy. Premiums may also be higher in the new policy.

Errors and Omissions Insurance

Insurance covering the liability of an agent. Claims are filed due to client reports (complaints) for a number of reasons. The two most common examples of complaints are: 1. Inadequacy, failing to obtain proper type or amount of coverage for a client. 2. Negligence, quoting inflated information or misrepresenting a plan of coverage neglecting the effect the information might have on the client at a later date. The producer may be guilty of negligence whether the mistakes are intentional or unintentional.

Consequences of Incomplete Applications

It is the agent's responsibility to make certain the application is filled out completely, correctly, and to the best of his/her knowledge. The agent's primary underwriting role is to make sure the application provides proper information for the insurer. This underwriting information being obtained, not marketing.

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

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

Which of the following is not a government-sponsored plan of health care?

Medicare Supplement

Prohibited Forms of Advertising

No advertisement of a hospital or facility confinement benefit shall advertise that the amount of the benefit is payable on a weekly or monthly basis when, in fact, the amount of the benefit is based on a daily pro rata basis related to the total amount of days of confinement. An advertisement cannot use the words: "only," "just," "merely," "minimum," or similar words to imply a minimal imposition of restrictions and reductions. An advertisement cannot imply that claim settlements are generous or liberal or use similar words to imply the same thing. Any advertisement that uses a policy title to misrepresent or that might misrepresent coverage is unlawful.

Accident and Health Insurance

Policy covering both injury and sickness

Medical Examination

Provides physician or portamedic records of an examination regarding the applicant's present health. It is usually requested by the insurer after determining if the amount of coverage, age of applicant, or his/her health history warrant the examination. It is more frequently requested due to the higher amounts of insurance applied for coupled with the high degree of cardiovascular concerns, high cholesterol and enzyme levels, as well as the prevalence of the HIV virus. Medical exams are the insurer's expense.

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 preexisting conditions

Waiting Period

Specified period of time set by an employer before an employee is eligible to enroll for a group benefits(normally 30,60, 90 days). Sometimes referred to as an 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 contributory type plan. This does not require evidence of insurability.

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

The application

Notice of Information Practices - The Fair Credit Reporting Act (FCRA)

This act protects the consumer's right to privacy, making certain the date is confidential, accurate, relevant and properly used (for a specific purpose), and also to protect the rights of the individual from overly intrusive information collection practices.

Subrogation

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

Comprehensive Insurance

cover a broader range of losses and have larger policy limits.

Policyowner

is the person applying for the insurance coverage and is responsible for completing an application.

Advertising

is to give a complete and accurate description to the public, prevent unfair competition, and set a minimum standard of conduct. In most states, each insurer must provide the Department of Insurance a copy of any advertisement prior to its use.

Field Underwriting Nature and Purpose

is very important due to the risk of a moral hazard. It is the initial step of the total process of insuring a health risk. It includes the producer's initial personal contact with the applicant and the determination of insurability while assisting the applicant in recording information on the application. Fundamentally, the purpose is to be certain that a prospective insured individual or group has the same probability of loss for which the premium rate is based.

Beneficiary

one who receives benefits

If No Initial Premium is paid,

the application is considered a "trial application." The Policy is the offer and upon delivery the premium is the acceptance. The Insurer will send policy to agent for a formal delivery There is no coverage until the agent gets a signed statement of good health and collects the premium at the time of delivery. The Statement of Good Health is a signed statement by the applicant that everything stated on the application is still true. If the applicant is not in good health, the policy should be returned to the insurer or the agent may deliver the policy after the insurer grants permission.

Government Insurance

who provides government run insurance programs. Health insurance plans provided by the government include Social Security disability, Medicare, Medicaid, and TRICARE for military personnel.

Advertising Requirements

1. Insurance companies are responsible for the accuracy of its personal testimonials. 2. Insurers may include statistical information as long as its accurate and the source is named. 3. The agent must include the full name of the insurer when advertising a certain type of policy 4. When an agent misleads the public in an advertisement, both the insurer and agent are held accountable. 5. When insurers advertise that a group endorses a certain health product, the public must be made aware of any control the insurer may have over the group. 6. When insurers advertise by comparison of like products, the comparisons must be complete to include rates, policies, benefits, and dividends 7. The history of a very high or unique claim settlement cannot be used in advertising by the agent or insurance company.

Copayment

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

Before telephoning a prospect for the first time, a producer must do which of the following?

A. Check the company and national do not call lists to be sure the phone number is not restricted.

Completing the Application and Field Underwriting

An application is a written formal request by an applicant to an insurer requesting the insurer issue a policy based upon information contained in the application. It is the producer's responsibility to probe beyond the stated questions, which is known as field underwriting. The application is the primary source of information for an insurer underwriting a potential risk.

Underwriting Factors

Age Gender Tobacco use Occupation and Hobbies Physical condition Moral Hazard/Financial Hazard Health history Foreign travel/residence Other insurance Plan applied for - Underwriting health insurance may be more or less heavily underwritten than life insurance.

Sales Presentation

Agents are required to provide prospective health insurance buyers with all sales materials used when soliciting policies of insurance.

Family Policy Conversion Privilege

Allows any insured on a family policy to convert the family coverage to an individual policy, without proof of insurability, providing the request is submitted to the insurer within 31 Days after a qualifying event. The individual plan does not have to provide the exact same coverage or provisions as the family policy. This provision guarantees the right to convert regardless of health if done so within the 31 days.

Collecting the Initial Premium and Issuing the Receipt

An agent should collect the initial premium and submit it along with the application to the insurer. The policy will not go into effect until the application has been approved and the policy has been issued.

Outline of Coverage

An outline of coverage (also called a policy summary) must be provided to a prospective buyer of health insurance at the time of application or policy delivery. The outline of coverage includes benefits, premiums, and other relevant information regarding the sale of the policy.

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

ERISA

Inspection Report

General report of the applicant's finances, character, morals, work, hobbies, and other habits.

Disclosure at the Point of Sale

Insurers must avoid unfair discrimination when underwriting for HIV or AIDS. They must have signed consent from the applicant prior to testing. Insurers are required to maintain strict confidentiality of personal information obtained through testing and must have written consent of the applicant before testing for HIV. The HIV Consent Form explains the purpose of the test, confidentiality, and specifies how individuals may receive the test results. Insurance companies may refuse to issue a policy to individuals based on positive HIV test results.

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

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

Accidental Injury

One of the following may be used: - Accidental Results- requires only that the injury be unintended and unforeseen - Accidental Means - Requires both the injury and the cause of the injury to be unintended and unforeseen; considered more restrictive. This definition is not allowed in some states.

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. An important source of underwriting information. Part 2- 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. 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. This information remains confidential between the agent and the insurer, and it does not become part of the entire contract. These reports have only one purpose-providing insurability.

Conditional Approval

The premium paid by the applicant is the Offer and the policy issued by the insurer is the Acceptance. The insurer will send the policy to the producer for delivery, but coverage is in effect as of the date of application, if it is accompanied by premium, or date of a completed medical exam, if required.

Medical Information Bureau (MIB)

The primary purpose is to collect adverse medical information about an applicant's health (supported by insurance companies) and act as an information exchange. MIB is a member-owned corporation that operates on a not-for-profit basis. The MIB's underwriting services are used exclusively by MIB member life and health insurance companies to assess an individual's risk and eligibility during the underwriting of life, health, disability income, critical illness, and long-term care insurance policies. These services "alert" underwriters to fraud, errors, omissions or misrepresentations made on insurance applications and the MIB may help lower the cost of life and health insurance for consumers.

Adverse Selection

The tendency of more bad risks than good risks to purchase and maintain insurance.

Accidental Death and Dismemberment

Pays the principal sum (face amount) upon accidental death, loss of sight, or loss of 2 limbs. It pays the capital sum per policy schedule (up to 50% of the face amount) for the loss of vision in 1 eye or loss of 1 limb. It may be a stand-alone policy or added as a rider to a Disability Income, Medical Expense or a Life Insurance Policy.

Preexisting Conditions

Prior medical conditions for which the applicant has received, or should have received, medical advice or treatment within a specified period before the effective date of a policy

Private Insurance

Private insurers are commercial companies, such as stock and mutual insurers that sell to the general public.

Long-Term Care Expense

Product designed to provide coverage for personal care services in a setting other than an acute care unit of a hospital, such as a nursing home or even one's own home.

Morbidity Table

Table showing the mathematical probability of a loss due to a sickness or injury. This table is used to help determine premiums for accident and health insurance. The morbidity table is comparable to the mortality table used for life insurance rating.

Do Not Call Registry

The Federal Trade Commission amended the Telemarketing Sales Rule to give consumers a choice about whether they want to receive most telemarketing calls. It is prohibited under the Telephone Consumer Protection Act (TCPA) for most telemarketers or sellers to call a number listed on the National Do Not Call Registry. Companies must update their list at least once every 31 days.

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

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

Individual Selection Criteria

The insurer uses information collected by the field underwriter and other sources to determine the insurability of an individual. It is ultimately the home office underwriter's responsibility to determine if an individual meets the underwriting requirements of the insurer.

Attending Physician's Statement (APS)

Used in cases in which the individual application and/or medical reports reveal conditions of which more information is required.

Disability Income (Loss of Time or Income)

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

Limited Insurance

designed to cover limited benefits, based on the type of loss as stated in the policy or a limited dollar amount.

Group Health Insurance

health insurance consisting of contracts written between a group, (employer, union, etc.) and the health care provider

Individual Health Insurance

health insurance plans purchased by individuals to cover themselves and their families. Different from group plans, which are offered by employers to cover all of their employees.