Chapter 8 Health Insurance Basics

Completing the Aplication

-Field Underwriting Nature and Purpose -Completing the Application -Required Signatures

An insurance applicant must be notified prior to an insurer ordering an investigative or financial report as required by which law? A. USA PATRIOT Act B. Fair Credit Reporting Act C. Freedom of Information Act D. Health Insurance Portability and Accountability Act

B. Fair Credit Reporting Act The FCRA requires prenotification that an insurer may order a financial (credit) report, medical report, or investigative report. The notification is included in the application process.

Inspection Report

is a general report of the applicant's finances, character, morals, work, hobbies, and other habits. In general, an inspection report will confirm and elaborate on information provided on the application.

Pre-existing condition

is a prior medical condition for which the applicant has received, or should have received, medical advice, diagnosis, or treatment within a specified period, such as 6 months, before the effective date of a policy.

Probationary period

is a specified period of time such as 60 days after the policy effective date, before losses due to sickness are covered. ---This waiting period is designed to protect the insurer from an insured purchasing a policy with the intent to immediately file a claim.

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. -The producer will assist the applicant during this process by recording information on the application.

Accidental bodily injury

is defined as a spontaneous, unforeseen, and unintended event resulting in injury.

Sickness

is defined as an illness or disease that occurs after the policy is issued.

MIB, Inc. (Medical Information Bureau) Report

is primarily used to collect adverse medical information about an applicant's health and act as an information exchange.

Insured

is the individual covered for a loss under the policy.

A producer provided a conditional receipt to an applicant on May 5th at the time of an application based on a standard risk. The insurer required a routine medical exam, which was completed on May 15th. The policy was issued based on a standard risk on May 20th and the producer hand-delivered the policy on May 22nd. When is the effective date of coverage?

The effective date of coverage in this case was May 15th.

Can the applicant request a copy of the report that is made with the third party?

The insurance applicant has the right to request a copy of the report through the party that prepares the report, not the insurance company.

Who's responsible for making sure the application provides information for the insurer?

The producer's primary underwriting role is to make sure the application provides proper information for the insurer. The underwriter will usually reject an incomplete application and return it to the producer for completion by the applicant.

The general purpose of underwriting is to detect

adverse selection, unhealthy or high risk applicants, and to insure only those risks that meet certain criteria.

If a policy is not approved as applied for and is issued as substandard, the insurer may make a

"counteroffer" to the applicant. ---The insurer may issue a policy with a surcharge (higher rating) or exclusions to the policy. ---The producer must hand-deliver the policy to the applicant to collect any additional premium, explain any substandard rating or changes in coverage and premium, and reinforce the value of the contract. Since the policy issued is considered a counteroffer, the applicant must accept the policy as issued for a legal contract to exist. Coverage does not apply until this occurs.

Trial Application

A trial application is one submitted without a premium.

In the event a policy is delivered by an agent to the insured, and the premium payment is to be collected at the time of this delivery, normally what else must the agent obtain to make the delivery complete? A. A statement of good health B. Postage and handling fees C. An affidavit from the applicant D. Additional payment reflecting lost interest

A. A statement of good health It is the agent's responsibility to deliver the policy and verify that the insured has remained in good health.

Which one of the following is the primary source of underwriting information? A. Application B. Medical exam C. Attending Physician Statement D. Investigative consumer report

A. Application The application is the initial source of underwriting and insurability. It is the first thing submitted to the underwriter and may include all information necessary to issue a policy or additional information may be requested.

In the event there is a policy issued and there are questions on the insurance application that went unanswered: A. It will be assumed that the insurer waived their right to have answers to those questions B. The agent will fill in the answers after the fact C. A new application must be filed D. The insurer will cancel the policy

A. It will be assumed that the insurer waived their right to have answers to those questions 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.

A specified period that must elapse before new coverage goes into effect for a given condition is known as which of the following? A. Probationary period B. Waiting period C. Exclusion D. Benefit period

A. Probationary period A probationary period is a specified period of time after the effective date of a policy before new coverage goes into effect for specified conditions, such as losses due to a sickness or preexisting conditions.

Which of the following is required to sign the application for insurance? A. Producer and the applicant B. Producer and the insurer C. Insurer only D. Producer only

A. Producer and the applicant The producer and the applicant must sign the application. If the applicant and insured are different, then both must sign as well as the producer.

If a premium is submitted with the application and a conditional receipt is issued, coverage is effective: A. The date of application, or date of a completed medical exam if required, whichever is later, as long as the policy would have been issued as applied for B. The date the policy is issued and mailed to the producer C. The date the insured or owner signed the policy delivery receipt D. The date the insurance company received the results of a required medical exam

A. The date of application, or date of a completed medical exam if required, whichever is later, as long as the policy would have been issued as applied for A conditional receipt provides that coverage is effective the later of the date the application is signed or when a required medical exam is completed, not when the results are provided.

Agent's Report

Agent's Report is 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.

Why might a trial application be submitted?

An insurance applicant may be concerned that he/she will not qualify for a policy and does not wish to pay the premium up front.

When a policy is mailed to an agent by an insurer after being accepted as applied for and the initial premium paid, it is considered to be: A. Rated B. Legally Delivered C. Purchased D. Issued

B. Legally Delivered A policy may be delivered by registered or certified mail with a signed receipt of delivery. 'Constructive delivery' occurs when the insurer places the policy with the delivery service and no longer has physical custody of the policy.

Which of the following must be given to consumers under the provisions of the Fair Credit Reporting Act (FCRA)? A. Disclosure at the Point of Sale B. Notice of Information Practices C. Application Receipts D. Outline of Coverage

B. Notice of Information Practices The Notice of Information Practices describes the insurer's policy and practice when it comes to handling consumer information, which is the topic governed by the FCRA.

HIPAA ensures which of the following? A. Answers on the application are guaranteed to be true B. Privacy of health information C. The insurer must provide a copy of a third-party report to the applicant D. Notice of information practices when received by a third party

B. Privacy of health information HIPAA ensures the privacy of an applicant's health information. The FCRA requires notice of information practices when received by a third party.

Statements made on the application are considered true to the best of the applicant's knowledge and belief are considered to be: A. Warranties B. Representations C. Concealments D. Waivers

B. Representations Representations are statements made and believed to be true to the best of a person's knowledge. Warranties are statements of absolute truth.

If a premium is not paid at the time of application, the producer will obtain which of the following at the time of policy delivery? A. Attending physician's statement B. Signed statement of good health C. Notice of consent D. Conditional receipt

B. Signed statement of good health If premium is not paid at the time of application, the producer will collect the premium when delivering the policy and obtain a signed statement of good health from the insured stating that there have been no changes to the insured's health since the time of application.

If the insurer issues a health insurance policy without an initial premium, the producer must obtain a signed: A. Standard provisions endorsement B. Statement of Good Health C. Rider that the policy is acceptable D. Statement of increased health risks

B. Statement of Good Health When delivering the policy, the producer must have the insured sign a statement of continued good health. This statement says that everything on the application is still true and there has been no changes to their health status.

If an incomplete application is accepted by the underwriter and a policy is issued without requesting the missing information, which of the following statements applies? A. The insurer can void the contract at any time since this is considered fraudulent B. The insurer waives its right to contest a claim based on the incomplete application C. The producer will be personally responsible out of pocket for any claims filed based on the missing information in the application D. The policy can be contested if a loss occurs within 2 years of the policy being issued

B. The insurer waives its right to contest a claim based on the incomplete application If the insurer issues a policy based on an incomplete application, it waives the right to contest a claim based on any missing information.

Who must sign the application?

Both the producer and the applicant/insured must sign the application.

Does the insurer have the right to challenge an incomplete application?

By issuing the policy, the insurer waives the right to challenge a claim based on the incomplete application.

is the process of determining if someone is insurable, classifying the risk, and determining the rate or premium to be charged.

Underwriting

All of the following are potential risks of replacement of an individual health or disability insurance policy, except: A. A new probationary period may go into effect limiting coverage for losses due to sickness B. Coverage may be reduced or excluded due to a pre-existing condition C. Coverage due to an accident will be restricted for 30 days after the effective date of the policy D. Premiums may be higher than the original policy

C. Coverage due to an accident will be restricted for 30 days after the effective date of the policy Replacement of a policy may result in higher premiums, exclusions due to pre-existing conditions, or a probationary period limiting when losses due to a sickness are covered. Losses due to an accident are not affected by pre-existing conditions or probationary periods.

If a premium is paid at the time of application and the policy is issued as applied, legal delivery can occur at the time of: A. When a statement of good health is provided B. Completed medical exam C. Issuance of the policy D. Application

C. Issuance of the policy Legal delivery occurs when the policy is issued or accepted by the insurer only if the initial premium has been paid and the policy was issued as applied. It is at this point that a legal contract exists since the issued policy is the acceptance of the offer.

Determine if the following steps occur while the application is being completed, during the underwriting process, or when the policy is delivered.: Completing the Application Underwriting Process Policy Delivery -Classification of risk and rating -Conditional receipt may be issued -Insurability is determined -Required signatures -Statement of Good Health -Formal request for the insurer to issue a policy -MIB report may be requested -Producer explains rating, premiums, coverages, and policy benefits -Legal delivery

Completing the Application -Conditional receipt may be issued -Formal request for the insurer to issue a policy -Required signatures Underwriting Process -MIB report may be requested -Insurability is determined -Classification of risk and rating Policy Delivery -Legal delivery -Statement of Good Health -Producer explains rating, premiums, coverages, and policy benefits

If the initial premium is paid at the time of application, the producer will issue a

Conditional Receipt

What is the inspection report sometimes referred to as?

Consumer Investigative Report

Which of the following statements is correct regarding changes in the application? A. All changes must be notarized B. A licensed producer is authorized to make any reasonable changes to the application C. The insurer will provide specific instructions as to what changes on the application the producer can make D. Any change or correction must be initialed by the applicant

D. Any change or correction must be initialed by the applicant Once the application is complete, any changes that need to be made must be initialed by the applicant. Depending on the severity of the changes, the producer could also choose to complete a new application. The producer does not have the authority to make changes without of the knowledge of the applicant.

If the premium is paid at the time of application, the agent will provide the applicant with a: A. Free look notice B. Statement of good health C. Claim form D. Conditional receipt

D. Conditional receipt The agent will provide a conditional receipt if the premium is paid by the applicant at the time of application.

The Medical Information Bureau provides information to the insurer regarding the individual risk of an applicant and does not include: A. Hazardous hobbies B. Pre-existing conditions C. General medical information D. Credit score

D. Credit score The MIB is used to alert underwriters if there is an inconsistency in the applicant's information provided on the application based on previous underwriting. It does not include financial information or credit scores.

Which of the following sources of insurability alerts members about an insurance applicant's previous claim information? A. APS B. Agent's Report C. Consumer Investigative Report D. MIB

D. MIB The MIB, Medical Information Bureau, Report acts as an information exchange regarding an applicant's previous claims, representations, possible fraud, pre-existing conditions, hazardous hobbies or occupation, and other information that may make the applicant a higher risk.

All of the following are individual underwriting factors, EXCEPT: A. Gender B. Age C. Tobacco use D. Marital Status

D. Marital Status Marital status is not considered an underwriting factor. Individual underwriting factors include age, gender, tobacco use, occupations and hobbies, physical condition, moral hazard, health history, and the plan applied for.

Which party to a health insurance contract is responsible for making the premium payments? A. Producer B. Beneficiary C. Insured D. Policyowner

D. Policyowner By definition, the policyowner is responsible for making all decisions regarding the policy and maintaining the policy by paying the premiums. The insured may also be the owner, but it is not a requirement.

An applicant for accident and health insurance works two jobs. Which of the applicant's jobs will be used to underwrite the policy? A. The one with the most hours per week B. The job in which the applicant has the most experience C. The least hazardous of the two D. The most hazardous of the two

D. The most hazardous of the two When one has two occupations, the most hazardous is used for rating, regardless of hours worked or experience in each.

How is financial information collected for an inspection report? Must the applicant be given notice?

Financial information may be requested and can be completed by a third-party provider if requesting a credit report. Yes, the applicant must be made aware of any information gathering and has rights provided under the FCRA.

HIPAA Disclosures and Consent

Health care providers are 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.

What occurs if an application is submitted incomplete?

If a policy is issued even though the application is incomplete, it is assumed the missing information is not material to the issuance.

What occurs if no initial premium is paid?

If no initial premium is paid, the application is considered a trial application and no offer exists.

What happens if the applicant is a minor?

If the applicant is a minor, a guardian must sign the application.

How is general information collected for an inspection report?

Information is usually collected through a telephone interview of the applicant and may be extended to interview others who may serve as character references (neighbors or coworkers).

What must there be to make a contract valid?

Insurable Interest

Who is responsible with educating consumers and helping them meet their needs.

Insurance Producers

What does the application include? (Parts?)

Part I contains general questions about the applicant, such as sex/gender, marital status, residence, date of birth, and occupation. Part II 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.

What step is field underwriting?

It is the initial step of the total process of insuring a health risk.

What responsibility does the producer have during the field underwriting process?

It is the producer's responsibility to gather any additional information beyond the stated questions on the application that may assist the underwriter when determining insurability.

Who's responsible if their is an incomplete application?

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.

Underwriter's ultimate responsibility?

It is ultimately the home office underwriter's responsibility to determine if an individual meets the underwriting requirements of the insurer.

When does field underwriting take place?

It takes place during the producer's initial personal (face-to-face) contact with the applicant.

When the insurer determines that the applicant is an acceptable risk, the insurer will issue the policy for

Legal Delivery (Acceptance of a Legal Contract)

is a member-owned corporation that operates on a not-for-profit basis.

MIB

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 and health policies.

Medical or Physical Examination

Medical or physical exams are conducted by a licensed medical professional, such as a registered nurse or paramedic, who provides the results of an examination and information regarding the applicant's present health directly to the underwriter. Typically, the examiner is "mobile" and can perform the exam by appointment at any time or location, making it convenient for the applicant. A routine examination is usually dependent upon the amount of coverage being requested, the age of the applicant, or health history. Medical exams include checking vital statistics (height, weight, blood pressure) and lab tests including the collection of blood and urine samples or a cheek swab to detect nicotine. More extensive tests may be requested, such as a stress test or even an electrocardiogram (EKG). Medical exams are at the insurer's expense.

Does the MIB act for profit?

No

Does the producer have the authority to make changes without the applicant's knowledge?

No The producer does not have the authority to make changes without the knowledge of the applicant.

premium paid by the applicant at the time of application is an

Offer

What must occur for their to be changes made to the application after it is complete? Is there an exception?

Once the application is complete, any changes that need to be made must be initialed by the applicant. Depending on the severity of the changes, the producer could also choose to complete a new application.

The Insurance Policy

Once the insured has received the hard copy of the policy, it should be kept in a secure place where interested parties will have access to it

What is the primary source of underwriting?

The Application

What is the applicant representing?

The applicant is representing that statements (representations) on the application are true to the best of his/her knowledge and that information necessary for underwriting is not being concealed.

Must the applicant be notified when gathering information from a third party?

The applicant must be notified and give written consent for information to be received by a third party.

What is the primary source of information?

The application is the primary source of information used for underwriting a potential risk. If attached to the policy, a copy of the application becomes part of the entire contract.

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 signature on the application by the applicant serves as the notice of information practices. This gives the insurance company the right to obtain the various investigative, medical, and financial reports to complete the underwriting process.

How to determine the insurability of an individual?

The insurer uses information collected by the field underwriter and other sources to determine the insurability of an individual.

When does a legal contract exist?

The insurer will send the policy to the producer for delivery to the insured, and a legal contract exists upon legal delivery.

Individual Health Insurance Underwriting Underwriting is the process of

Underwriting is the process of selection, classification, and rating.

The sources of insurability include

The sources of insurability include the application, medical exam, an Attending Physician's Statement, the Medical Information Bureau (MIB), an inspection report, and the agency's report.

What does the underwriter have to do before continuing the process

The underwriter will first confirm that insurable interest exists before continuing with the process.

When does coverage start?

There is no coverage until a Statement of Good Health and premium are collected at the time of delivery. ---This is the formal Acceptance needed to have a legal contract.

What does the conditional receipt provide?

This receipt provides that coverage will become effective as of either the date of application, or the date of completion of any required medical exam, whichever is later, as long as the policy would have been issued as applied for or better.

When should a producer collect the first premium?

Whenever possible, a producer should collect the initial premium and submit it along with the application to the insurer

Can insurance companies refuse based on positive HIV test results?

Yes Insurance companies may refuse to issue a policy to individuals based on positive HIV test results.

Must the applicant accept the counteroffer?

Yes. Since the policy issued is considered a counteroffer, the applicant must accept the policy as issued for a legal contract to exist.

Why are there underwriting factors?

analysis of the applicant to determine if they are acceptable for the proposed insurance. ---It also attempts to eliminate conditions with more frequent and higher claims than the insurer's rates anticipate.

The process of replacement includes

canceling an old policy upon the purchase of a new policy. ---The old policy should not be canceled before the new policy is issued; otherwise, this could leave the applicant without coverage.

Policyowner

controls the policy, is responsible for making premium payments, and maintains the right to make all decisions regarding coverages. -is usually the insured, but it is not necessary. For example, policies may be owned by a spouse, parent, or even an employer of the insured.

Insurable Interest

exists if the insured's sickness or injury would result in a financial or economic loss by the owner. ---Examples of insurable interest include a spouse, other immediate family members, business partners, or creditors of the insured. A person automatically has an unlimited insurable interest in his or her own self.

The HIV consent form?

explains the purpose of the test, confidentiality, and specifies how individuals may receive the test results.

Attending Physician Statement (APS)

is used in cases in which the individual application and/or medical reports reveal conditions for which further information is necessary to determine insurability. The applicant's treating physician will complete this as part of the applicant's medical history. An applicant must sign a written release to enable a release of the APS. The insurer is responsible for all costs associated with the completion of the APS.

Replacement Considerations-Replacement

If replacing an individual health or disability policy, care must be taken to compare limits of coverage, benefits, and exclusions ---The replacement of a policy puts the insured at risk for higher premiums or no initial coverage due to a pre-existing condition. The new policy may require underwriting to prove evidence of insurability, which can affect the coverage and premiums of the new policy. Also, a new probationary period would apply, limiting coverage for losses due to sickness during a specified period of time.

What must occur if the applicant is not insured in this final step?

If the applicant is not the insured, then both signatures are required.

What happens if the applicant's health has changed since the application?

If the applicant's health has changed since application, the policy will be returned to the insurer for possible further underwriting.

Individual underwriting factors may include:

-Age -Gender -Tobacco use -Occupation and hobbies (degree of risk); if more than 1 occupation, the most hazardous will be used -Physical condition -Moral hazard/financial hazard -Health history -Foreign travel/residence -Other insurance -Plan applied for

The face page of the policy will contain the basic information, including the following:

-Name of the insurance company -Name of the insured and policyowner -Face amount of the policy -Basic description of the type of policy purchased -Policy number and anniversary date -The insurance company's promise to pay the death benefit (Insuring Clause) The face of the policy also includes signatures of the Executive Officers which binds the company to the terms of the contract.

Policy Delivery---Delivering the Policy

-Offer -Legal Delivery

Various health insurance benefits include:

-disability income payments -medical expense reimbursement -accidental death and dismemberment -costs associated with long-term care -dental expenses

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 can make any changes necessary with verbal consent of the applicant B. The producer must meet with the applicant in person to update the information and have the applicant initial the changes C. The applicant will have the opportunity to correct any information when the policy is delivered D. Once the application is signed, answers reported on the application cannot be changed

B. The producer must meet with the applicant in person to update the information and have the applicant initial the changes Changes can only be made to an application with written consent of the applicant by initialing the changes or updates.

If the applicant is considered an acceptable risk during the trial application, when will the coverage take effect? What is this referred to as?

coverage would not take effect until the policy is ultimately issued by the insurer, delivered by the agent, and the premium is paid. This may also be referred to as a C.O.D., or collect on delivery.

Statement of Good Health

is a signed statement by the applicant confirming that everything stated on the application is still true.

Why is field underwriting important?

is very important due to the risk of a moral hazard.

Health Insurance other names?

may be referred to as Accident and Health or Accident and Sickness Insurance

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

policyowner

who names a beneficiary in case any benefits are payable upon death of the insured.

policyowner

What does Health Insurance provide?

provides protection to consumers for certain losses due to covered sickness and/or accidents.

For purposes of the exam, assume all policies are applied for as a

standard risk

When will the policy go into effect?

the policy will not go into effect until the first premium has been paid. ---If the premium is paid with a check that is not signed (or does not clear), it is not considered a valid payment and coverage is not effective.

What must the producer do before taking an application for health insurance?

the producer will need to assess the potential client's financial information, goals, and objectives to recommend which types of policies should be applied for. --->Once this has been determined, the producer has responsibilities and disclosure requirements at the time of application.

What does MIB's services "alert" for?

these services "alert" underwriters to previous claim information, fraud, errors, omissions, or misrepresentations made on insurance applications, and the MIB may help lower the cost of life and health insurance for consumers.

If a loss occurs prior to the policy's physical issuance, the insurer would have to prove

they would not have issued the policy as requested to avoid paying a claim.

Why must the producer hand-deliver the policy to the applicant?

to collect any additional premium, explain any substandard rating or changes in coverage and premium, and reinforce the value of the contract.