Chapter 1: health and accident insurance

premium factors

* interest * expenses * types of benefits * morbidity * age *sex * occupation

age discrimination in employment act (ADEA)

- Applies to employers with 20 or more employees - Prohibits discrimination in employment against persons age 40 and over

Conversion Privilege

- Members of a group have the ability to convert their policy to an individual plan - The conversion must be exercised within a given period of time (usually 30 or 31 days) depending on the state. (the employee must make application for a converted policy within this timeframe)

Contributory

- both the employees and the employer pay part of the premiums and 75% of all eligible employees must participate - An employee group plan in which employees share the cost. Insurance company requires that at least 75% of all employees participate.

Health Insruance

- designed to provide coverage for accidents and sickness - funded by regular premium payments. premiums can be paid annually, semi-annually, quarterly or monthly

medical expense insurance

- plans that cover hospital care, surgical expenses, doctor visits, and outpatient care, among with other basic medical expenses - provides financial protection against the cost of medical care by reimbursing the insured, fully or in part, for these costs, called reimbursement plans. Examples of medical expense insurance are Medicare supplement insurance and long-term care insurance.

Non-contributory

- the employer pays the entire premium and 100% of the employees must participate - An employee group plan in which employees do NOT share in the cost. Insurance company requires that 100% of all employees be eligible.

Small Employer Medical Expese Plan

2 - 50 employees

S is employed by a large corporation that provides group health coverage for its employees and their dependents. If S dies, the company must allow his surviving spouse and dependents to continue their group health coverage for a maximum of how many months under COBRA regulations?

36 - under COBRA, if an employee dies, the dependents may continue their group health coverage for up to 36 months

Which type of policy would pay an employee's salary if the employer was injured in a bicycle accident and out of work for six weeks?

Business Overhead Expense - covered fixed business expenses if owner is unable to work due to accident or illness

G is an accountant who has ten employees and is concerned about how the business would survive financially if G became disabled. The type of policy which BEST addresses this concern is?

Business Overhead Expense. (A Business Overhead Expense policy's purpose is to cover certain overhead expenses that continue when the business owner is disabled.)

Consolidated Omnibus Budget Reconciliation Act (COBRA)

COBRA is a federal law that guarantees a continuation of their group coverage if their employment is terminated for reasons other than gross misconduct. It stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. • Protects employees who are laid-off, but not those who are fired "for cause" • The law does not protect those are covered by other hospital, surgical or medical coverage for individuals in a group plan • Requires employers with 20 or more employees to continue group medical expense coverage for terminated workers for up to 18 months following termination. • The law does not require the employer to pay the cost of the continued group coverage • However, the law requires the employer to provide the employee with a written notification of the continuation privilege • After expiration of group benefits under COBRA, a fully insured group policy can be converted to an individual health insurance policy • The terminated employee can be required to pay the premium, which may be up to 102% of the premium that would otherwise be charged • The benefits under COBRA continuation coverage will end if the employer terminates all group health plans• The following events would qualify for extended medical expense coverage under COBRA for a terminated employee: o Employment is terminated (for other than gross misconduct): 18 months of continued coverage (or up to 29 months if disabled) o Employee's hours are reduced (resulting in termination from the plan): 18 months of continued coverage (or up to 29 months if disabled) o Employee dies: 36 months of continued coverage for dependentso Dependent child no longer qualifies as "dependent child" under the plan: 36 months of continued coverage o Employee becomes eligible for Medicare: 36 months of continued coverage o Employee divorces or legally separates: 36 months of continued coverage for former spouse o Common exclusions to continuation of group coverage includes: dental, vision care, and other prescription drug benefits

When an employee is required to pay a portion of the premium for an employer/employee group health plan, the employee is covered under which of the following plans?

Contributory - group plans where employees pay a portion of the premiums are called contributory plans

special risk policies

Covers unusual hazards normally not covered under ordinary accident and health insurance.

Employee Retirement Income Security Act (ERISA)

ERISA was enacted to provide minimum benefit standards for pension and employee benefits plans, including fiduciary responsibility, reporting and disclosure practices, and vesting rules. The overall purpose of ERISA is to protect the rights of workers covered under an employersponsored plan.

tax treatment of group plans

Employers are entitled to take a tax deduction for premium contributions they make to an employee group health plan as long as the contributions represent ordinary and necessary business expense

Which of these types of coverage is best described as a short term medical policy?

Interim coverage - A short term medical policy is best described as interim coverage.

Which of the following statements BEST describes how a policy that uses the "accidental bodily injury" definition of an accident differs from one that uses the "accidental means" definition? - Double indemnity - Benefits are taxable - More restrictive - Less restrictive

Less restrictive

which statement is true regarding a minor beneficiary ?

Normally, a guardian is required to be appointed in the Beneficiary clause of the contract - in most cases, insurers require that a guardian be appointed the beneficiary clause of the policy or that a guardian be designated in the will.

On an Accidental Death and Dismemberment (AD&D) insurance policy, who is qualified to change the beneficiary designation?

Policyowner - The policyowner has the right to change the beneficiary designation. However, consent may needed by the current beneficiary if designated as irrevocable.

Which type of policy pays benefits to a policyholder covered under a Hospital Expense policy?

Reimbursement - when benefits are paid to a policy owner covered under a hospital expense policy, the policy is known as reimbursement

reserves

Reserves: are the accounting measurement of an insurer's future obligations to its policyholders. They are classified as liabilities on the insurance company's accounting statements since they must be settled at a future date. Reserves are set aside by an insurance company and designated for the payment of future claims.

Limited Risk Policies

Set forth specific risk and provide benefits to cover death or dismemberment due to that risk

subrogation

Subrogation is the right for an insurer to pursue a third party that caused an insurance loss to the insured. This is done as a means of recovering the amount of the claim paid to the insured for the loss. For example, if an insured driver's car is totaled through the fault of another driver; the insurance carrier will reimburse the covered driver as described in the policy and take legal action against the driver-at-fault in an attempt to recuperate the cost of that claim.

NATURE OF GROUP HEALTH INSURANCE

The contract for a group health insurance policy is between the insurance company and the group (usually employer). Health insurance is provided through group master contracts. In this case, the employer or the association is the policyowner and is responsible for premium payments. The employer may pay the entire premium or require some contribution from each member to cover the insurance cost. • Benefits provided to individual insureds are predetermined by the employer in conjunction with the insurer's benefit schedules and coverage limits. For example, group disability benefits can be tied to a position or earnings schedule

Out-of-pocket maximum

The most you have to pay for covered services in a plan year. after they spend this amount on deductibles, copayments and coinsurance, their health plan pays 100% of the costs of covered benefits

All students attending a large university could be covered by

a blanket policy - a blanket health insurance is issued to cover a group who may be exposed to the same risks, but the composition of the group (individuals within the group) are constantly changing

Which statement is TRUE regarding a group accident & health policy issued to an employer? Neither the employer or employee are policyowners The employer is issued a certificate of coverage and each employee receives a policy The employer is the policyowner and each employee receives a certificate of coverage Both the employer and employee are policyowners

a) Neither the employer or employee are policyowners b) The employer is issued a certificate of coverage and each employee receives a policy c) The employer is the policyowner and each employee receives a certificate of coverage d) Both the employer and employee are policyowners Ans: C - with a group accident and health plan, a master policy is issued to the employer and each employee receives a certificate of insurance

all of the following statements regarding group health insurance is true, EXCEPT:

a) a master contract is issued for the group b) an individual policy is given to each member c) premiums are usually determined by the claims experience of the group d) group health insurance premiums are typically lower than individual health insurance premiums ANS: B - in group health insurance, each member receives a certification of insurance, not an individual policy.

common exclusions to continuation of group coverage include:

a) dental care b) dental care c) other prescription drugs d) all of the above ANS: D

The reason for a business having a Business Overhead Expense Disability Plan is to cover

a) the cost of providing group disability insurance to the employees b) fixed business expenses *** c) the owner's loss of income d) all business-related expenses and salaries ans: B - the reason for a business having a business overhead expense is to cover the fixed business costs in the event the owner becomes disabled.

The Conversion Privilege

allows an insured to convert their group certificate to an individual medical expense policy with the same insurer, if and when they leave their employment, or the group plan is being eliminated

Minimum premium arrangement

allows the employer to self-insure the normal and expected claims up to a given amount and the insurer funds only the excess amounts.

PRE-EXCISTING CONDITION

an individual may be excluded from group coverage for up to a year for any conditions in which the individual sought treatment 6 months prior to the enrollment date

Which of the following medical expenses does Cancer insurance NOT cover? - Chemotherapy - Radiation treatment - Physician visit - Arthritis

arthritis

K has an Accidental Death and Dismemberment (AD&D) insurance policy where her husband is beneficiary and her daughter is contingent beneficiary. Under the Common Disaster clause, if K and her husband are both killed in an automobile accident, where would the death proceeds be directed? -daughter -husband's estate -K's estate -trust fund

daughter - death benefits paid to the contingent beneficiary

creditable coverage

is prior group health insurance that reduces the maximum preexisting condition exclusion period that a new group health plan can apply to that individual - has not been a break in coverage of 63 days

• Self-funding arrangement

large employers may elect to fully self-fund, or may self-fun a plan, but contract for administrative services only.

maternity benefits

must also cover services of certified nurse-midwives and servers of licensed birth centers. the insurance company cannot limit the length of stay for maternity or newborns that are less than medically necessary

federal health care reform (patient protection affordable care act) PPACA

often shortened to the Affordable Care Act (ACA), represents one of the most significant regulatory overhauls and expansions of coverage in U.S. history.

The benefits under a Disability Buy-Out policy are

payable to the company or another shareholder

How does group insurance differ from individual insurance?

premiums are lower - provides coverage at a lower cost

Americans with Disabilities Act

prohibits discrimination against the disabled

disability income insurance

provide a replacement income when wages are lost due to a disability. - it does not cover medical expenses associated with a disability but provides a guaranteed flow of income while the person is disabled

Accidental Death and Dismemberment insurance (AD&D)

provides the beneficiary with a lump-sum death benefit amount in the event of accidental death of the insured or dismemberment under accidental circumstances. - it will also pay a living benefit for dismemberment

Interim Coverage

short-term policies that can be purchased on an interim basis when in between jobs or waiting for a new policy to start. Health insurance policies are paid for on a year-to-year basis and are subject to periodic increases in premium. Health insurance premium is calculated based on interest, expense, types of benefits, and morbidity, or the expected incidence of sickness or disability within a given age group during a given period of time.Health insurance benefits are not fixed rather they depend on the amount of loss.

Business Overhead Expense Insurance

sold to small business owners who must continue to meet overhead expenses such as rent, utilities and payroll. Reimburses business owners for the actual overhead expenses incurred while the business owner is totally disabled. however, it does not reimburse the business owner for their salary

disability buy-out

specifies who will purchase a disabled partner's interest and legally obligates that person or party to purchase the business interest of the disabled partner.

claims

the amount of insurance coverage is readily determined by the policy and benefits are payable if the insured has died

A business Disability Buyout plan policy is designed:

to pay benefits to the Corporation or other shareholders

disability buy-sell

• A Business Disability Buy-Sell policy is designed to assist in the sale of a business in the event of the disability of a business owner. • The plan sets forth the terms for selling and buying a partner's or stock owner's share of a business in the event she becomes disabled and is no longer able to participate in the business. • It is a legal, binding arrangement funded with a disability income policy. • Unlike typical disability income insurance plans that pay benefits in the form of periodic payments, the buy-out plan usually contains a provision allowing for a lump-sum payment of the benefit. • Benefits are received tax-free because the premiums paid are not tax deductible. • Characterized by lengthy elimination periods, often as long as two years. • For example, three partners of a law firm may take out a disability buy-sell plan on each other with an agreement if one becomes disability they will sell the business to the other two partners who will use the proceeds from the policy to purchase the business.

Non-occupational Health Plans

• A policy that does not cover injuries sustained while at work because those injuries are covered by workers compensation.

Health Savings Accounts (HSAs)

• An HSA is a tax-favored vehicle for accumulating funds to cover medical expenses • Individuals under age 65 are eligible to establish and contribute to HSAs if they have a qualified high- deductible health plan• Annual contributions of up to 100% of an individual's health plan deductible can be made to an HSA • Individuals who are 55 to 65 years old can make an additional catch-up contribution • Earnings in HSAs grow tax-free, and account beneficiaries can make tax-free withdrawals to cover current and future qualified health care costs.

Blanket Health Plans

• Blanket health insurance is issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are constantly changing. • A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students • No certificates of coverage are issued in a blanket health plan, as compared to group insurance.

Credit Accident and Health Plans

• Credit accident and health plans are designed to help the insured pay off a loan in the event she is disabled due to an accident or sickness • If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payments due

renewability provisions

• Life insurance (particularly whole life insurance) and annuities are characterized by their permanence. These policies cannot be cancelled by the insurer unless the policyowner fails to make a required premium payment. • Health insurance is not as permanent in nature. Health insurance policies may contain any one of a wide range of renewability provisions, which define the rights of the insurer to cancel the policy at different points during the life of the policy. • There are five principal renewability classifications: cancellable, optionally renewable, conditionally renewable, guaranteed renewable, and noncancelable.• Generally speaking, the more advantageous the renewability provisions to the insured, the more expensive the coverage.• Every individual or blanket family hospitalization policy, except group plans, covering less than 10 persons, shall be renewable at the option of the policyholder unless sufficient notice of nonrenewal, generally,30 days is given to the policyholder in writing by the insurer.

accidental results

• Policies that use the accidental bodily injury provision (or results provision) require that the result of the injury has to be unexpected and accidental

accidental means

• Policies that use the accidental means provision require that the cause of the injury must have been unexpected and accidental

Franchise Health Plans

• Provide health insurance coverage to members of an association or professional society - coverage for small groups whose numbers are too small to qualify for true group insurance • Individual policies are issued to individual members and the association or society simply serves as the sponsor for the plan • Premium rates are usually discounted for franchise plans

General groups of underwriting considerations are applicable to all or most types of groups, such as:

• Reason for the group's existence (purchasing group insurance must be incidental to the group's formation, not the reason for it) • Stability of the group (underwriters want to see a group of stable workers without an excessive amount of "turnover") • Persistency of the group (groups that change insurers every year do not represent a good risk) • Method of determining benefits (it must be by a schedule or method that prevents individual selection of benefits) • How eligibility is determined (insurers want to see a sickness-related probationary period, for example, to reduce adverse selection) • Source of premium payments, whether contributory or noncontributory (noncontributory plans are preferred because they usually require 100% participation, which helps spread the risk and reduces adverse selection) • Prior claims experience of the group • Size and composition of the group • Industry or business with which the group is associated (hazardous industries are typified by higher-than- standard mortality and morbidity rates)

cafeteria plans

• Section 125 is part of the IRS Code that allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Under a Section 125 program you may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks. An S-Corp Owner with a greater than 2% share is INELIGIBLE to participate in a Section 125 Plan. Cafeteria plans are benefit arrangements in which employees can pick and choose from a menu of benefits, thus tailoring their benefits package to their specific needs • Employees can select the benefits they value or need and forgo those of lesser importance to them • The employer allocates a certain amount of money to each employee to "buy" the benefits he/she desires • If the cost of the benefits exceeds the allocation, the employee may contribute the balance • Without a Section 125 Plan in place an employee's payroll contribution would not be allowed to an HAS • Church employee welfare plans are specifically exempt from regulation under ERISA

Shared funding arrangement

• Shared funding arrangement: this allows the employer to self-fund health care expenses up to a certain limit.

Pregnancy Discrimination Act of 1978

• The Pregnancy Discrimination Act of 1978 is an amendment to the Civil Rights Act of 1964 designed to prohibit sex discrimination on the basis of pregnancy. • Requires employers to treat pregnancy in the same manner as a disability for any other medical reason • Requires group plans covering 15 or more people to treat pregnancy related claims no differently than any other allowable medical expense