Chapter 8 Health Basics A.D Banker
Underwriting Factors
Age Gender Tobacco use Occupation and hobbies (degree of risk); if more than 1 occupation, the most hazardous will be used Physical condition Moral or financial hazard Health history Geographic location Foreign travel/residence Other insurance Plan applied for
Sickness-video
-Illness or disease diagnosed while the policy is in force
Principal types of losses and benefits-Disability Income (video)
-Loss of timer income? -Valued contract that pays weekly/monthly benefits if insured is unable to work due to injury or sickness. The benefit is based on loss of income. It's either a percentage of insured's past earnings or a flat dollar amount
Pre-existing Conditions-video
-Prior medical conditions for which the applicant received or should have received medical advice, diagnosis, or treatment prior to the effective date of the policy-generally within the past 12 months
Morbidity Table-video
-The mathematical likelihood of an illness, injury, or disability occurring -It's helped to calculate health insurance premiums -This is NOT mortality table used for Life Insurance
Probationary period-video
-Time period from the beginning of the policy before losses due to sickness are eligible to be covered -Designed to protect the insurer from an applicant applying for coverage when they have an immediate need for medical attention
Sources of Underwriting Information- Consumer Investigative or Inspection Report & Agent/producer report (video)
A consumer investigative/inspection report is a statement prepared by an inspection bureau that provides confidential background information about an applicant including finances. Additional background information regarding lifestyle, morals, and character may be obtained through the use of interviews by the applicant's friends and neighbors Agent/Producer report is part of the application and is a statement submitted by the agent. General information regarding the applicant based on the agent's experiences may prove to be useful in the underwriting process. This report is confidential and it is not part of the contract. The applicant does not receive a copy of the agent's report.
Accidental Injury
A spontaneous event, unforeseen and unintended, resulting in injury
Copayment
A stated dollar amount that applies per claim in addition to any other cost sharing.
Who pays for any reports or Medical Exams required as part of the underwriting process for insurance? A The insurance company B The policyowner C The insured D The producer
A. The insurance company pays for any reports or medical exams required as part of the initial underwriting.
All of the following are alternatives an insurer may have when asked to insure a substandard risk, except: A Issue the policy with a waiting period after which the insurer may cancel the policy B Attach a rider to the policy excluding certain coverages or conditions C Charge a higher than standard premium D Limit the coverages of the policy
A. If a policy is issued substandard, the insurer may charge a higher premium, limit the coverage, or attach an impairment rider which excludes specific conditions in the policy.
An application for health insurance is completed by a producer and signed by the applicant. The applicant remembers information that needs to be added to the application before being submitted to the insurer and contacts the producer, who has returned to the office. Which of the following statements is correct? A The producer must meet with the applicant in person to update the information and have the applicant initial the changes B Once the application is signed, answers reported on the application cannot be changed C The applicant will have the opportunity to correct any information when the policy is delivered D The producer can make any changes necessary with verbal consent of the applicant
A. Once the application is complete, any changes that need to be made must be initialed by the applicant. The producer does not have the authority to make changes without the knowledge of the applicant.
Which of the following would be considered a pre-existing condition? A Diabetes B A broken wrist C The flu D A sore throat
A. Pre-existing conditions are 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. The BEST answer is diabetes as it is considered a 'medical condition'.
Individual Underwriting Actions- Video
After evaluating the risk, the underwriter will do one of the following: Issue Preferred: coverage at lower rate than standard Issue Standard: coverage at rate as originally quoted Issue Substandard: Exclusions or Reductions in benefits Rejection: Do not issue policy- applicant is an excessive risk and considered uninsurable
Sickness
An illness or disease that is contracted after the probationary period has ended
Premium Determination- Video
Assumptions and calculations of premiums -Premiums paid in advance -Premiums invested and earn interest for insurer Premiums are based on -Morbidity -Interest -Expenses Morbidity charge 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, so gross premium equals= morbidity-interest + expenses
Information Sources and Regulation of Underwriting
Application Part I - General: Contains general questions about the applicant, such as gender, marital status, residence, date of birth, occupation, and past and present insurance. Part II - Medical: Contains questions pertaining to medical background, past and present health, any medical visits, hospitalizations, or surgeries in recent years, and medical status of immediate family members, including their ages and causes of death. Medical Examination Records of an examination conducted by a medical professional regarding the applicant's present health. This is usually requested by the insurer after determining if the amount of coverage, age of applicant, or health history warrant the examination. Medical exams are performed at the insurer's expense. Attending Physician Statement (APS) Used in cases in which the individual application and/or medical reports reveal conditions which require more information. This statement is completed by the applicant's personal physician treating a specific condition. An applicant must sign a written release to enable a release of the APS. 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. The MIB's coded reports represent general medical information and other conditions, typically hazardous hobbies and adverse driving records, affecting the insurability of the applicant. If the coded reports are inconsistent with the information provided by the applicant, underwriters are required to conduct a further investigation to obtain more information about the reported medical histories or conditions prior to making an underwriting decision. Because the MIB information is general, the report cannot solely be used to decline an applicant for insurance. Inspection Report A general report of the applicant's finances, character, morals, work, hobbies, and other habits.This is sometimes referred to as a Consumer Investigative Report. This can be completed by the insurer or a third-party provider. The applicant must be made aware of any information gathering and has rights provided under the FCRA. Agent's Report A personal statement submitted by the producer to the insurer regarding any personal knowledge of the applicant, including information observed during the application process. This information remains confidential between the producer and the insurer, and it does not become part of the entire contract.
Sources of Underwriting Information-Attending Physician Statement/APS- video
Attending Physician Statement (APS)-It is requested if the applicant reveals conditions requiring additional information regarding a specific condition. The applicant must consent to the release of the APS. The applicant's treating physician will provide the statements concerning the diagnosis and treatment of such conditions
Certain disability and health care insurance products may be subject to specific advertising regulations. In general, insurance producers should do which of these? A Create and use their own product-specific advertising B Use company-provided advertisements for each product they wish to market C Duplicate ads of other agents seen in newspapers or magazines, changing only the name, address, and phone number for their agency D Avoid all advertising since it is costly and does not often produce consistent results
B. Advertising should be restricted to the use of company-provided advertisements. A producer who wishes to create their own advertising must usually submit those ads for company approval before they may be used. If not approved, the ads cannot be used.
A disability income policy may provide a benefit for loss of time from employment in which of these ways? A A flat benefit only B A flat benefit amount or a percentage of pretax income C A percentage of pretax income only D A daily amount for each day hospitalized and a lesser amount for each day at home
B. Disability income policies are designed to pay either a flat monthly amount of income or a stated percentage of verifiable pretax income.
Replacement of health or disability insurance generally requires that the new policy must do which of these? A Lower the insured's annual premium by a minimum of 5% B Materially improve the insured's position in all or nearly all respects C Increase the premium and reduce the benefits provided D Promise to increase the benefits provided without an increase in premium
B. In most instances, the replacement of a health or disability policy must improve the insured's position, which could include increased benefits at reduced cost.
When it comes to health insurance underwriting and HIV/AIDS, which statement is TRUE? A Refusing to be tested for HIV cannot be the reason for denial of coverage B Insurers can refuse to issue a policy based on HIV test results C All health insurance applicants must be tested for HIV D Insurers cannot require an HIV test in order to consider an application
B. Insurers can require an HIV test before issuing coverage, and can refuse coverage based on test results. There is no legal requirement that applicants be tested for HIV.
Which of the following is not government-funded health insurance? A Children's Health Insurance Program B Medicare Supplement C Medicaid D Tricare
B. Medicare Supplement plans are available from private insurance companies and are not government-funded.
W has a health insurance policy with an 80/20 coinsurance provision and a $1,000 deductible. If W has an outpatient procedure that cost $900, how much will W have to pay? A $180 B $900 C $200 D $720
B. The deductible must be satisfied before the co-insurance applies. Since the deductible is $1,000, W must pay the entire $900.
Edward applies for a disability insurance policy. He pays the initial premium at the time of application and receives a conditional receipt. Three days after the insurance company conducts a medical examination, but before it issues a policy, Edward suffers a stroke. Upon reviewing the results of his medical exam, the company discovers that Edward has been diagnosed with high blood pressure and atherosclerosis. Under the terms of the conditional receipt, the insurance company: A Denies the claim because the insurer would not have issued the policy as applied for as standard or better B Delays the effective date of the policy C Pays a reduced benefit since the results of the medical exam show a pre-existing condition D Pays the claim because a receipt has been provided
B. The insurer will deny the claim because they cannot issue the policy as written. If the insurer chooses to issue a policy, it will either be a rated/substandard policy or a standard policy with an exclusion for Edward's medical condition.
When insurance advertisements include a comparison of similar accident and health insurance products, which of the following is not a major factor in the comparison? A Rates B Cash values C Benefits D Exclusions
B. When insurers advertise by comparing like products, the comparisons must be complete and include rates, policies, benefits, and dividends. Accident and health insurance policies generally do not build cash values.
Which of the following statements best describes what we would define as being the co-pay provision in a health insurance policy? A An initial cost sharing amount paid before insurance benefit apply B The cost-sharing formula when multiple insurers cover the same claim C A stated dollar amount applied per claim, in addition to any other cost-sharing D The cost sharing percentage between the insurer and the insured
C. A cost-sharing percentage is called 'coinsurance' not a co-pay, and the initial cost sharing amount is called a deductible.
Answers to questions in applications for health and disability insurance are considered representations and not warranties. If an applicant later realizes they answered a question incorrectly, how may the answer be changed? A The applicant will have the opportunity to correct any wrong answers when the policy is delivered B The applicant will have up to two years to correct any wrong information in the application C Wrong information may be corrected at any time prior to issuance of the policy D Once submitted, answers in an application for insurance cannot be changed
C. Because the application is the primary source of underwriting information, any changes to the application may only be made before a policy is issued. Once a policy is issued, the answers in the application may be used to deny or rescind coverage if determined to be material misrepresentations.
In the event there is a policy issued and there are questions on the insurance application that went unanswered: A A new application must be filed B The agent will fill in the answers after the fact C It will be assumed that the insurer waived their right to have answers to those questions D The insurer will cancel the policy
C. If a policy is issued with application questions unanswered, the contract will be interpreted as if the question had not been asked and is therefore waived by the insurer.
It is determined that Charles, an agent representing the Timely Payment Insurance Company, has misled the consuming public in an advertisement for one of the company's products. As a result of such action, which of the following is true? A Only Charles will be held accountable B Only Charles' immediate supervisor will be held accountable C Both Charles and the Timely Payment Insurance Company will be held accountable D Only the Timely Payment Insurance Company will be held accountable
C. In effect, if Charles misleads the public in an advertisement, so does the insurer he represents.
All of the following are individual underwriting factors, except: A Gender B Age C Marital status D Tobacco use
C. Individual underwriting factors include age, gender, tobacco use, occupations and hobbies, physical condition, moral hazard, health history, and the plan applied for.
Howard talks to his agent Jane about buying a critical illness policy from the XYZ insurance company to cover his wife Deborah, and naming his daughter Mary as the beneficiary in case of death. Jane told him that she would need signatures from all of the following, except: A Jane B Howard C Mary D Deborah
C. Mary. Beneficiaries are not required to sign. The agent must sign on behalf of the company, and the insured, not being a minor, must give consent to being insured. The policy owner, who is also the applicant, must by definition sign the application.
What factors are not used in underwriting an individual disability policy? A Health history and foreign travel B Smoking and hobbies C Political affiliation and religious preference D Age and gender
C. Religious preference and political affiliation are not factors used in underwriting individual health policies.
Delivering the Policy
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. When the insurer determines that a particular applicant is an acceptable risk and has paid the premium, the insurer will issue the policy for legal delivery, It is a best practice to send the policy to the producer for delivery to the insured. It is the producer's responsibility to deliver the policy and explain the policy to be sure the insured understands the benefits, policy provisions, riders, exclusions and ratings endorsements. If no initial premium is paid, the application is considered a "trial application." The Policy then becomes the Offer and, upon delivery, the premium is the Acceptance. In this case, the insurer will send the policy to the producer for a formal delivery. There is no coverage until a Statement of Good Health and premium are collected at the time of delivery. The Statement of Good Health is a signed statement by the applicant confirming that everything stated on the application is still true. If the applicant's health has changed since application, the policy will be returned to the insurer for possible further underwriting.
A client requests a Medical Expense Policy several months after you suggested the policy. The underwriter will most likely order which of the following? A Stress Test B Blood Test C Consumer Report D Attending Physician's Statement
D. Agents do not have authority to recommend or suggest any underwriting requirements. At most, the agent could inform underwriting that the applicant was previously offered an opportunity to apply for insurance and declined. This would likely result in the underwriter ordering an APS.
All of the following are common complaints filed by clients against Errors and Omissions policies, except: A Failure to obtain proper coverage B Quoting inflated information C Misrepresenting the plan of coverage D Failure of the agent to share the commission with the client
D. All are common complaints filed except sharing commissions with the client.
In respect to Accident and Sickness Insurance advertising, all of the following are true, except: A An agent must include the full name of the insurer when advertising a certain type of policy B Insurers may include statistical information as long as it is accurate and the source is named C Insurers are accountable for the accuracy of statements used in any personal testimonials they utilize in the advertising of their products D Only a comparison of benefits is required when insurers advertise by comparisons of like products
D. Comparisons of like products must be complete and include rates, pertinent company policies, benefits, and dividends.
This type of coverage is used for replacing the insured's loss of earnings. A Long-term care B Dental expense C Medical expense D Disability income
D. Disability Income (Loss of Time or Income) is a 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.
Employment-based plans are governed under which of the following federal acts? A FICA B FCRA C COBRA D ERISA
D. ERISA is the federal law that governs the administration and operation of employee benefit plans, including health care and other welfare benefit plans.
Before telephoning a prospect for the first time, a producer must do which of the following? A Send a letter to the prospect advising them that a follow-up phone call will be coming B Make sure they have memorized the company-approved telephone solicitation script C Obtain certification under the TCPA to be able to call any phone number in America D Check the company and national Do Not Call lists to be sure the phone number is not restricted
D. The TCPA requires that no unsolicited phone calls be made to any phone number listed in the national Do Not Call list managed by the Federal Trade Commission (the list must not be more than 31 days old).
Which of the following items does not become part of the insurance contract as defined in the entire contract clause? A The medical examination report B The application C Information regarding hobbies D The agent's report
D. The agent's report is neither part of the application, nor part of the insurance contract. The agent's report is a confidential communication between the agent and the insurer.
Which one of the following is the initial source of underwriting information? A The investigative consumer report B The medical exam C The attending physician statement D The application
D. The application is the starting point for underwriting. It is considered a vital document because it is usually attached to and made part of the contract. It also contains the signatures of the agent, the insured, and the owner if different from the insured. It is usually the application that determines which other sources may be needed.
In an Accidental Death & Dismemberment policy, the capital sum provides benefits for which of the following losses? A Loss of limbs or eyesight from a disease, such as diabetes B Death from all causes C Death from accidental causes D Loss of limb or eyesight from accidental causes
D. The capital sum in an Accidental Death and Dismemberment policy will pay benefits for dismemberment - loss of a limb/eyesight/hearing only in losses due to an accident. The death benefit payable is referred to as the principal sum not the capital sum.
Definitions
Definitions Beneficiary Individual specified in the policy who is eligible to receive benefits upon a loss suffered by the insured Accidental bodily injury A spontaneous unforeseen and unintended event resulting in injury Insured Individual covered for a loss under the policy Policyowner The person who controls the policy and maintains the right to make all decisions regarding coverages Health insurance benefits May include payments for disability income, medical, hospital and surgical expense reimbursement, dental expenses, accidental death and dismemberment, and long-term care expenses Sickness An illness or disease that occurs after a policy is issued Insurable interest Relationship that must exist at the time of application in which an insured's sickness or injury would result in a financial or economic loss by the policyowner
Principal Types of Losses and Benefits
Disability Income (Loss of Time or Income) - Contract that pays weekly or monthly benefits due to injury or sickness if an insured is unable to perform all or some of the duties of their job. The benefit is either a percentage of the insured's past earnings or a flat dollar amount. Medical Expense - Contract that covers the various expenses an insured may incur due to an accident or sickness Dental Expense - A form of Medical Expense health insurance covering the treatment and care of dental disease and injury affecting the insured's teeth.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.Accidental Death and Dismemberment - Pays the principal sum, or 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. 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
Producer Responsibilities in Individual Health Insurance
Do Not Call Registry - The Federal Trade Commission amended the Telephone Consumer Protection Act (TCPA) to give consumers a choice about receiving unwanted telemarketing calls. It is illegal 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. The TCPA also limits the hours that telemarketers may call noncustomers at home from the hours of 8 am - 9 pm. Sales presentation - Agents are required to provide prospective health insurance buyers with all sales materials used when soliciting policies of insurance. Outline of coverage - An outline of coverage 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.
Delivering the policy-video
Ensuring Policy Delivery -Insurer will send to agent for delivery-coverage is in effect as of date of application with premium/ date of completed medical exam if required -Conditional approval or receipt-premium paid is offer and policy is the acceptance -Some health insurance have a waiting period before losses due to sickness can be covered, but policy will still be in effect based on the conditional receipt -Considered as Trial Application if no initial premium is paid - Insurer will send policy to agent for a formal delivery. There is no coverage until agent gets signed statement of good health and collects premium at time of delivery -The statement of good health is a signed statement by the applicant that everything stated on the application is still true to the best of their knowledge. -It is the agents responsibility to deliver policy to the insured and to explain policy: Provisions, Riders, Exclusions, and Ratings-outline of coverage that explains the benefits
Errors and Omissions
Errors and Omissions is professional liability 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: Inadequacy, failing to obtain proper type or amount of coverage for a client 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.
Accident (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.
Definitions
Health insurance benefits May include payments for disability income, medical, hospital and surgical expense reimbursement, dental expenses, accidental death and dismemberment, and long-term care expenses Accidental bodily injury A spontaneous unforeseen and unintended event resulting in injury Beneficiary Individual specified in the policy who is eligible to receive benefits upon a loss suffered by the insured Insured Individual covered for a loss under the policy Sickness An illness or disease that occurs after a policy is issued Insurable interest Relationship that must exist at the time of application in which an insured's sickness or injury would result in a financial or economic loss by the policyowner Policyowner The person who controls the policy and maintains the right to make all decisions regarding coverages
Policy Replacement Considerations-video
If policy is being replaced by new policy, some things to consider: Preexisting Conditions -New waiting periods may apply under the replacing policy causing immediate loss in coverage for preexisting conditions Benefits, limitations and exclusions -There may be reduced benefits, limitations, and exclusions causing a loss of benefits under the replacing policy Errors and Omissions liability -If agent fails to mention that coverage may be limited, there may be exclusions, or that a new probationary period may apply they will be held liable for uncovered claims under the errors and omissions doctrine -
Classes of Health Policies
Individual vs. Group Individual health insurance, including coverage for a family, is purchased by an individual and is not dependent upon an employer. Some individual health plans require proof of insurability, and rates apply based on underwriting factors used by the insurance company. Individual plans tend to be more costly than group plans and have higher deductibles and out-of-pocket expenses.Group insurance plans, which are employer-sponsored, are available to employees and dependents. Group underwriting factors determine the premiums for the group, as opposed to underwriting each individual. The employer makes all decisions regarding the coverage under a group plan, but mandatory benefits must be offered. Proof of insurability is not typically required for an employee to obtain coverage under a group health plan.A federally regulated ERISA-covered group health plan is an employment-based plan that provides coverage for medical care, including hospitalization, sickness, prescription drugs, vision, or dental. These plans can provide benefits by using funds in a plan trust, the purchase of insurance, or by self-funding benefits from the employer's general assets. Private vs. Government Most insurance is written through private insurers. Private insurers are commercial companies, such as stock and mutual insurers, that sell to the general public. Insurance may also be offered through the government. Health insurance plans provided by the government include Social Security Disability, Medicare, Medicaid, and Tri-care for military personnel. Limited vs. Comprehensive Some health plans are designed to cover limited benefits, based on the type of loss stated in the policy or a limited dollar amount. Comprehensive plans cover a broader range of losses and have larger policy limits.
Principal types of losses and benefits-Medical Expense (video)
It is a contract that covers the various expenses which an insured may incur due to an accident or sickness
Principal types of losses and benefits-Dental Expense (video)
It is a form of medical expense health insurance covering the treatment and care of dental disease and injury affecting the insured's teeth.
Sources of Underwriting Information-Medical Information Bureau/MIB (video)
It is a not for profit organization owned by life and health insurance companies. The organization acts as an information exchange among member companies who contribute underwriting information to the MIB database that is used to alert member underwriters of errors, omissions, and misrepresentations on insurance applications. By providing information to help detect fraud, the MIB's ultimate goal is to reduce the cost of life and health insurance. As part of the underwriting process, a member company may request information regarding an applicant through the MIB. The under writer will be notified of any adverse medical information regarding the applicant that the MIB has on file
Principal types of losses and benefits-Long term care expense (video)
It is a product designed to cover necessary diagnostic preventative, therapeutic, rehabilitative, maintenance, or personal care services provided in a setting other than an acute care unit of a hospital such as a nursing home or even one's home
Principal types of losses and benefits- Accidental Death & Dismemberment (video)
It pays the principal sum or face amount upon accidental death, loss of sight, or loss of two limbs. It also pays the capital sum which is 50% of the face amount for a single dismemberment. There is also a policy schedule for lesser accidental dismemberment losses. It may be added as a rider to a disability income, medical expense, or a life insurance policy
Sources of Underwriting Information- Medical Examination (Video)
Medical examination- Provides results of an examination performed by a nurse or a portamedic 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 insurance companies expense.
Disclosures and Consent
Notice of Information Practices and Disclosure - The Fair Credit Reporting Act (FCRA) The insurance company must meet requirements under the FCRA when gathering information from a third party to use during underwriting. The applicant must be notified and give consent for information to be received by a third party. This information is disclosed as part of the application. The applicant's signature on the application serves as the notice of information practices. This gives the insurance company the right to obtain the various investigative, medical, and financial reports needed to compete the underwriting process.HIPAA Disclosures and HIV Consent The Health Insurance Portability and Accountability Act (HIPAA) was enacted in 1996 to protect sensitive patient health information from being disclosed with the patient's consent or knowledge. Health care providers and insurers are now required to preserve patient confidentiality and protect health and medical information. All medical information obtained on an applicant during the underwriting process must remain confidential and the applicant's privacy must be protected. Before an insurer can share any medical information, the applicant must be notified of the treatment of the information, rights to maintain privacy, and an opportunity to refuse the dissemination of information.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.
Accident and Health Insurance
Policy covering the perils of injury and sickness
Classification of Risks
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. Assumptions and Calculations of Premiums Premiums are always paid in advance, are invested, and earn interest for the insurer.Factors in Premium DeterminationMorbidity - The predicted number of medical claims in any given year for a specific group of insureds. Morbidity Tables are used to provide statistics that give the company a basic estimate of how much money it will need to pay for medical and disability claims each year. Interest - The second factor used in calculating the premium is interest earnings. Companies invest premiums in bonds, stocks, mortgages, real estate, etc., and assume it will earn a certain rate of interest on these invested funds. Expenses - The amount charged to cover each policy's share of expenses of operation, salaries, commission, and cost of doing business, is called expense loading. This can vary from company to company based on its operations and efficiency. Morbidity - Interest = (Net Premium) + Expenses = Gross Premium Modes of premium payment refer to the frequency in which a premium payment may be made. Premiums can be paid monthly, quarterly, semi-annually, and annually. The more frequently the premium is paid, the higher the premium, due to the company's administration costs and loss of investment income. Underwriting Actions and classification Upon completion of the underwriting process, the insurer's underwriter will take one of the following actions: Issued as a Preferred Risk - A lower rate will be used if the insured meets the insurance company's qualifications as a preferred risk (is lower than average risk). Issued as a Standard Risk - The coverage requested at the rate that was quoted. Some health insurance may only be issued with standard rates. Premium rate-up would still be permitted for tobacco users. Issued as a Substandard Risk: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. This may be referred to as a surcharge.Issued with Exclusions/Limitations - May be temporary or permanent; limits the insurer's obligation 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.
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
Replacement Considerations
Replacement The process of replacement includes canceling an old policy once a new policy has been purchased. If replacing an individual health or disability policy, care must be taken to compare limits of coverage, benefits, and exclusions. The old policy should not be canceled before the new policy is issued, otherwise this could leave the applicant without coverage. The new policy may require underwriting to prove evidence of insurability, which can affect the coverage and premiums of the new policy. To avoid an Errors and Omissions claim, the producer must not be negligent, or make false statements or misrepresentations.
Producer Responsibilities in Individual Health Insurance
Solicitation and Marketing Requirements Advertising The purpose of an advertising regulation 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. Each insurer must maintain, at its home or principal office, a complete file containing every printed, published, or prepared advertisement of its individual, blanket, franchise, and group policies. Advertisements encompass printed or published material, audiovisual material and descriptive literature, including newspapers, magazines, radio scripts, television scripts, billboards, sales talks, presentations, and personal testimonials. Additional requirements: Insurance companies are responsible for the accuracy of its personal testimonials Insurers may include statistical information as long as it is accurate and the source is named The agent must include the full name of the insurer when advertising a certain type of policy When an agent misleads the public in an advertisement, both the insurer and agent are held accountable 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 When insurers advertise by comparison of like products, the comparisons must be complete to include rates, policies, benefits, and dividends The history of a very high or unique claim settlement cannot be used in advertising by the agent or insurance company Prohibited Forms of Advertising No advertisement of a hospital or facility confinement benefit may 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 that misrepresents coverage is unlawful.
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 pre-existing conditions; probationary period is at least 30 days
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.
Sources of Underwriting Information-Application (video)
The Application is the first source of underwriting. There are two parts: Application part 1: General information, name, age, gender, address, DOB, marital status, hobbies, and occupation of applicant. It also includes information regarding the policy type applied for and any existing policies Application part 2: Medical information, present health, pre-existing conditions, family health history. Once underwriter has reviewed application, it may be determined that other sources will be used to help determine the potential risk
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 benefits apply
Individual Selection Criteria
The insurer uses all of the information collected by the field underwriter and other sources to determine the acceptability of an individual. It is ultimately the home office underwriter's responsibility to determine if this individual meets all the underwriting requirements set forth by the insurer. Example The insurer receives a prepaid application. Upon the receipt of the MIB report, health problems are revealed. The underwriter will at this time, require additional information in the form of an Attending Physician Statement (APS) and/or possibly a medical examination. The underwriter may rate or deny the application based on this additional information. The MIB report reveals past medical concerns and cannot be used as the only medical report for rating or denying an application. 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.
Individual Health Insurance Underwriting
The policyowner is the person applying for insurance coverage and responsible for completing an application. The owner may or may not be the insured, or the person being covered for a loss under the policy. Typically, benefits are payable to the insured in a health insurance contract. However, the policyowner may select a beneficiary who will receive benefits under the contract if a loss occurs. If death benefits are payable or the insured dies before the benefits are paid out, the named beneficiary will receive payment from the claim. The primary beneficiary is the first in line to receive a benefit. A contingent, or secondary, beneficiary may also be named in case the primary beneficiary dies before the insured. Both the owner, or applicant, and the insured must be present and sign the application. Field Underwriting Nature and Purpose Field underwriting 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. 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. If attached to the policy, a copy of the application becomes part of the entire contract. Required Signatures Both the producer and the applicant must sign the application. The applicant is representing that statements on the application are true. If someone other than the insured is the owner, both signatures are required. If the applicant is a minor, a guardian must sign the application. Changes in the Application If an answer to a question on the application needs to be changed, the producer or applicant may make the correction, but the applicant must initial the change or the producer must complete a new application.Consequences of Incomplete Applications It is the producer's responsibility to make certain the application is filled out completely, correctly, and to the best of the applicant's knowledge. The underwriter will most likely return an incomplete application to the producer for completion by the applicant. If a policy is issued based on an incomplete application, it is assumed the information is not material to the issuance, and the insurer waives the right to challenge a claim based on the incomplete application.Collecting the Initial Premium and Issuing the Receipt If a premium is paid at the time of application, the producer will provide the owner with a conditional receipt. The conditional receipt provides coverage effective back to the date of application as long as coverage is issued as applied (standard) or better. If a loss occurs before the policy is issued, the insurer has to prove the policy would not have been issued as applied or the loss must be covered based on the terms of the receipt. If a producer does not collect the initial premium and submits ONLY the application to the insurer, the policy will not go into effect until the application has been approved, the policy has been issued, and the premium has been paid.
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 third party accountable for the loss
