Chapter 8 - Health Basics

3 Factors in premium determination

-Morbidity -Interest -Expenses Morbidity - Interest = Net Premium Net Premium + Expenses = Gross Premium

Dental Expense

A form of Medical Expense health insurance covering the treatment and care of dental disease and injury affecting the insured's teeth.

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.

Actions upon Completion of Underwriting: 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).

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 would have to prove the policy would not have been issued as applied; otherwise, the loss is covered based on the terms of the receipt. If a producer does not collect the initial premium and submits it along with the application to the insurer, the policy will not go into effect until the application has been approved and the policy has been issued.

Replacement Considerations

If replacing an individual health or disability policy, care must be taken to compare limits of coverage, benefits and exclusions. The process of replacement includes canceling an old policy upon the purchase of a new policy. 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. The benefits of the old policy should be compared to the benefits of the new policy. Also, the old policy should not be canceled before the new policy is issued, otherwise this could leave the applicant without coverage.

Classes of Health Policies: Government Plans

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.

Disclosure at the Point of Sale - HIV/Aids Testing

Insurers must avoid unfair discrimination when underwriting for HIV or AIDS. They must have signed consent from the applicant prior to testing.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.

Actions upon Completion of Underwriting: 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.

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

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.

Medical Examination

Records of an examination conducted by a medical professional regarding the applicant's present health. It 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.

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.

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

Actions upon Completion of Underwriting: 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.

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.

Health Insurance Advertising Regulations

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.

Factors in premium determination: 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.

The Fair Credit Reporting Act (FCRA)

This act protects the consumer's right to privacy, making certain the data is confidential, accurate, relevant and properly used (for a specific purpose), and also to protect the rights of the individual from overly intrusive information collection practices.

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 3rd party accountable for the loss

Underwriting Factors

Underwriting involves analysis of the applicant to determine if he/she is acceptable for the proposed insurance. It also attempts to eliminate conditions with more frequent and higher claims than the insurer's rates anticipate. Individual underwriting factors may include: Age, Gender, Tobacco Use, Occupation & 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, and Plan applied for

Modes of premium payment

refer to the frequency in which a premium 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.

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.

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.

Information Sources and Regulation of Underwriting: Application Part 1

General: contains general questions about the applicant, such as gender, marital status, residence, date of birth, occupation, and past and present insurance.

Classes of Health Policies: Group Health Insurance

Group insurance (employer sponsored plans) 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.

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 can complete a new application.

Classes of Health Policies: 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.

Prohibited Forms of Advertising

-No advertisement of a hospital or facility confinement benefit shall 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 to misrepresent or that might misrepresent coverage is unlawful.

Additional Health Insurance Advertising Requirements

-Personal testimonials must be accurate -Statistical information must be accurate w/ Source shown -Agent must disclose full name of the insurer when advertising a certain type of policy. -Both insurer and agent are accountable if an agent misleads the public in an advertisement -If insurers advertise that a group endorses a certain health product, they must disclose any control they have over that group. -When insurers advertise by comparison of like products, they must 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 insurer.

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.

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.

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.

Advertisment Definition

Advertisements are printed or published material, audiovisual material and descriptive literature, to include newspapers, magazines, radio scripts, television scripts, billboards, sales talks, presentations, and personal testimonials.

Sales presentation

Agents are required to provide prospective health insurance buyers with all sales materials used when soliciting policies of insurance.

Classes of Health Policies: ERISA-Covered Group Health Plan

An 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.

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 (called field underwriting). A copy of the application becomes part of the entire contract.

Sickness

An illness or disease that is contracted after the probationary period has ended, at least 30 days

Outline of coverage

An outline of coverage (also called a policy summary) 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.

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

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.

Classes of Health Policies: Comprehensive Plans

Comprehensive plans cover a broader range of losses and have larger policy limits.

Medical Expense

Contract that covers the various expenses which an insured may incur due to an accident or sickness

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.

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.

Actions upon Completion of Underwriting: Issued as a Substandard Risk: 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.

Information Sources and Regulation of Underwriting: Application Part 2

Medical: contains questions pertaining to medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death.

Classes of Health Policies: Private Insureres

Most insurance is written through private insurers. Private insurers are commercial companies, such as stock and mutual insurers that sell to the general public.

Accidental Death and Dismemberment

Pays the principal sum (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.

Accident and Health Insurance

Policy covering both injury and sickness

Assumptions and calculations of premiums

Premiums are always paid in advance, are invested and earn interest for the insurer.

Accidental Results

Requires only that the injury be unintended and unforeseen

Classes of Health Policies: Limited Plans

Some health plans are designed to cover limited benefits, based on the type of loss as stated in the policy or a limited dollar amount.

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 preexisting conditions

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.

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 to between the hours of 8 am - 9 pm.

Statement of Good Health

The Statement of Good Health is a signed statement by the applicant that everything stated on the application is still true. If the applicant's health has changed since application, the policy should be returned to the insurer, or theproducer may deliver the policy after the insurer grants permission.

Factors in premium determination: 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.

Actions upon Completion of Underwriting: Rejection

The policy is not issued and will be declined since the applicant is considered an excessive risk.

Factors in premium determination: Morbidity

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.

Deliverying 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 who is responsible for delivery and to explain the policy, benefits, provisions, riders, exclusions, and rating endorsements. 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. 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. There is no coverage until the a signed Statement of Good Health and premium are collected at the time of delivery.

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 helps 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.

Attending Physician Statement (APS)

Used in cases in which the individual application and/or medical reports reveal conditions of which more information is required. 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.