Personal Finance Chapter 9

What Add Up To Rising Health Costs

-Aging -Overweight population -Cost of prescription drugs -Growing number of uninsured -Advancements in medical technology

Medicare

-Best known government health program -Is a federally funded health insurance program available mainly to people over 65 & to people with disabilities -Has 4 parts: hospital insurance (part A), medical insurance (part B), Medicare Advantage Plan (part C), & Prescription Drug Coverage (part D) -Medicare hospital insurance is funded by part of the SS payroll tax -Part A helps pay for inpatient hospital care, inpatient care in a skilled nursing facility, home health care, & hospice care; program participants pay a single annual deductible -Part B helps pay for doctors' services & a variety of other medical services & supplies not covered or not fully covered by Part A; has a deductible & a 20% coinsurance provision; medicare medical insurance is a supplemental program paid for by individuals who feel that they need it; a regular monthly premium is charged; the federal government matches this amount -Medicare is constantly in financial trouble

Individual Health Insurance

-Can buy directly from the company of your choice -Plans usually cover you as an individual or cover you & your family -Can be adapted to meet your own needs -Should comparison shop because rates vary

Not Covered by Medicare

-Certain types of skilled or long-term nursing care, out-of-hospital prescription drugs, routine checkups, dental care, & most immunizations -Severely limits the types of services it will cover & the amount it will pay for those services

Deductibles & Coinsurance

-Cost of health insurance can be greatly affected by the size of the deductible -Can also be affected by the terms of the coinsurance provision

Balanced Budget Act of 1997

-Created the new Medicare Choice Program -This program allows many Medicare members to choose a managed care plan in addition to their Medicare coverage

Psychology of Dread Disease Policies

-Dread disease, trip accident, death insurance, & cancer policies are usually sold through the mail, in newspapers & magazines, or by door-to-door salespeople -Play upon unrealistic fears, & they are illegal in many states -Cover only specific conditions, which are already fully covered if you are insured under a major medical plan

Health Reimbursement Accounts (HRAs)

-Employer sponsored -Funded solely by your employer to spend on your health care -Reimbursement of claims is tax-deductible for employers -Tied to high-deductible policies -The maximum annual contribution is determined by your employer's plan document -Can carry over unspent money from year to year, but you lose the balance if you change jobs -Premiums tend to be lower for traditional insurance but higher than for HSAs

Flexible-Spending Accounts (Arrangements) (FSAs)

-Employer sponsored -Set aside tax-free dollars you can use to pay for medical expenses not covered by insurance -Not tied to a high-deductible policy -Money left over can't be carried over; if you don't use it, you lose it to your employer

Health Savings Accounts (HSAs)

-Employer sponsored -Set aside tax-free dollars you can use to pay for medical expenses not covered by insurance -Tied to a higher-deductible policy -Unspent money can be carried over & accumulate year to year -Can invest the funds in stocks, bonds, & mutual funds -The money grows tax-free but can be spent only on health care -You own the funds; you take any unspent funds with you if you leave the employer

Health Insurance can be Purchased in many Ways:

-Group health insurance -Individual health insurance -COBRA

Exemptions (from the requirement to maintain minimum essential coverage)

-Have no affordable coverage options because the minimum amount you must pay for the annual premiums is more than 8% of your household income, or -Have a gap in coverage for less than 3 consecutive months, or -Qualify for an exemption for one of several other reasons, including having a hardship that prevents you form obtaining coverage, or belonging to a group explicitly exempt from the requirement

New Health Care Accounts

-Health savings accounts (HSAs), which Congress authorized in 2003, are the newest addition to the alphabet soup of health insurance available to American workers -You & your employer must sort through HSAs, health reimbursement accounts (HRAs), & flexible spending accounts (FSAs) -Each has its own rules about how money is spent, how it can be spent, & how it is taxed -FSAs allow you to contribute pretax dollars to an account managed by your employer; you use the money for health care spending but forfeit anything left over at the end of the year -HRAs are tied to high-deductible policies; are funded solely by your employer & give you a pot of money to spend on health care; can carry over unspent money form year to year, but you lose the balance if you switch jobs; premiums tend to be lower for traditional insurance but higher than for HSAs; can invest the funds in stocks, bonds, & mutual funds; money grows tax-free but can be spent only on health care -HSAs allow you to contribute money to a tax-free account that can be used for out-of-pocket health care expenses if you buy high-deductible health insurance policies to cover catastrophic expenses

The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA)

-If you are covered under your employer's health plan & you lose your job, have your hours reduced, or get laid off, & your employer's health plan continues to exist, you & your dependents may qualify to purchase temporary extended health coverage under COBRA at groups rates under the employer's plan -Divorce, legal separation, loss of dependent child status, the covered employee's death, or entitlement to Medicare may also give your covered spouse & dependent children the right to elect continued coverage under COBRA -Your plan must be notified of these events -COBRA covers group health plans maintained by employers with 20 or more employees -The group health plan is required to provide you with a written notice indicating your eligibility for COBRA coverage -If you are eligible, you will have 60 days from the date the notice is sent or from the date your coverage ends-whichever is later-to elect COBRA -If the employer is too small to be subject to COBRA, state law may require the plan's insurer to provide some continuation coverage -Not everyone qualifies for COBRA -You have to work for a private company or state or local government to benefit

Internal Limits vs. Aggregate Limits

-Internal limits will cover only a fixed amount for an expense, such as the daily cost of room & board during a hospital stay -Aggregate limits will limit only the total amount of coverage (the maximum dollar amount paid for all benefits in a year), such as $1 million in major expense benefits, or it may have no limits

Vision Care Insurance

-May cover eye examinations, glasses, contact lenses, eye surgery, & the treatment of eye diseases

Medicaid

-Other well-known government health program -Medical assistance program offered to certain low-income individuals & families -Is administered by states, but it's financed by a combination of state & federal funds -Is so comprehensive that people with Medicaid don't need supplemental insurance -Benefits include physicians' services, inpatient & outpatient hospital services, lab services, skilled nursing & home health services, prescription drugs, eyeglasses, & preventive care for people under the age of 21

Hospital Indemnity Policy

-Pay benefits when you're hospitalized -Don't directly cover medical costs -You are paid in cash, which you can spend on medical or non-medical expenses as you choose -Are used as a supplement to-& not a replacement for-basic health or major medical policies -Average person who buys this policy usually pays much more in premiums than s/he receives in payments

Major Medical Expense Insurance Coverage

-Pays the large costs involved in long hospital stays & multiple surgeries -It takes up where basic health insurance coverage leaves off -Almost every type of care & treatment prescribed by a physician, in & out of a hospital, is covered -Maximum benefits range from $5,000 to more than $1 million per illness per year -Isn't cheap -Coinsurance -Stop-loss

What Is Being Done about the High Costs of Health Care?

-Programs to carefully review health care fees & charges & the use of health care services -The establishment of incentives to encourage preventive care & provide more services out of hospitals, where this is medically acceptable -Involvement in community health planning to help achieve a better balance between health needs & health care resources -The encouragement of prepaid group practices & other alternatives to fee-for-service arrangements -Community health education programs that motivate people to take better care of themselves -Physicians encouraging patients to pay cash for routine medical care & lab tests

Dental Expense Insurance

-Provides reimbursement for the expenses of dental services & supplies -Encourages preventive dental care -Coverage normally provides for oral examination (including X-rays & cleanings), fillings, extractions, oral surgery, dentures, & braces -May have a deductible & a coinsurance provision

Reimbursement vs. Indemnity

-Reimbursement pays you back for actual expenses -Indemnity provides you with specific amounts, regardless of how much the actual expenses may be

Patient Protection & Affordable Care Act of 2010

-Sets aside $635 billion over the next 10 years to help finance this reform (we get high-quality, affordable health care) -All major provisions took effect in Jan 2014 KEY PROVISIONS: -Offers tax credits for small businesses to make employee coverage more affordable -Prohibits denying coverage to children with preexisting medical conditions -Provides access to affordable insurance for those who are uninsured becasue of a preexisting condition through a temporary subsidized high-risk pool -Bans insurance companies from dropping people from coverage when they get sick -Eliminates copayments for preventive services & exempts preventive services from deductibles under the Medicare program -Requires new health plans to allow young people up to their 26th birthday to remain on their parents' insurance policy -Prohibits health insurance companies form placing lifetime caps on coverage -Restricts the use of annual limits to ensure access to needed care in all plans -Requires new private plans to cover preventive services with no copayment & with preventive services being exempt from deductibles -Ensures that consumers in new plans have access to an effective internal & external appeals process to appeal decision by their health insurance plans -Provides aid to states in establishing offices of health insurance consumer assistance to help individuals with the filing of complaints & appeals -Increases funds for community health centers to allow for neatly a doubling of the number of patients seen by the centers over the next 5 years -Provides new investments to increase the number of primary care practitioners, including doctors, nurses, nurse practitioners, & physician assistants -Requires health insurance companies to submit justification for all requested premium increases -Requires that most American purchase health insurance by 2014 -Creates state-based health insurance marketplaces (also called insurance exchanges) through which individual scan purchase coverage, with subsidies available to lower-income individuals -Expands the Medicaid program for the nation's poorest individuals -Requires employers with more than 20 employees to provide health insurance to their employees or pay penalties

Rapid Increase in Medical Expenditures

-Since federally sponsored health care began in 1965, US health care expenditures rose from $41.6 billion, or about 6% of GDP, to $3.09 trillion in 2014, about 18% of GDP

Benefits Based on Reasonable & Customary Charges

-Some policies consider the average fee for a service in a particular geographical area -They then use the amount to set a limit on payments to policyholders -If the standard cost of a certain procedure is $1,500 in your part of the country, then your policy won't pay more than that amount

Out-of-Pocket Limits

-Some policies limit that amount of money you must pay for the deductible & coinsurance -After you have reached that limit, the insurance company covers 100% of any additional costs -Help you lower your financial risk, but they also increase your premiums

High & Rising Costs of Health Care Are Attributed to Many Things:

-The use of sophisticated, expensive technologies -Duplication of tests & sometimes duplication of technologies that yield similar results -Increases in the variety & frequency of treatments, including allegedly unnecessary tests -The increasing number & longevity of elderly people -Regulations that result in cost shifting rather than cost reduction -The increasing number of accidents & crimes that require emergency medical services -Limited competition & restrictive work rules in the health care delivery system -Labor intensiveness & rapid average earnings growth for health care professionals & executives -Using more expensive medical care than necessary, such as going to an emergency room with a bad cold -Built-in inflation in the health care delivery system -Aging baby boomers' use of more health care services, whether they're going to the doctor more often or snapping up pricier drugs, from Celebrex to Viagra -Other major factors that costs billions of dollars each year, including fraud, administrative waste, malpractice insurance, excessive surgical procedures, a wide range of prices for similar services, & double health coverage

Group Health Insurance

-Typically are employer sponsored -Can also be offered by labor unions or professional associations -Cover you & your immediate family -Cost is relatively low because many people are insured under the same policy -Vary in the amount of protection that they provide -Some plans limit the amount that they will pay for hospital stays & surgical procedures -COB

Health Care Costs

-Were estimated at $3.09 trillion in 2014 -Since 1993, health care spending as a % of gross domestic product has remained relatively constant at 13.6%, except in 1997, when it fell to 13.4%, & in 2011, when it increased to 17.7% -Over the 2012-2022 period, national health spending is projected to grow at an average annual rate of 5.8% -By 2022, health spending financed by federal, state, & local governments is projected to account for 49% of national health spending & to reach a total of $2.4 trillion

Types of Health Insurance Coverage:

1. Basic Health Insurance Coverage -Hospital expense -Surgical expense -Physician expense 2. Major Medical Expense Insurance Coverage -Coinsurance -Stop-loss 3. Hospital Indemnity Policies 4. Dental Expense Insurance 5. Vision Care Insurance 6. Psychology of Dread Disease Policies 7. Long-Term Care Insurance

What Can You Do to Reduce Personal Health Care Costs?

1. Eat a balanced diet & keep your weight under control 2. Avoid smoking & don't drink to excess 3. Get sufficient rest, relaxation, & exercise 4. Drive carefully & watch out for accident & fire hazards in the home 5. Protect yourself from medical ID theft

Provisions that are usually found in health insurance policies:

1. Eligibility: the people covered by the policy must meet specified eligibility requirements, such as family relationship &, for children, a certain age 2. Assigned benefits: you are reimbursed for payments when you turn in your bills & claim forms; when you assign benefits, you let your insurer make direct payments to your doctor or hospital 3. Internal limits: a policy with internal limits sets specific levels of repayment for certain services; even if your hospital room costs $600 a day, you won't be able to get more then $250 if an internal limit specifies that maximum 4. Copayment: fee is usually between $20-$30, & the insurer pays the balance of the cost of the service 5. Service benefits: policies with this provision list coverage in terms of services, not dollar amounts; you're entitled to X-rays, for instance not $40 worth of X-rays per visit; service benefits are always preferable to dollar amount coverage because the insurer will pay all the costs 6. Benefit limits: this provision defines a maximum benefit, either in terms of a dollar amount or in terms of number of days spent in the hospital 7. Exclusions & limitations: this provision specifies services that the policy doesn't cover; it may include preexisting conditions (a condition you were diagnosed with before your insurance plan took effect), cosmetic surgery, or more 8. Guaranteed renewable: this provision means that the insurer can't cancel the policy unless you fail to pay the premiums; it also forbids insurers to raise premiums unless they raise all premiums for all members of your group 9. Cancellation & termination: this provision explains the circumstances under which the insurer can cancel your coverage; it also explains how you can covert your group contract into an individual contract

Tips on Using & Choosing an HMO

1. How to Use an HMO -When you 1st enroll, choose a plan physician 2. How to Choose an HMO -Accessibility -Convenient office hours -Alternative physicians -Second opinions -Type of coverage -Appeal procedures -Price 3. What to Do When an HMO Denies Treatment or Coverage -Get it in writing -Know your rights -Keep records -Find advocates

A Health Insurance Plan Should:

1. Offer basic coverage for hospital & doctor bills 2. Provide at least 120 days' hospital room & board in full 3. Provide at least a $1 million lifetime maximum for each family member 4. Pay at least 80% for out-of-hospital expenses after a yearly deductible of $500 per person or $1,000 per family 5. Impose no unreasonable exclusions 6. Limit your out-of-pocket expenses to no more than $3,000 to $5,000 a year, excluding dental, vision care, & prescription costs

Private health care plans may be offered by many sources:

1. Private insurance companies -Provide mostly group health plans to employers, which in turn offer them to their employees as a benefit -Premiums may be fully or partially paid by the employer, with the employee paying any remainder -Typically pay you for medical costs you incur, or they send the payment directly to the doctor, hospital, or lab that provides the services 2. Hospital & medical service plans -Blue Cross & Blue Shield 3. Health maintenance organizations -Managed care & health maintenance organization 4. Preferred provider organizations -PPO -POS 5. Home health care agencies -Consists of home healthy agencies, home care aide organizations; & hospices, facilities that care for the terminally ill -Offer medical care in a home setting in agreement with a medical order, often at a fraction of the cost hospitals would charge for a similar service 6. Employer self-funded health plans -Company runs its own insurance plan, collecting premiums from employees & paying medical benefits as needed -Companies must cover any costs that exceed the income from premiums -Not all corporations have the financial assets necessary to cover these situations, which can mean a financial disaster for the company & its employees

Disability Income Insurance Trade-Offs

1. Waiting or Elimination Period -Benefits won't begin right away -Wait between 1-6 months 2. Duration of Benefits -Some are valid for only a few years -Other automatically cancel when you turn 65 -Some continue for life 3. Amount of Benefits -Try to find one that will equal 70-80% of take-home pay 4. Accident & Sickness Coverage -Some only pay for accidents 5. Guaranteed Renewability -Look for a plan that is renewable because some companies will try to cancel coverage -Cost may be higher, but it's worth it

Sources of Disability Income

1. Worker's Compensation -Disability resulted from accident or illness that occurred on the job, may be eligible to receive this -Benefits will depend on your salary & your work history 2. Employer Plans -In most cases, your employer will pay part or all of the cost of such insurance -Some policies may provide continued wages for several months only, whereas others will give you long-term protection 3. Social Security -You're eligible for SS funds if you become disabled if you pay in -How much you get depends on your salary & the number of years you've been paying in -Your dependents also qualify for certain benefits -Has strict rules: workers are considered disabled if they have a physical or mental condition that prevents them from working & that is expected to last for at least 12 months or to result in death; benefits tart at the 6th full month the person is disabled; they stay in effect as long as the disability lasts 4. Private Income Insurance Programs -Companies offer many policies to protect people from loss of income resulting from illness or disability -Gives weekly or monthly cash payments to people who can't work because of illness or accident -Amount paid is usually 40 to 60% of a person's normal income -Some pay 75%

Making a Payment (if you don't have the minimum essential coverage)

For 2014, the annual payment amount was: -The greater of 1% of your household income that is above the tax return filing threshold for your filing status, or -Your family's flat dollar amount, which is $95 per adult & $47.50 per child, limited to a family maximum of $285

Minimum Essential Coverage

If you & your family need to acquire minimum essential coverage, you may have several of the following options: -Health insurance coverage provided by your employer -Health insurance purchased through the Health Insurance Marketplace in the area where you live, where you may qualify for financial assistance -Coverage provided under a government-sponsored program for which you are eligible (including Medicare, Medicaid, & health care programs for veterans) -Health insurance purchased directly from an insurance company -Other health insurance coverage that is recognized by the Department of Health & Human Services as minimum essential coverage

The Affordable Care Act & the Individual Shared Responsibility Provision

Individual shared responsibility provision requires you & each members of your family to: -Have minimum essential coverage, or -have an exemption from the responsibility to have minimum essential coverage, or -Make a shared responsibility payment when you file your 2014 federal income tax return in 2015

Government Consumer Health Info Websites

The Department of Health & Human Services operates on more than 60 websites with a wealth of reliable info related to health & medicine: -Healthfinder: includes links to more than 1,000 websites operated by government & nonprofit organizations; its list topics according to subject; www.hhs.gov -MedlinePlus: is the world's largest collection of published medical info; was originally designed for health professionals & researches, but it's also valuable for students & others who are interest in health care & medical issues; www.nlm.nih.gov/medlineplus -NIH Health Information Page: National Institutes of Health operates a website called the NIH Health Info Page, which can direct you to the consumer health info in NIH publications & on the Internet; www.nih.gov -FDA: Food & Drug Administration; consumer protection agency's site provides info about the safety of various foods, drugs, cosmetics, & medical devices; www.fda.gov

Policy

a contract with a risk-sharing group/insurance company

Health insurance

a form of protection that eases the financial burden people may experience as a result of illness or injury -You pay a premium to the insurer & they pay most of your medical costs -Includes both medical expense insurance & disability income insurance

Preferred provider organization (PPO)

a group of doctors & hospital that agree to provide health care at rates approved by the insurer -PPOS offer these discounted services to employers either directly or indirectly through an insurance company -Premiums are slighting higher than premiums for HMOs -PPO plan members often pay no deductibles & may make minimal copayments -Allow members greater flexibility (can visit either a preferred provider or go to their own physicians) -Patients who choose their own doctors must pay deductibles & larger copayments

Health maintenance organization (HMO)

a health insurance plan that provides a wide range of health care services for a fixed, prepaid monthly premium -Are an alternative to basic health insurance & major medical expense insurance -Are based on the idea that preventive services will minimize future medical problems -Typically cover routine immunizations & checkups, screening programs, & diagnostic tests -Also provide customers with coverage for surgery, hospitalization, & emergency care -You will usually pay a small copayment for each covered services -Supplemental services may include vision care & prescription services, which are typically available for an additional fee -When you 1st enroll, you must choose a plan physician from a list of doctors provided by the HMO -Many HMO customers complain that their HMO denies them necessary care -Others feel restricted by the limited choice of doctors

Point-of-service plan (POS)

a network of selected contracted, participating providers -Also called an HMO-PPO hybrid or open-ended HMO -Combines features of both HMOS & PPOs -You choose a plan physician who manages your care & controls referrals to specialists -As long as you receive care from a plan provider, you pay little or nothing, just as you would with an HMO -You're allowed to seek care outside the network at a higher charge

Stop-loss

a provision under which an insured pays a certain amount, after which the insurance company pays 100 percent of the remaining covered expenses -Policyholder will typically pay between $3,000 & $5,000

Coinsurance

a provision under which both the insured & the insurer share the covered losses -Many require policyholders to pay 20-25% of expenses after they have paid the deductible

Copayment

a provision under which the insured pays a flat dollar amount each time a covered medical service is received after the deductible has been met

Department of Labor's Employee Benefits Security Administration (EBSA)

administers several important healthy benefit laws covering employer-based health plans -These laws govern your basic right to info about how your health plan works, how to qualify for benefits, & how to make claims for benefits

Deductible

an amount the insured must pay before benefits become payable by the insurance company

Blue Cross

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

Blue Shield

an independent membership corporation that provides protection against the cost of surgical & medical care

Basic health insurance coverage

hospital expense insurance, surgical expense insurance, & physician expense insurance

Coordination of benefits (COB)

is included in most group insurance plans -Allows you to combine the benefits from more than one insurance plan -Benefits received from all the plans are limited to 100% of all allowable medical expenses

Hospital expense insurance

pays part or all of hospital bills for room, board, & other charges -Other charges: routine nursing care, minor medical supplies -Covered expenses: anesthesia, lab fees, dressings, X-rays, ambulance, & use of operating room

Surgical expense insurance

pays part or all of the surgeon's fees for an operation -Often have a list of the services they cover, which specifies the maximum payment for each type of operation -People often buy this in combination with hospital expense insurance

Managed care

prepaid health plans that provide comprehensive health care to members -Is designed to control the cost of health care services by controlling how they are used -Is offered by healthy maintenance organizations, preferred provider organizations, & point-of-service plans

Physician expense insurance

provides benefits for doctors' fees for nonsurgical care, X-rays, & lab tests -Covers treatment in a hospital, a doctor's office, or even a patient's home -May cover routine doctor visits, X-rays, & lab tests -Specifies maximum benefits for each service -Is usually combined with surgical & hospital coverage in a package called basic health insurance

Long-Term Care Insurance (LTC)

provides day-in, day-out care for long-term illness or disability -Is useful whether you require a lengthy stay in a nursing home or just need help at home with daily activities such as dressing, bathing, & household chores -Annual premiums range from less than $1,000 to over $16,000, depending on your age & extent of the coverage -The older you are when you enroll, the higher your annual premium -Typically, individual insurance plans are sold to the 50- to 80-year old age group, pay benefits for a maximum of 2-6 years, & carry a dollar limit on the total benefits they will pay

International health care insurance

provides health coverage no matter where you are in the world -Policy term is flexible so you can purchase only for the time you will be out of the country

Disability income insurance

provides payments to make up for some of the income of a person who can't work as a result of injury or illness

Disability income insurance

provides payments to replace income when an insured person is unable to work -A good plan will pay you if you can't work at your regular job -Will also pay partial benefits if you are able to work only part-time

Affordable Care Act of 2010

requires large employers to provide health insurance coverage for all employees

Health Insurance Portability & Accountability Act of 1996 (HIPAA)

set new federal standards to ensure that workers wouldn't lose their health insurance if they changed jobs

Medigap (MedSup) insurance

supplements Medicare by filling the gap between Medicare payments & medical costs not covered by Medicare

Medical expense insurance

typically pays only the actual medical costs