Chapter 7: Health Insurance Underwriting

Moral Hazards

The habits or lifestyles of applicants also can flash warning signals that there may be additional risk for the insurer. Personalities and attitudes may draw attention in the underwriting process.

Claims Experience

The most practical way to estimate the cost of future claims is to rely on claims tables based on past claims experience. Experience tables have been constructed for hospital expenses based on the amounts paid out in the past for the same types of expenses.

Benefits

The numbers and kinds of these provided by a policy affect the premium rate. The greater this is, the higher the premium.

Policy Term

The period of time for which a policy remains in existence, as long as, premiums are being paid.

Part I of the Application

asks general questions about the proposed insured including name, age, address, sex, birthday, income, etc. details about the policy are also included such as type of policy, amount of insurance, name/relationship with beneficiary, other insurance the proposed insured owns, and additional insurance applications the insured has pending.

Earned Premium

a pro-rated amount of paid-in-advance premiums that has been "earned" by the insurance company for providing the insured coverage

Unearned Premium

a pro-rated amount of paid-in-advance premiums that has not been "earned" by the insurer. appears as a liability on the insurer's balance sheet, since these are paid upon cancellation of the policy.

Policy Fee

a small transaction fee charged by some insurers for the risk or subsequent years of the life of an insurance policy, in additional to the regular premium.

Managed Care

a strategy used by some health insurance companies in an attempt to contain rising health care costs by influencing which and how much health care is used by policy owners or subscribers.

T is receiving $3,000/month from a Disability Income policy in which T's employer had paid the premiums. How are the $3,000 benefit payments taxable? a. Benefits are taxable to T b. Benefits are tax-free to T c. Benefits are partially taxable to T d. Benefits are taxable to T's employer

a. Benefits are taxable to T

Pre-hospitalization authorization is considered an example of: a. Managed care b. PPO care c. Medicaid d. Major Medical insurance

a. Managed care

Underwriting Process

accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates. requirements will vary based on the insurance company.

Constructive Delivery

accomplished technically if the insurance company intentionally relinquishes all control over the policy and turns it over to someone acting for the policyowner, including the company's own agent

Case Management

aka Utilization Review. Involves a specialist within the insurance company, such as a registered nurse, who reviews a potentially large claim as it develops to discuss treatment alternatives. Purpose is to let the insurer take an active role in the management of what could potentially become an expensive claim

Part III of the Application

aka agent's report. this is where the agent reports personal observations about the proposed insured. the agent provides additional info about the applicant's financial condition and character, the background and purpose of the sale, and how long the agent has known the applicant.

Which of the following actions will an insurance company most likely NOT take if an applicant, who has diabetes, applies for a Disability Income policy? a. Issue the policy with a diabetes exclusion b. Issue the policy with an altered Time of Payment of Claims provision c. Issue the policy with a rating d. Decline the applicant

b. Issue the policy with an altered Time of Payment of Claims provision

USA Patriot Act

enacted in 2001. purpose is to detect and deter terrorism

Insurable Interest

exists if the applicant is in a position to suffer a loss should the insured incur medical expenses or be unable to work due to a disability.

Part II of the Application

focuses on the proposed insured's medical health and asks a number of questions about the health history.

The Medical Report

if the application's medical section raises questions specific to a medical condition, the underwriter may request an attending physician's statement (APS) from the physician who has treated the applicant.

four general approaches insurers use for cost management:

mandatory second opinions, precertification review, ambulatory surgery, and case management

An applicant's present ________ ________ is of primary importance when evaluating health risks.

physical condition

Conditional Receipt

provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date of the application was signed or the date of the medical exam.

Premium Mode

refers to the policy feature that permits the policy owner to select the timing of premium payments.

Preferred Risk

reflect a reduced risk of loss and are covered at a reduced rate. low/better than average risk - lower premiums

Standard Risk

reflect average exposures and may be insured at standard rates and premiums. Average risk - no extra ratings ot restrictions - standard terms and rates

An insurance company will _______ the application to the agent if he submits an incomplete application

return

Special Questionnaires

when necessary, it provides more detailed information related to aviation or avocation, foreign residence, finances, military service, or occupation.

Mandatory Second Option

In an effort to reduce unnecessary surgical operations, many policies today contain a provision requiring the insured to obtain a second option before receiving elective surgery. Under this mandatory provision, an insured typically will pay more out-of-pocket expenses for surgeries for which only one option was obtained

Which of the following BEST describes how pre-admission certification is used? a. Used to assist in underwriting b. Used to prevent nonessential medical costs c. Used to minimize hospital lawsuits d. Used to help process claims

b. Used to prevent nonessential medical costs

Which type of plan normally includes hospice benefits? a. Short-term disability plans b. Group life plans c. Workers' Compensation d. Managed care plans

d. Managed care plans

Premium Mode (Payment) Options

insurers usually allow premiums to be paid annually, semi-annually (2x a year), quarterly, monthly, and even weekly. It's important to remember that more frequent payments will generally yield a higher overall premium.

Retrospective Review

involves an analysis of care, after the fact, to determine if it was necessary and appropriate. The purpose of this review is not to deny claims but to monitor trends regarding treatment so that future actions may be taken to reduce or eliminate unnecessary health care costs, especially in high cost areas.

Prospective Review

involves analyzing a case before admission to determine what type of treatment is necessary.

Concurrent Review

involves the monitoring of a hospital stay by a nurse while a patient is in the hospital to determine when they will be released, if they require home health care or if a transfer to another facility such as a hospice center is warranted.

The Application

the basic source of insurability information. is a written request made by the applicant to the insurer asking for an insurance contract based on the information provided.

Premium

the initial payment and subsequent periodic payments required to keep a policy in force.

Inspection Reports

usually obtained by insurance companies on applicant who apply for large amounts of life and health insurance. contain information about prospective insureds, which is reviewed to determine their insurability. purpose of these reports is to provide a picture of an applicant's general character and reputation, mode of living, finances, and any expose to abnormal hazards.

Uninsurable Risk

usually rejected and denied coverage. Not insurable - potential of loss to insurance company is too high - terminal illness, too many chronic conditions

Sex

Men show a lower rate of disability than women, except at the upper ages. Women are sometimes required to undergo a Pap test, which is used for detecting cervical cancer.

Concurrent (Utilization) Review

A health insurance company's opportunity to review a request for medical treatment to confirm that the plan provides coverage for that service. Involves monitoring the appropriateness of the care, the setting, and the length of time spent in the hospital. directed at keeping costs as low as possible and maintaining effectiveness of care by determining if the recommended treatment is appropriate

Interest

A large portion of every premium received is invested to earn this. The earnings reduce the premium amount that otherwise would be required from policy owners.

Point-of-Service Plans

Allows the insured to chose either an in-network or an out-of-network provider at the time care is needed.

History

An applicant's medical history may point to the possibility of a recurrence of a certain health condition. Likewise, an applicant's family history may reflect a tendency toward certain medical conditions or health impairments.

The Medical Information Bureau (MIB)

Another source of underwriting info that specifically focuses on an applicant's medical history. will also identify life insurance in force with other carries, as well as, lifestyle habits such as drug use. purpose is to serve as a reliable source of medical information concerning applicants and to help disclose cases where an applicant either forgets or conceals pertinent underwriting info or submits medical info with fraudulent intent.

Avocations

Certain hobbies an applicant may have (i.e., skydiving or mountain climbing) may increase his/her risk to the insurer.

Medical Cost Management

Defined as the process of controlling how policy owners utilize their policies.

Eligible Expenses

Each health insurance policy, an insurer issues must carry its proportionate share of the costs for employees' salaries, agents' commissions, utilities, rent or mortgage payments, maintenance costs, supplies, and other administrative expenses.

Age

Generally, the older the applicant, the higher the risk.

Occupation

There is little physical risk associated with professional persons, office managers, or office workers. However, jobs involving heavy machinery, strong chemicals, or high electrical voltage, for example, represent a high degree of risk for the insurer.

Substandard Risk

These risks are those that reflect an increased risk of loss. These applicants may be able to get coverage, but at an increased premium. High risk - rated up - higher premiums or restricted coverage

Community Rating

This concept requires health insurance providers to offer health insurance policies within a given geographical area at the same price to all individual or group plans without medical underwriting, regardless of their health status.

Precertification Review

To control hospital claims and prevent unnecessary medical costs, many policies today require policy owners to get approval from insurer before entering a hospital. determines whether the requested treatment is medically necessary

True or False: Because there can be no contract until the premium is paid, the company has the right to know if the policy owner represents the same risk to the company as when the application was first signed.

True

True or False: Only by personally delivering a policy does the agent have a timely opportunity to review the contract and its provisions, exclusions, endorsements, and riders.

True

True or False: if the premium is not paid with the application, the agent should submit the application without it. policy won't be valid until initial premium is collected

True

True or false: information received from the MIB about a proposed insured may be released to the proposed insured's physician

True

Information obtained from a phone conversation to the proposed insured can be found in which of these reports? a. Agent's report b. MIB report c. Inspection report d. Attending physician's report

c. Inspection report

Which of the following are NOT managed care organizations? a. Point-of-Service plan (POS) b. Preferred Provider Organization (PPO) c. Medical Information Bureau (MIB) d. Health Maintenance Organization (HMO)

c. Medical Information Bureau (MIB)

A prepaid application for individual Disability Income insurance was recently submitted to an insurer. When the insurer received the Medical Information Bureau (MIB) report, the report showed that the applicant had suffered a stroke 18 months ago, something that was not disclosed on the application. Which of the following actions would the insurance company NOT take? a. Send the initial premium back to the applicant b. Send a notice to the applicant that the coverage was declined c. Sent a notice to the MIB that the applicant was declined d. Send a notice to the agent that the applicant was denied

c. Sent a notice to the MIB that the applicant was declined

Binding Receipt

coverage is guaranteed until the insurer formally rejects the application.

P is self-employed and owns an Individual Disability Income policy. He becomes totally disabled on June 1st and receives $2,000 a month for the next 10 months. How much of his income is subject to federal income tax? a. $20,000 b. $14,000 c. $6,000 d. $0

d. $0

An agent takes an individual Disability Income application, collects the appropriate premium, and issued the prospective insured a conditional receipt. The next step the insurance company will take is to: a. Issue the policy only when the initial premium has cleared b. Determine if the applicant is insurable by investing family history c. Issue the policy on a standard basis d. Determine if the applicant is an acceptable risk by completing standard underwriting procedures

d. Determine if the applicant is an acceptable risk by completing standard underwriting procedures