Am Pro Chapter 23

An Insured has a $500 deductible with a 20% coinsurance provision. If the Insured has a $10,000 accident claim, the Insured will be responsible for how much of the claim? Select one: a.$190 b.$2,100 c.$2,400 d.$7,600

$10,000 minus the $500 deductible equals $9,500. The Insured pays 20% of the $9,500 which is $1,900. Add the $500 deductible and the Insured pays $2,400 out-of-pocket. The correct answer is: $2,400

Which of the following is most likely to be the grace period for a Health Insurance policy? Select one: a.15 days b.31 days c.45 days d.90 days

31 days is the standard health insurance grace period. Fortunately, that is the same for a life insurance policy (if you are taking that part of the national exam too). The correct answer is: 31 days

Increasing the deductible: Select one: a.Lowers the premium. b.Doesn't change the premium. c.Increases the premium. d.Doubles the amount of the premium.

By increasing the deductible, the Insured retains more of the risk. Thus, increasing the deductible will decrease the premium. The correct answer is: Lowers the premium.

Which of the following statements regarding a Probationary Period under a Group Policy is TRUE? Select one: a.The Probationary Period is selected by the Insured based on the Insured's savings. b.The Probationary Period allows the Insured to return the policy for a full refund within a 10-day period. c.During the Probationary Period, the Insurer may deny coverage. d.The Probationary Period is the time during which an individual can convert a group policy to an individual policy.

During the Probationary Period, the Insurer may deny coverage.

Deductibles: Select one: a.Eliminate large claims and increase administrative expense. b.Eliminate small claims and reduce administrative expense.

Eliminate small claims and reduce administrative expense.

Decreasing the deductible: Select one: a.Lowers the premium. b.Does not change the premium. c.Increases the premium. d.Is not permitted in most states.

If the deductible is decreased (reduced), the insurance company will have to pay a larger claim amount. Think of the situation where the deductible is reduced to zero - the insurance company will have to pay a larger amount. Thus, decreasing the deductible increases the premium because that places a greater amount of the risk upon the insurance company. The correct answer is: Increases the premium.

If a business such as a sole proprietorship pays the owner's health insurance premium, the tax implications are: Select one: a.the policy benefits are taxable to the business. b.the policy benefits are taxable to the owner. c.the premium is a tax deduction for the business. d.the premium is considered taxable income for the owner.

LH Addendum, Page 23-2, Lines 14-17. A business can deduct health insurance premiums paid for employees. The premium paid by the employer and the policy benefits are not taxable for the employee.Individuals don't get a tax deduction for health insurance premiums unless the total for eligible unreimbursed medical and dental expenses (deductible, copays and coinsurance charges) exceed 10% of the person's Adjusted Gross Income (AGI). The moral of the story is - start a business and have the business buy your health insurance as a tax deductible business expense. The correct answer is: the premium is a tax deduction for the business.

An assignment of benefits to the health care provider: Select one: a.terminates the policy's coverage b.makes health claim payments more convenient for the Insured

LH Addendum, Page 23-2, Lines 14-17. The test usually assumes that the Insured will first pay the health care provider and then seek reimbursement from the Insurer. This creates a paperwork nightmare for the Insured. However, IN REAL LIFE, to make life more convenient for the Insured, most Insurers permit the Insured to assign the benefits to the provider. That means that the clinic will actually bill the Insurer and the Insured will pay only the copay, deductible, and coinsurance charge. This is done through an Assignment of Benefits form signed by the Insured. This shifts the paperwork nightmare to the health care provider that would prefer to receive cash up front. However, most patients don't have the cash. As a result, the health care provider is stuck taking an Assignment of Benefits - otherwise many patients would simply never pay. The correct answer is: makes health claim payments more convenient for the Insured

An individual may deduct medical and dental health care expenses from income taxes only if the health care expenses exceed what percentage of the individual's adjusted gross income? Select one: a.10% b.20% c.25% d.33%

LH Addendum, Page 23-2, Lines 27-31. Individuals don't get a tax deduction for health insurance premiums unless the total for eligible unreimbursed medical and dental expenses (deductible, copays and coinsurance charges) exceed 10% of the person's Adjusted Gross Income (AGI). The correct answer is: 10%

Which of the following Health Insurance renewability provisions guarantees the amount of future premiums? Select one: a.Noncancelable b.Optionally Renewable c.Conditionally Renewable d.Guaranteed Renewable

Only with a noncancelable policy are premiums set in stone so they can't increase. As long as the Insured pays the predetermined premium, the policy will remain in effect. With increasing health care costs, we would all love to have a noncancelable health insurance policy. That is not likely to occur except with some Disability Income policies. The correct answer is: Noncancelable

A deductible accomplishes all of the following EXCEPT: Select one: a.Reduces overhead and administrative expenses. b.Reduces fraudulent health claims. c.Eliminates some claims. d.Helps prevent overuse of policy benefits.

Reduces fraudulent health claims.

The deductible results in each of the following EXCEPT: Select one: a.Reduces administrative expenses b.Reduces premiums c.Indemnifies the Insured d.Eliminates small claims

The deductible does eliminate the small claims and thus reduces administrative expenses for the Insurer. That should lead to lower premiums. BUT, the deductible does not make the Insured whole (which is the definition of indemnification). Generally, we try to indemnify the Insured, but the deductible technically prevents that from occurring. The correct answer is: Indemnifies the Insured

Which feature of a Health policy requires the Insured to pay a specified amount of money prior to the policy paying benefits? Select one: a.Elimination Period b.Coinsurance c.Stop Loss Limit d.Deductible

The deductible requires the Insured to pay a specified amount before the policy will begin paying its 80/20 share under the coinsurance provision. We all know what a deductible is - our problem is recognizing it on the exam when it is written in rather vague language - as in this question. The correct answer is: Deductible

Which policy provision requires the Insured to pay a specified dollar amount of the loss? Select one: a.Coordination of Benefits b.Stop-Loss Limit c.Deductible d.Risk

The deductible requires the Insured to pay a specified amount of the loss. Although it isn't part of this question, the copay also could be a potential answer. The correct answer is: Deductible

Each of the following policy characteristics help prevent overuse of Health Insurance policy benefits EXCEPT: Select one: a.Deductible b.Stop-Loss Limit c.Copayment d.Coinsurance

The deductible, copay, and coinsurance provision all are designed to discourage us from overusing our health policy. But, the "stop-loss limit" has nothing to do with preventing overuse of the policy. The Stop Loss Limit states that once the Insured has paid a specified amount in a particular year (such as $10,000), the Insurer will pay 100% of other claims without regard to copays, deductibles, and the typical 80/20 coinsurance provision. Without the Stop Loss Limit, the coinsurance payment alone (20%) could bankrupt an Insured. The correct answer is: Stop-Loss Limit

Which renewability provision is worst for the Insured? Select one: a.Cancelable b.Conditionally Renewable c.Noncancelable d.Optionally Renewable

The worst is cancelable - the Insurer may cancel at any time for no reason. The best is noncancelable - the insurer can't cancel and can't raise the premiums. It is helpful to remember that cancelable is the worst and noncancelable is the best. The other likely test question is that "guaranteed renewable" can't be canceled if you pay the premium but the premium may be raised by the Insurer. Most health policies are required by state law to be "guaranteed renewable." The correct answer is: Cancelable

A policy that provides both renewability and a price guarantee is called? Select one: a.Noncancelable b.Guaranteed Renewable c.Optionally Renewable d.Conditionally Renewable

This describes the wonderful but rare "noncancellable" policy. The Insurer can't raise the premium not matter how many health claims I file. That is why it is so rare. Most health policies are "guaranteed renewable" - the Insurer can't raise the premiums but can raise the rates for all Insureds (not just for me). The correct answer is: Noncancelable

Which of the following is NOT a purpose of the Coinsurance Clause? Select one: a.To make Insureds aware of Health costs and encourage them to seek health care only when appropriate. b.To help the Insurer control expenses. c.To prevent overuse of policy benefits. d.To reduce fraudulent claims.

To reduce fraudulent claims.

If the deductible goes down, the premium: Select one: a.Goes up. b.Stays the same. c.Is eliminated. d.Goes down.

We all want to raise our deductible to lower premiums. But, this question poses the issue in the reverse. It is true that if we lower the deductible (a rare occurrence), that will raise the premium. Be careful because the exam might be asking the question the opposite of what you expect. The correct answer is: Goes up.

When an Insurer has no choice regarding renewal but may raise the premium, the policy is: Select one: a.Guaranteed renewable b.A term policy c.Conditionally renewable d.Noncancelable

With a "Guaranteed Renewable" policy, the Insurer must renew and can't cancel unless the Insured stops making payments. No matter how sick I get, the Health Insurer can't cancel me if I have a "Guaranteed Renewable" policy - but the Insurer can raise the premiums. The only provision which is better is to have a policy which is "noncancelable " - the Insurer can't cancel as long as I pay the premium AND the premium can't be raised. The correct answer is: Guaranteed renewable

The purpose of the Coinsurance Clause is to prevent overuse of the policy by requiring the Insured to pay a: Select one: a.specified dollar amount each time health services are provided. b.stated percentage of each Health claim.

stated percentage of each Health claim.