Health Insurance Chapters

Chapter 3

Disability Income Insurance Purpose of Disability Income Insurance Disability income insurance is designed to provide an individual with a stated amount of periodic income in the event of a disabling illness or accident Disability income policies are available as individual plans and group plans They also serve a very important function for businesses and business owners Disability Income Benefits The insured's income limits the amount of the monthly benefit that an insured may select in a Disability Income policy The benefits paid under a disability income policy are in the form of monthly income payments. Insurers typically place a ceiling on the amount of disability income protection they will issue on any one applicant, defined in terms of the insured's earnings Insurers use two methods to determine the amount of benefits payable under their disability income policies: percent-of-earnings approach and the flat amount method. The first method is called the percent-of-earnings approach, which determines the benefit using a percentage of the insured's pre-disability earnings and takes into account other sources of disability income The second method used to establish disability benefits is the flat amount method. Under this approach, the policy specifies a flat income benefit amount that will be paid if the insured becomes totally disabled. Normally, this amount is payable regardless of any other income benefits the insured may receive. In the event the insured dies as a result of the disability, any earned but unpaid benefits will be paid to the insured's estate Disability Defined With one exception (partial disability), an insured must be totally disabled before benefits under a disability income policy are payable What constitutes total disability varies from policy to policy The insured must meet the definition set forth in her policy There are two definitions: any occupation or own occupation Any Occupation The "any occupation" definition of total disability requires the insured to be unable to perform any occupation for which he is reasonably suited by reason of education, training, or experience in order to qualify for disability income benefits Own Occupation The "own occupation" definition of total disability requires that the insured be unable to perform the insured's current occupation as a result of an accident or sickness. From a policyowner's point of view, an "own occupation" disability income policy is more advantageous It is more expensive and difficult to qualify for Presumptive Disability This provision specifies certain conditions that automatically qualify the insured for the full benefit because the severity of the conditions presumes the insured is totally disabled even if he is able to work Presumptive disabilities include blindness, deafness, loss of speech, and loss of two or more limbs A presumptive disability provision typically waives the usual requirements for total disability benefits Partial Disability The inability of the insured to perform one or more important duties of the job or the inability to work at that job on a full-time basis. Either of which results in a decrease in income. Normally, partial disability benefits are payable only if the policyowner has first been totally disabled This benefit is intended to encourage disabled insureds to get back to work, even on a part-time basis, without fear that they will lose all their disability income benefits The amount of benefit payable when a policy covers partial disabilities depends on whether the policy stipulates a flat amount or a residual amount Flat Amount Benefit A flat amount benefit is a set amount stated in the policy This amount is usually 50% of the full disability benefit For example, let's assume Helen, who has a disability income policy with an own-occupation definition, is severely injured after falling down a flight of stairs. She is unable to work for four months during which time her disability income policy pays a full benefit. After four months she is able to return to work, but only on a part-time basis earning substantially less than she did before her injury. If her policy did not contain a partial disability provision, her benefits would cease entirely because she no longer meets the definition of totally disabled. However, if her policy provides for partial disability benefits to be paid as a flat amount, she will be able to work on a part-time basis and continue to receive half of her disability benefits. Residual Amount Benefit A residual amount benefit is based on the proportion of income actually lost due to the partial disability, taking into account the fact that the insured is able to work and earn some income The benefit is usually determined by multiplying the percentage of lost income by the stated monthly benefit for total disability. For example, if the insured suffered a 40% loss of income because of the partial disability, the residual benefit payable would be 40% of the benefit that the policy would provide for total disability Rehabilitation Benefit Under the rehabilitation benefit in a disability income policy, the insurer will pay the approved cost of a rehabilitation program to help a disabled return to work. Cause of Disability Policies that use the accidental means provision require that the cause of the injury must have been unexpected and accidental Policies that use the accidental bodily injury provision (or results provision) require that the result of the injury has to be unexpected and accidental For example, Jim took an intentional dive off a high, rocky ledge into a lake. He struck his head on some rocks and ended up partially paralyzed. If his policy had an accidental means provision, the benefits would probably not be payable because the cause of his injury (the dive) was intentional. However, if his policy had an accidental bodily injury (or results) provision, benefits would be payable because the result of the accident (his injury) was unintentional and accidental. Today, most disability income policies use the accidental bodily injury or results provision, which is far less restrictive than the accidental means provision Disability Income Policy Provisions Probationary Period The probationary period specified in a disability insurance policy is the period of time that must elapse following the effective date of the policy before benefits are payable. It is a one-time-only period that begins on the policy's effective date and ends 15 or 30 days after the policy has been in force. Purpose of the probationary period is to exclude preexisting sicknesses from coverage and provide a guidepost in borderline cases when there is a question as to whether an insured became ill before or after the effective date of the policy. Helps protect the insurer against adverse selection because those who know they are ill are more likely to try to obtain insurance coverage. Probationary period does not apply to accidents because you cannot anticipate an accident Elimination Period The elimination period is the time immediately following the start of a disability when benefits are not payable Elimination periods eliminate claims for short-term disabilities The longer the elimination period, the lower the premium for comparable disability benefits Benefit Period The benefit period is the maximum length of time that disability income benefits will be paid to the disabled insured The longer the benefit period, the higher the cost of the policy Individual short-term policies provide benefits for six months to two years Individual long-term policies are characterized by benefit periods of more than two years, such as 5, 10, or 20 Delayed Disability Provision In some cases, total disability does not occur immediately after an accident but develops some days or weeks later Most policies allow a certain amount of time during which total disability may result from an accident and the insured will still be eligible for benefits The amount of time allowed for a delayed disability may be 30, 60, or 90 days etc. Recurrent Disability Provision It is not unusual for a person who experienced a total disability to recover and then, weeks or months later, undergo a recurrence of the same disability Most policies provide for recurrent disabilities by specifying a period of time during which the recurrence of a disability is considered a continuation of the prior disability If the recurrence takes place after that period, it is considered a new disability and will be subject to a new elimination period before benefits are again payable Nondisabling Injury Frequently, a person covered by a disability income policy will suffer an injury that does not qualify for income benefits Many such policies include a provision for a medical expense benefit that pays the actual cost of medical treatment for nondisabling injuries that result from an accident Residual Disability A Residual Disability benefit is usually a percentage of the total disability benefit for when the insured is working, but unable to perform some of the duties of his/her occupation Normally used after a full disability payments have been paid and the insured is back to work, however with a reduced workload Elective Indemnity Some short-term disability income policies provide for an optional lump sum payment for certain named injuries The insured may sometimes select this elective indemnity option when applying for the policy Disability Income Policy Riders Waiver of Premium Rider A waiver of premium rider generally is included with guaranteed renewable and noncancellable individual disability income policies. It exempts the policyowner from paying the policy's premiums during periods of total disability. To qualify for the exemption, the insured must experience total disability for more than a specified period, commonly three or six months. The waiver of premium generally does not extend past the insured's age 60 or 65 Social Security Rider The Social Security rider provides for the payment of additional income when the insured is eligible for social insurance benefits but those benefits have not yet begun, have been denied, or have begun in an amount less than the benefit amount of the rider Cost-of-Living Adjustment (COLA) Rider The cost-of-living adjustment (COLA) rider provides for indexing the monthly or weekly benefit payable under a disability policy to changes in the Consumer Price Index (CPI) Typically, the benefit amount is adjusted on each disability anniversary date to reflect changes in the CPI Guaranteed Insurability Rider This option guarantees the insured the right to purchase additional amounts of disability income coverage at predetermined times in the future without evidence of insurability Exclusion Rider An exclusion rider on a disability income policy means that a specified disease or body part is not afforded coverage

Chapter 6

Health Insurance Policy Provisions NAIC MODEL HEALTH INSURANCE POLICY PROVISIONS Years ago, the National Association of lnsurance Commissioners (NAIC) developed a model Uniform Individual Accident and Sickness Policy Provisions Law Almost all states have adopted this model law or similar legislation or regulations The purpose of the NAIC law was to establish uniform or model terms, provisions, and wording standards for inclusion in all individual health insurance contracts Twelve Mandatory Policy Provisions In accordance with the NAIC model law, there are 12 mandatory provisions that are required to be in all health insurance contracts. These are as follows: 1. Entire Contract Like its counterpart in a life insurance policy, the entire contract provision in a health insurance policy protects the policy owner in two ways. It states that nothing outside of the contract (the contract includes the signed application and any attached policy riders) can be considered part of the contract It also assures the policyowner that no changes will be made to the contract or waive any of the provisions after it has been issued, even if the insurer makes policy changes that affect all policy sales in the future. 2. Time Limit on Certain Defenses The Time Limit on Certain Defenses provision limits the time during which the insurance company may challenge the validity of an insurance claim on the basis of a misstatement made on the insured's application. This is similar to the incontestable clause in a life insurance policy. Unlike life policies, a fraudulent statement on a health insurance application is grounds for contest at any time, unless the policy is guaranteed renewable. 3. Grace Period The purpose of the Grace Period in an Accidental Death and Dismemberment policy is to give the policyowner additional time to pay overdue premiums. The policyowner is given a number of days after the premium due date during which time the premium payment may be delayed without penalty and the policy continues in force Depending on the state, the minimum grace periods typically specified are seven days for policies with weekly premium payments (i.e., industrial policies), 10 days for policies with premiums payable on a monthly basis, and 31 days for policies payable on an annual basis. If an insurer pays an individual accident and health insurance claim during a policy's grace period the amount of unpaid premium may be subtracted from the reimbursement 4. Reinstatement The Reinstatement provision specifies that if an insured fails to pay a renewal premium within the time granted but the insurer subsequently accepts the premium, coverage may be restored. Under certain conditions, a policy that has lapsed may be reinstated. Reinstatement is automatic if the delinquent premium is accepted by the company or its authorized agent and the company does not require an application for reinstatement. If it takes no action on the application for 45 days, the policy is reinstated automatically. To protect the company against adverse selection, losses resulting from sickness are covered only if the sickness occurs at least 10 days after the reinstatement date. 5. Notice of Claim The notice of claim provision describes the policyowner's obligation to notify the insurance company of a claim in a reasonable period of time Typically, the period is 20 days after the occurrence or a commencement of the loss, or as soon thereafter as is reasonably possible 6. Claim Forms It is the company's responsibility to supply a claim form to an insured within 15 days after receiving notice of claim If the insurance company fails to send out the claim forms within the time period required by the provision, the insured should submit the claim in any form, which must be accepted by the company as adequate proof of loss 7. Proof of Loss After a loss occurs, or after the company becomes liable for periodic payments (e.g., disability income benefits), the claimant has 90 days in which to submit proof of loss. 8. Time of Payment of Claims The time of payment of claims provision provides for immediate payment of the claim after the insurer receives notification and proof of loss. If the claim involves disability income payments, they must be paid at least monthly if not at more frequent intervals specified in the policy The purpose of the Time of Payment of Claims provision is to prevent the insurance company from delaying claim payments 9. Payment of Claims The payment of claims provision in a health insurance contract specifies how and to whom claim payments are to be made. Payments for loss of life are to be made to the designated beneficiary If no beneficiary has been named, death proceeds are to be paid to the deceased insured's estate. Claims other than death benefits are to be paid to the insured. 10. Physical Exam and Autopsy The physical exam and autopsy provision entitles a company, at its own expense, to make physical examinations of the insured at reasonable intervals during the period of a claim, unless it's forbidden by state law. 11. Legal Actions The insured cannot take legal action against the company in a claim dispute until after 60 days from the time the insured submits proof of loss. 12. Change of Beneficiary The insured, as policyowner, may change the beneficiary designation at any time unless a beneficiary has been named irrevocably. Eleven Optional Provisions There are 11 optional health policy provisions. Companies may ignore them or use only those that are needed in their policy forms. 1. Change of Occupation This provision also allows the insurer to reduce the maximum benefit payable under the policy if the insured switches to a more hazardous occupation or to reduce the premium rate charged if the insured changes to a less hazardous occupation 2. Misstatement of Age The misstatement of age provision allows the insurer to adjust the benefit payable if the age of the insured was misstated when application for the policy was made The insurer can adjust the benefit to what the premiums paid would have purchased at the insured's actual age If the insured was older at the time of application than is shown in the policy, benefits would be reduced accordingly The reverse would be true if the insured were younger than listed in the application 3. Other Insurance with This Insurer Under this provision, the total amount of coverage to be underwritten by a company for one person is restricted to a specified maximum amount, regardless of the number of policies issued. This provision is designed to protect the insurer by controlling overinsurance through its own policies. 4. Insurance with Other Insurer In attempting to deal with the potential problem of overinsurance, the insurance with other insurer provision states that benefits payable for expenses incurred will be prorated in cases where the company accepted the risk without being notified of other existing coverage for the same risk. 5. Insurance with Other Insurers Similar to the previous, the insurance with other insurers provision calls for the prorating of benefits that are payable on any basis other than expenses incurred 6. Relation of Earnings to Insurance If disability income benefits from all disability income policies for the same loss exceed the insured's monthly earnings at the time of disability, the relation of earnings provision states that the insurer is liable only for that proportionate amount of benefits as the insured's earnings bear to the total benefits under all such coverage. 7. Unpaid Premiums If there is an unpaid premium at the time a claim becomes payable, the amount of the premium is to be deducted from the sum payable to the insured or beneficiary. 8. Cancellation Though prohibited in a number of states, the provision for cancellation gives the company the right to cancel the policy at any time with 45 days' written notice to the insured This notice must also be given when the insurer refuses to renew a policy or change the premium rates If the cancellation is for nonpayment of premium, the insurer must give 10 days' written notice to the insured, unless the premiums are due monthly or more frequently The cancellation provision also allows the insured to cancel the policy any time after the policy's original term has expired by notifying the insurer in writing 9. Conformity with State Statutes Any policy provision that is in conflict with state statutes in the state where the insured lives at the time the policy is issued is automatically amended to conform with the minimum statutory requirements. 10. Illegal Occupation The illegal occupation provision specifies that the insurer is not liable for losses attributed to the insured's being connected with a felony or participation in any illegal occupation. 11. Intoxicants and Narcotics The insurer is not liable for any loss attributed to the insured while intoxicated or under the influence of narcotics. Other Health Insurance Policy Provisions There are a number of other very important clauses and provisions that should be noted: Insuring Clause The purpose of the insuring clause in a Health and Accident policy is to specify the scope and limits of the coverage provided. The insuring clause is the part of the health insurance policy that identifies the specific type of health care services that are covered by that policy and the circumstances under which they will be paid. Consideration Clause The consideration clause states the amount and frequency of premium payments Probationary Period Specified number of days after an insurance policy's issue date during which coverage is not afforded for sickness. A Probationary Period provision in a health insurance contract becomes effective at the inception of the policy Conversion Privilege for Dependents Beginning October 1, 2010, the Affordable Health Care Act mandated that all policies and plans must provide dependent coverage up to age 26 Adopted children, stepchildren, and foster children usually are eligible for coverage As long as a policy is in force, coverage for a child generally continues until the child marries or reaches the limiting age Mandatory Second Surgical Opinion Provision A mandatory second surgical opinion provision typically requires the insured to seek a second opinion for surgeries that are on a list of elective surgeries COMMON EXCLUSIONS OR RESTRICTIONS Health insurance policies frequently cite a number of exclusions or conditions that are not covered. The common ones are injuries due to war or an act of war, self-inflicted injuries, and those incurred while the insured is serving as a pilot or crew member of an aircraft Other exclusions are losses resulting from suicide, hernia (as an accidental injury), riots, or the use of drugs or narcotics Losses due to injuries sustained while committing a felony, or attempting to do so, also may be excluded Foreign travel may not be excluded in every instance, but extended stays overseas or foreign residence may cause a loss of benefits Maternity Benefits A maternity provision may provide a fixed amount for childbirth or a benefit based upon a specified multiple of the daily hospital room benefit Frequently, the maternity benefit is available only as an added benefit for an additional premium Preexisting Conditions Medical expense and disability income policies usually exclude paying benefits for losses due to preexisting conditions pertaining to illness, disease, or other physical impairments Such exclusions are subject to the "time limit on certain defenses" provision. Any preexisting condition that the insured has disclosed clearly in the application usually is not excluded or, if it is, the condition is named specifically in an excluding waiver or rider. Waivers for Impairments When an insurance company does not cover a loss due to a specific condition the insured has. This is usually called an impairment rider. If the insured's condition improves, the company may be willing to remove the waiver. RENEWABILITY PROVISIONS Generally speaking, the more favorable the renewability provision is to the insured policyholder, the higher the premium. Cancelable Policies May be terminated by either the insured or the insurer The renewability provision in a cancelable policy allows the insurer to cancel or terminate the policy at anytime Cancelable policies also allow the insurer to increase premiums Optionally Renewable Policies The renewability provision in an optionally renewable policy gives the insurer the option to terminate the policy on a date specified in the contract. Conditionally Renewable Policies A conditionally renewable policy allows an insurer to terminate the coverage but only in the event of one or more conditions stated in the contract They typically are related to the insured reaching a certain age or losing gainful employment Guaranteed Renewable Policies The renewal provision in a guaranteed renewable policy specifies that the policy must be renewed (as long as premiums are paid) until the insured reaches a specified age, such as 60 or 65. Noncancelable Policies A noncancelable policy cannot be cancelled nor can its premium rates be increased under any circumstances (other than reaching a specific age or non-payment of premiums) Noncancelable provisions are most commonly found in disability income policies. They are rarely used in medical expense policies

Chapter 2

Health Insurance Providers Commercial Insurance Providers Health insurance may be written by a number of commercial insurers. The list includes: life insurance companies, casualty insurance companies, and monoline companies which specialize in one or more types of medical expense and disability income insurance. Commercial insurance companies function on the reimbursement approach The right of assignment built into most commercial health policies lets policyowners assign benefit payments from the insurer directly to the health care provider, thus relieving the policyowner of first having to pay the medical care provider Service Providers Service providers offer benefits to subscribers in return for the payment of a premium. Benefits are in the form of services provided by hospitals and physicians in the plan. Blue Cross and Blue Shield Blue Cross and Blue Shield are the dominant health insurers of the United States. The nation's Blue Cross and Blue Shield plans are loosely affiliated through the national Blue Cross and Blue Shield Association but are independently managed. The Blues provide the majority of their benefits on a service basis rather than on a reimbursement basis. This means that the insurer pays the provider directly for the medical treatment given to the subscriber, instead of reimbursing the insured. As participating providers, the doctors and hospitals contractually agree to specific costs for the medical services provided to subscribers Members of Blue Cross and Blue Shield are known as subscribers Blue Cross and Blue Shield plans are called prepaid plans because the subscribers pay a set fee (usually each month) for medical services covered under the plan Health Maintenance Organizations A health maintenance organization, or HMO, is another type of organization offering comprehensive prepaid health care services to its subscribing members. HMOs are distinguished by the fact that they not only finance health care services for their subscribers on a prepayment basis, but they also organize and deliver these health services at its own local health care facilities. Subscribers pay a fixed periodic fee to the HMO (as opposed to paying for services only when needed) and are provided with a broad range of health services, from routine doctor visits to emergency and hospital care Health care services are normally rendered only by physicians and hospitals (providers) who participate in the HMO The payment given to a physician for each member of an HMO assigned to them is called capitation HMOs are known for stressing preventive care Health maintenance organizations may be self-contained and self-funded based on dues or fees from their subscribers. They may also contract for excess insurance or administrative services provided by insurance companies. In fact, some HMOs are sponsored by insurance companies. Employers with 25 or more employees to offer enrollment in an HMO if they provide health care benefits for their workers Preferred Provider Organizations Another type of health insurance provider is the preferred provider organization, or PPO. A preferred provider organization is a collection of health care providers such as physicians, hospitals, and clinics who offer their services to certain groups at prearranged discount prices. In return, the group refers its members to the preferred providers for health care services. Unlike HMOs, preferred provider organizations usually operate on a feefor-service-rendered basis, not on a prepaid basis Members of the PPO select from among the preferred providers for needed services. In contrast to HMOs, PPO health care providers are normally in private practice. They have agreed to offer their services to the group and its members at fees that are typically less than what they normally charge. In return, the group refers its members to the PPO and the providers broaden their patient/service base Groups that contract with PPOs are often employers, insurance companies, or other health insurance benefit providers While these groups do not mandate that individual members must use the PPO, a reduced benefit is typical if they do not If a patient with a preferred provider organization (PPO) chooses to use a non-PPO, the patient usually can expect to have higher out-of-pocket expenses Ambulatory Care Ambulatory care is a personal health care consultation, treatment, or intervention using advanced medical technology or procedures delivered on an outpatient basis. Designed to handle: Outpatient surgery Routine physicals Immunizations Government Insurance Programs Government provides insurance for many reasons. The primary reasons include: To meet social needs To make insurance available for certain groups To encourage economic development Medicare Medicare is a federally administered hospital and medical expense insurance program to those aged 65 and older It also provides protection to any individual who suffers from chronic kidney disease or to those who are receiving Social Security disability benefits Physicians who agree to accept assignment on ALL Medicare claims are called participating providers Dental care is not covered under Medicare Social Security Disability Income In addition to Medicare, the federal government also provides disabilityrelated benefits through the Social Security OASDI program. Let's review some of the important points here. Disability income benefits are available to covered workers who qualify under Social Security requirements One of the requirements is that the individual must be so mentally or physically disabled that he cannot perform any substantial gainful work The impairment must be expected to last at least 12 months or result in an earlier death A five-month waiting period is required before an individual will qualify for benefits, during which time he/she must remain disabled Medicaid Medicaid's purpose is to provide matching federal funds to states for their medical public assistance plans to help needy persons, regardless of age. Medicaid benefits are generally payable to low income individuals who are blind, disabled, or under 21 years of age The benefits may be applied to Medicare deductibles and co-payment requirements Medicaid is financed by both federal and state governments Under Medicaid, financial need is an eligibility requirement for the payment of nursing home expenses State Workers' Compensation Programs Workers compensation benefits generally compensate employees for lost wages and medical expenses due to occupational accidents. All states have workers' compensation laws, which were enacted to provide mandatory benefits to employees for work-related injuries, illness, or death Employers are responsible for providing workers' compensation benefits to their employees and do so by purchasing coverage through state programs, private insurers, or by self-insuring Alternative Methods of Providing Health Insurance Self-Insurance Many self-insured plans are administered by insurance companies or other organizations that are paid a fee for handling the paperwork and processing the claims. When an outside organization provides these functions, it is called an administrative-services-only (ASO) or thirdparty administrator (TPA) arrangement. To bolster a self-insured plan, some groups adopt a minimum premium plan (MPP). These plans are designed to insure against a certain level of large, unpredictable losses, above and beyond the self-insured level. As the name implies, MPPs are available for a fraction of the insurer's normal premium. Multiple Employer Trusts A method of marketing group benefits to employers who have a small number of employees is the multiple employer trust (MET). They are usually in the same industry group METs can provide a single type of insurance (e.g., health insurance) or a wide range of coverages (e.g., life, medical expense, and disability income insurance) An employer who wants to get coverage for employees from a MET must first become a member of the trust by subscribing to it A MET may either provide benefits on a self-funded basis or fund benefits with a contract purchased from an insurance company In the latter case, the trust (rather than the subscribing employers) is the master insurance contract holder Participants are issued a joinder agreement (document which an individual is admitted as a member and bound to the terms of membership) Multiple Employer Welfare Arrangements A multiple employer welfare arrangement (MEWA) is a type of MET It consists of small employers who have joined to provide health benefits for their employees, often on a self-insured basis They are tax-exempt entities Employees covered by a MEWA are required by law to have an employmentrelated common bond

Chapter 7

Health Insurance Underwriting and Premiums RISK FACTORS IN HEALTH INSURANCE Physical Condition An applicant's present physical condition is of primary importance when evaluating health risks 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. These are called moral hazards. Excessive drinking and the use of drugs represent serious moral hazards and may indicate increased exposure to risk Applicants who are seen as accident prone or potential malingerers (feigning a continuing disability in order to collect benefits) likewise might be heavy risks, particularly those applying for disability income insurance Other signals of high moral hazard can be a poor credit rating or dishonest business practices Occupation There is little physical risk associated with professional persons, office managers, or office workers. However, occupations involving heavy machinery, strong chemicals, or high electrical voltage, for example, represent a high degree of risk for the insurer. According to the change of occupation provision, if the insured changes to a less hazardous job, the insurer will return any excess unearned premium. However, if the change is to a more hazardous occupation, the benefits are reduced proportionately and the premium remains the same Other Risk Factors Additional health insurance risk factors include the applicant's age, sex, medical and family history, and avocations. Age Generally, the older the applicant, the higher the risk Sex An applicant's sex is also an underwriting consideration. Men show a lower rate of disability than women, except at the upper ages. 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. Avocations In health insurance, field underwriting by the producer may result in the discovery of hazardous activities of the applicant. Certain hobbies an applicant may have (such as skydiving or mountain climbing) may increase his/her risk to the insurer Insurable Interest An 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 As with life insurance, insurable interest is a prerequisite for issuing a health insurance policy Physical Exams Physical exams are normally performed at the expense of the insurer. Classification of Applicants There are four ways to classify the applicant and her request for health coverage: as a preferred risk, a standard risk, a substandard risk, or an uninsurable risk. Standard risk applicants are usually issued a policy at standard terms and rates Preferred risks generally receive lower rates than standard risks, reflecting the fact that people in this class have a better-than-standard risk profile Uninsurable applicants are usually rejected and denied coverage Substandard risk applicants (those who pose a higher-than-average risk for one or more reasons) are treated differently Besides outright rejection, there are three techniques commonly used by insurers in issuing health insurance policies to substandard risks: • Attaching an exclusion (or impairment) rider or waiver to a policy • Charging an extra premium • Limiting the type of policy issued HEALTH INSURANCE PREMIUM FACTORS Morbidity Whereas mortality rates show the average number of persons within a larger group of people who can be expected to die within a given year at a given age, morbidity rates show the expected incidence of sickness or disability within a given group during a given period of time. Interest Just as with life insurance, interest is a major element in establishing health insurance premiums. A large portion of every premium received is invested to earn interest. The interest earnings reduce the premium amount that otherwise would be required from policyowners. Expenses Every business has expenses that must be paid and the insurance business is no different. 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. Secondary Premium Factors The benefits provided under the policy Past claims experience The age and sex of the insured The insured's occupation and hobbies Size of the group (group health insurance) Benefits The number and kinds of benefits provided by a policy affect the premium rate. The greater the benefits, the higher the premium. To state it another way, the greater the risk to the company, the higher the premium. An insurer may take an applicant's marital status into account when determining who is eligible for dependent coverage. Claims Experience Before realistic premium rates can be established for health insurance, the insurer must know what can be expected as to the dollar amount of the future claims 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 Experience tables have also been developed for surgical benefits, covering various kinds of surgery based on past experience When determining the premiums for large groups, most insurance companies use experience rating. Experience rating is a review of the previous year's claims experience for a group insurance contract in order to establish premiums for the next period. Age and Sex of the Insured As discussed earlier, experience has shown that health insurance claims costs tend to increase as the age of the insured increases Occupation and Hobbies Some types of work are more hazardous than others, the premium rates for a person's health insurance policy may be affected by his occupation. The same holds true for any dangerous hobbies in which the insured may participate. TAX TREATMENT OF HEALTH INSURANCE PREMIUMS AND BENEFITS Taxation of Disability Income Insurance Premiums paid for personal disability income insurance are not deductible by the individual insured, but the disability benefits are tax-free to the recipient When a group disability income insurance plan is paid for entirely by the employer and benefits are paid directly to individual employees who qualify, the premiums are deductible by the employer. The benefits, in turn, are taxable to the recipient If an employee contributes to any portion of the premium, her benefit will be received tax-free in proportion to the premium contributed Taxation of Medical Expense Insurance Incurred medical expenses that are reimbursed by insurance may not be deducted from an individual's federal income tax Incurred medical expenses that are not reimbursed by insurance may only be deducted to the extent they exceed 7.5% of the insured's adjusted gross Benefits received by an insured under a medical expense policy are not included in his gross income because they are paid to offset losses he incurred Sole proprietors (self-employed) individuals are able to deduct 100% of their family health insurance premiums from their gross income for tax purposes MANAGED CARE Policy Design The design or structure of a policy and its provisions can have an impact on an insurer's cost containment efforts. A higher deductible will help limit claims Coinsurance is another important means of sharing the cost of medical care between the insured and the insurer Shortened benefit periods can also prove beneficial from a cost containment standpoint Medical Cost Management Defined as the process of controlling how policy owners utilize their policies. There are four general approaches insurers use for cost management: mandatory second opinions, precertification review, ambulatory surgery, and case management. Mandatory Second Opinions In an effort to reduce unnecessary surgical operations, many health policies today contain a provision requiring the insured to obtain a second opinion before receiving non-life-threatening surgery Precertification Review To control hospital claims, many policies today require policy owners to obtain approval from the insurer before entering a hospital on a nonemergency basis Preadmission testing Preadmission testing helps control health care costs primarily by reducing the length of hospitalization. Concurrent review Concurrent review is a method of utilization review that takes place on-site when a patient is confined to a hospital. A typical result of a concurrent review is that the length of stay in the hospital is monitored. Ambulatory Surgery The advances in medicine now permit many surgical procedures to be performed on an outpatient basis where once an overnight hospital stay was required Case Management Case management 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 with the insured The purpose of case management is to let the insurer take an active role in the management of what could potentially become a very expensive claim

Chapter 4

Medical Expense Insurance Intro • Medical expense insurance provides financial protection against the cost of medical care for accidents and illness Coverage may be provided for hospital care, physician services, surgical expenses, diagnostic and laboratory services, drugs, nursing, and other medically necessary procedures The broadness of the specific types of services and treatment are dependent upon the medical expense policy written Individual medical expense insurance typically is written for a term of 1 year Usual, customary, and reasonable (UCR) charges are the maximum amount the insurer will consider eligible for reimbursement under a health insurance plan. It is based primarily on average charges within a geographic area Basic Medical Expense Plans • Basic medical expense insurance is sometimes called "first dollar insurance". Unlike major medical expense insurance, it provides benefits up front without having to satisfy a deductible • Basic medical expense policies classify their coverages according to general categories of medical care: hospital expense, surgical expense, and physicians' (nonsurgical) expense • The amount of the patient's claim payment will be based on the terms of the policy Hospital Expense policies Cover hospital room and board, miscellaneous hospital expenses (such as lab and x-ray charges), medicines, use of operating room, and supplies These expenses are covered while the insured is confined in a hospital There is no deductible and the limits on room and board are set at a specified dollar amount per day up to a maximum number of days Concurrent review is a method of utilization review that takes place on-site when a patient is confined to a hospital. A typical result of a concurrent review is that the length of stay in the hospital is monitored. Preadmission testing helps control health care costs primarily by reducing the length of hospitalization Note: These limits may not provide for the full amount of hospital room and board charges incurred by the insured. For example, if the hospital expense benefit was $200 per day and the hospital actually charged $400 per day, the insured would be responsible for the additional $200 per day Basic Surgical Expense Coverage Commonly written in conjunction with hospital expense policies These policies pay for the costs of surgeons' services, whether the surgery is performed in or out of the hospital Coverage includes surgeon's fees, anesthesiologist, and the operating room Approaches There are three different approaches used by insurers in providing surgical expense coverage and determining the benefits payable. These are: the surgical schedule approach, the reasonable and customary approach, and the relative value scale approach. Under the surgical schedule approach, every surgical procedure is assigned a dollar amount by the insurer Under the reasonable and customary approach, the surgical expense is compared to what is deemed reasonable and customary for the geographical part of the country where the surgery was performed. If the charge is within the reasonable and customary parameters, the expense is normally paid in full. If the charge is more than what is reasonable and customary, the patient must absorb the difference The relative value approach is similar to the surgical schedule method. The difference is that instead of a flat dollar amount being assigned to every surgical procedure, a specified set of units is assigned. The policy will carry a stated dollar-per-units amount (known as the conversion factor) to determine the benefit Basic Physicians' Expense Coverage Often referred to as Basic Physicians Nonsurgical Expense Coverage because it provides coverage for nonsurgical services a physician provides Basic medical expense coverage can be purchased to cover emergency accident benefits, maternity benefits, mental and nervous disorders, hospice care, home health care, outpatient care, and nurses' expenses Regardless of what type of plan or coverage is purchased, these policies usually offer only limited benefits that are subject to time limitations Other Basic Plans Nurses' expense benefits Usually pay only for private duty nursing care arranged according to a doctor's order while the insured is a hospital patient Both registered professional and licensed practical nurses may be covered Convalescent care facility benefits Provide a daily benefit for confinement in a skilled nursing facility for a limited recovery period following discharge from a hospital MAJOR MEDICAL EXPENSE PLANS Major medical expense plans offer broad coverage under one policy: • Comprehensive coverage for hospital expenses (room and board and miscellaneous expenses, nursing services, physicians' services, etc.) Catastrophic medical expense protection Benefits for prolonged injury or illness Unlike the basic medical expense plans, these policies usually carry deductibles, coinsurance requirements, and have large benefit maximums Major medical expense insurance usually picks up where basic medical expense insurance leaves off in one of two ways: as a supplement to a basic plan or as a comprehensive stand-alone plan. Supplementary Major Medical These policies are used to supplement the coverage payable under a basic medical expense policy After the basic policy pays, the supplemental major medical will provide coverage for expenses that were not covered by the basic policy, and expenses that exceed the maximum If the time limitation is used up in the basic policy, the supplemental coverage will provide coverage thereafter Comprehensive Major Medical Combines the features of basic expense coverage and major medical coverage, sold as one policy Cover practically all medical expenses, hospital, physicians, surgical, nursing, drugs, laboratory tests, etc. Comprehensive major medical policies include a deductible (usually a single deductible per person and per family, but corridor deductible may also apply) , coinsurance, and are generally sold on a group basis DEDUCTIBLES A deductible is a stated initial dollar amount that the individual insured is required to pay before insurance benefits are paid. Deductibles are used primarily to help control the cost of premiums and are used most frequently with major medical policies. There are three kinds of deductibles: flat, corridor, or integrated. Flat deductible A stated dollar amount that applies to a covered loss (e.g. $500). This deductible is applied per occurrence, per insured individual Corridor deductible When a major medical policy is supplementing basic coverage (that contains no deductible), the deductible is not applied until the basic coverage has been exhausted Integrated deductible Used when a major medical plan is supplementing basic coverages. Example- If the major medical has a $500 deductible and the insured has basic coverage of $500 or more, then, in the event of a claim, the amount paid by the basic coverage satisfies the major medical deductible. However, if the basic does not cover the entire deductible amount of the major medical plan, the insured is required to make up the difference The carryover provision permits expenses incurred during the last 3 months of the calender year to be carried over into the new year if needed to satisfy the deductible for the next year. COINSURANCE Coinsurance is another characteristic of major medical policies. It is a sharing of expenses by the insured and the insurer. After the insured satisfies the deductible, the insurance company pays a high percentage of the additional expenses (usually 75% or 80%) and the insured pays the remainder. Coinsurance requires the insured to participate in the payment of expenses Typically, the percentage of payment participation required of the insured is 20% and the insurance company pays 8o% STOP - LOSS Stop - Loss is a feature designed to limit the amount of expense the insured may be exposed to in a policy year Often, the stop-loss will state that after the insured has paid a specific amount toward his covered expense, the insurer, will pay 100% of the remaining expenses Will pay up to the maximum limit of the policy and for remainder of the policy year PRE-EXISTING CONDITIONS Most policies contain a benefit limitation on pre-existing conditions Limitations apply to all pre-existing conditions whether or not the insured declared them on the application Unlike the impairment rider, the exclusion for pre-existing conditions is subject to the time limit for certain defenses When considering the replacement of an individual accident and health insurance policy, a preexisting conditions exclusion in the new contract may reduce the insured's benefits. The new policy may not cover the same health conditions under the new policy. HEALTH SAVINGS ACCOUNTS (HSA) Health savings accounts (HSAs) are designed to help individuals save for qualified health expenses such as deductibles, coinsurance, prescription drugs etc HSAs are tax deductible An individual who is covered by a high- deductible health plan can make a tax-deductible contribution to an HSA and use it to pay for out- of-pocket medical expenses Contributions to HSAs by individuals are deductible, even if the taxpayer does not itemize. Contributions by an employer are not included in the individual's taxable income To be eligible for a Health Savings Account, an individual must be covered by a high-deductible health plan (HDHP), must not be covered by other health insurance (does not apply to accident insurance, disability, dental care, vision care, long-term care), must not be eligible for Medicare, and can't be claimed as a dependent on someone else's tax return Distributions other than for qualified medical expenses to a Health Savings Account are taxable and subject to a penalty of 10%de OTHER TYPES OF MEDICAL EXPENSE COVERAGE Hospital Indemnity Policies Provide a specific amount on a daily, weekly or monthly basis while the insured is confined to a hospital Payment under this type of policy is unrelated to the medical expense incurred, but based only on the number of days confined in a hospital Dental Care Indemnity Policies Reimburse services only after the carrier receives the bill Limited Benefit Policies There are a variety of health insurance policies providing limited coverage for specific accidents or sickness These contracts must specify the type of accident or sickness covered limited perils and amounts of coverage. Benefits may be paid on a reimbursement or indemnity basis and may be limited to a specified daily amount Limited Risk (Dread Disease) Policies Provide a variety of benefits for a specific disease such as cancer or heart disease Benefits are usually paid as a scheduled, fixed-dollar amount for specified events or medical procedures such as hospital confinement or chemotherapy Critical Illness Policies Pays a lump sum to the insured upon the diagnosis (and survival) of a critical illness The insured must survive the illness for a certain period of time (e.g. 30 days) The insurer may have a list of critical illnesses they will cover such as cancer, stroke, heart attack etc.

Chapter 5

Private Insurance Plans for Seniors Medicare Supplement Policies Medigap Medicare Supplement (Medigap) insurance is specifically designed for individuals who have enrolled in Medicare A Medigap policy is a Medicare supplement insurance policy sold by private insurance companies to cover medical costs not covered by the government in Medicare Parts A and B. Medigap policies do not pay costs for Medicare Parts C and D As of June 2010, there are 10 standardized Medigap plans. Each of the 10 plans has a letter designation of A, B, C, D, F, G, K, L, M, or N These policies were standardized by the National Association of Insurance Commissioners (NAIC) to help consumers understand and compare them and make informed buying decisions These standards can be found in NAIC's Medicare Supplement Insurance Minimum Standards Model Act Coverage for Medicare Part B excess charges is a Medicare Supplement additional benefit In general, the following six minimum standards apply to all policies designated as Medicare Supplement Insurance. • The policy must supplement both Part A and Part B of Medicare • The policy must automatically adjust its benefits to reflect statutory changes in Medicare • The policy must cover all expenses not covered by Part A from the 61st to the 90th day. Furthermore, it must cover the lifetime reserve copayment and must provide full coverage for an additional 365 days after Medicare benefits are exhausted. • If the policy excludes coverage for preexisting conditions, the exclusion cannot exist for longer than six months. That is, no coverage can be denied as a preexisting condition after the policy has been in effect for six months. • Part B expenses not covered by Medicare (that is, the 20% co-payment) must be covered by the Medigap policy, up to a maximum of $5,000 per year. However, policies may include a deductible before this benefit becomes payable. • The policy must include a minimum 30 day free-look provision. Long Term Care Insurance What Is Long-Term Care? Nursing home care is often covered by long-term care insurance. However, long-term care (LTC) refers to a broad range of medical, personal, and environmental services designed to assist individuals who have lost their ability to remain completely independent in the community. Although care may be provided for short periods of time while a patient is recuperating from an accident or illness, LTC refers to care provided for an extended period of time (normally more than 90 days). Depending on the severity of the impairment, assistance may be given at home, at an adult care center, or in a nursing home. What Is Long-Term Care Insurance? It is similar to most insurance plans in that the insured receives specified benefits in the event long-term care is required Most LTC policies pay the insured a fixed dollar amount for each day the policy covers, regardless of what the care costs Long-Term Care Coverages As individuals age, they are likely to suffer from acute and chronic illnesses or conditions. An acute illness is a serious condition, such as pneumonia or influenza, from which the body can fully recover with proper medical attention. The patient may also need some assistance with chores for short periods of time until recovery and rehabilitation from the illness are complete. Some people will suffer from chronic conditions, such as arthritis, heart disease, or hypertension, which are treatable but not curable illnesses Over time, a chronic condition frequently goes beyond being a nuisance and begins to inhibit a person's independence Most long-term care insurance policies will pay benefits when you cannot perform at least two Activities of Daily Living (ADL). Three categories of long-term care • Skilled nursing care is continuous, around-the-clock care provided by licensed medical professionals under the direct supervision of a physician. Skilled nursing care is usually administered in nursing homes. • Intermediate nursing care refers to doctor-ordered health care performed by skilled medical practitioners and required intermittently, rather than on a daily basis • Custodial care provides assistance in meeting daily living requirements, such as bathing, dressing, getting out of bed, toileting, and so on. Home Health Care Home health care is care provided in the insured's home, usually on a part-time basis. It can include skilled care (e.g., nursing, rehabilitative, or physical therapy care ordered by a doctor) or unskilled care (e.g., help with cooking or cleaning). Adult Day Care Adult day care is designed for those who require assistance with various activities of daily living, while their primary caregivers (usually family or friends) are absent Respite Care Respite care is designed to provide a short rest period for a family caregiver. Continuing Care Designed to provide a benefit for elderly individuals who live in a continuing care retirement community Taxation of LTC Benefits Qualified LTC insurance contracts are treated in the same manner as accident and health insurance contracts Amounts received under an LTC contract are excluded from income because they are considered amounts received for personal injuries and sickness There is a limit on these amounts and these limits are adjusted for inflation annually

Chapter 1

Uses of Health Insurance Employee Benefit Plans • While the term employee benefit plan can encompass a wide variety of benefit offerings (life insurance, pension or profit-sharing plans, vacation pay, deferred compensation arrangements, funeral leave, sick time) it is rare when it does not include some kind of provision for health insurance or health benefits Group Health Insurance By providing its employees with a plan for health insurance, an employer derives a number of benefits: • The plan contributes to employee morale and productivity • The plan enables the employer to provide a needed benefit that employees would otherwise have to pay for with personal after-tax dollars (this helps hold down demands for wage increases) • The plan places the employer in a competitive position for hiring and retaining employees • The employer can obtain a tax deduction for the cost of contributing to the plan • The plan enhances the employer's image in both public and employee relations Cafeteria Plans • Cafeteria plans are benefit arrangements in which employees can pick and choose from a menu of benefits, thus tailoring their benefits package to their specific needs • Employees can select the benefits they value or need and forgo those of lesser importance to them • The employer allocates a certain amount of money to each employee to "buy" the benefits she desires • If the cost of the benefits exceeds the allocation, the employee may contribute the balance Business Continuation Plans Health insurance also serves business continuation purposes in the event of a disabling sickness or injury. It does so through the following plans: Business Overhead Expense Insurance • Business overhead expense insurance is designed to reimburse a business for overhead expenses in the event a business owner becomes disabled • Overhead expenses include such things as rent or mortgage payments, utilities, telephones, leased equipment, employees' salaries etc. • Does not include any compensation for the disabled owner • The premium for business overhead insurance is a tax-deductible business expense • The benefits when paid are treated as taxable income Disability Buy-Outs A Business Disability Buy-Sell policy is designed to assist in the sale of a business in the event of the disability of a business owner. • The plan sets forth the terms for selling and buying a partner's or stock owner's share of a business in the event she becomes disabled and is no longer able to participate in the business • It is a legal, binding arrangement funded with a disability income policy • Unlike typical disability income insurance plans that pay benefits in the form of periodic payments, the buy-out plan usually contains a provision allowing for a lump-sum payment of the benefit Key Person Disability Insurance • This type of coverage pays a monthly benefit to a business to cover expenses for additional help or outside services when an essential person is disabled • The business is the owner and premium payor of the policy • Benefits are received by the business tax-free because the premium paid is not tax deductible Tax Treatment • Employers are entitled to a tax deduction for premium contributions they make to accident and health group policies • As a general rule, individual premium contributions to a group health plan are NOT tax deductible • Any benefits an individual receives under a medical expense plan are NOT considered taxable income because they are provided to cover losses the individual incurred • Disability benefit payments that are attributed to employee contributions are NOT taxable • Disbability benefit payments that are attributed to employer contributions ARE taxable Group Health Insurance NATURE OF GROUP HEALTH INSURANCE The contract for a group health insurance policy is between the insurance company and the employer. A master policy is issued to the employer. • Insureds (employees) receive certificates of insurance and an outline that describes their benefits • The benefits provided under a group health plan are more extensive than those provided under an individual health plan • Group health plans typically have higher benefit maximums and lower deductibles CHARACTERISTICS OF GROUP HEALTH INSURANCE Eligible Groups • To qualify for group health coverage, the group must be a natural group • This means that it must have been formed for some reason other than to obtain insurance • Qualifying groups include employers, labor unions, trade associations, creditor-debtor groups, multiple employer trusts, lodges etc. • State laws specify the minimum number of persons to be covered under a group policy Individual Eligibility • Like group life, group health plans commonly impose a set of eligibility requirements that must be met before an individual member is eligible to participate in the group plan Contributory Versus Noncontributory If the employer pays the entire premium, the plan is noncontributory. If the employees share a portion of the premium, it is contributory. • Most noncontributory group health plans require 100% participation by eligible members, whereas contributory group health plans often require participation by 75% of eligible members • The reason for these minimum participation requirements is to protect the insurer against adverse selection and to keep administrative expenses in line with coverage units Lower Cost • The cost of insuring an individual under a group health plan is less than the cost of insurance under an individual plan • This is because the administrative and selling expenses involved with group plans are far less Predetermined Benefits • Benefits provided to individual insureds are predetermined by the employer in conjunction with the insurer's benefit schedules and coverage limits • For example, group disability benefits can be tied to a position or earnings schedule Underwriting Practices • The insurer evaluates the group as a whole rather than individuals within the group • Based on the group's risk profile, the group is either accepted or rejected. • Rarely is an entire group rejected on the basis of one bad risk, unless the group is very small • The underwriter reviews a number of factors to determine whether or not the group should be accepted • In spite of the many differences between types of groups, there are certain general groups of underwriting considerations Conversion Privilege • Allows an insured to convert their group certificate to an individual medical expense policy with the same insurer, if and when they leave their employment or the group plan is being eliminated • Insurers are permitted to evaluate the individual and charge the appropriate premium, be it a standard rate or substandard rate • An individual cannot be denied coverage even if he/she has become uninsurable • The conversion must be exercised within a given period of time (usually 30 or 31 days) depending on the state. (the employee must make application for a converted policy within this timeframe) Preexisting Conditions • HIPAA limits the ability of employer- sponsored groups and insurers to exclude individuals on the basis of preexisting medical conditions. • HIPPA rules apply to most group health plans like HMO's, PPO's, and Major medical plans. It excludes coverage such as workers compensation and disability income plans. • HIPAA portability rules allow individuals who change from one group medical plan to another to reduce or eliminate any pre-existing conditions excluded under the new plan • The exclusion for preexisting conditions is now limited to conditions for which medical advice or treatment was recommended or received within the six-month period ending on the enrollment date • The exclusion can extend for no more than 12 months • Creditable coverage is prior group health insurance that reduces the maximum preexisting condition exclusion period that a new group health plan can apply to that individual GROUP HEALTH INSURANCE COVERAGES Dental care and vision care • Dental care coverage is designed to cover the costs associated with normal dental maintenance as well as oral surgery, root canal therapy, and orthodontia • The coverage may be on a "reasonable and customary charge" basis or on a dollar-per-service schedule approach • Deductible and coinsurance features are typical as are maximum yearly benefit amounts • Vision care coverage usually pays for reasonable and customary charges incurred during eye exams by ophthalmologists and optometrists Group Basic Medical Expense • The three standard forms of basic medical expense insurance- hospital, surgical, and physicians' expenses- are available for group insurance • A group basic medical expense plan can combine two or more of these coverages or it may consist of only one type of coverage, such as hospital expense only Group Major Medical Plans • Like individual major medical plans, group major medical plans may be offered as a single, extensive plan (comprehensive major medical) or superimposed over a group basic plan (supplemental major medical) • Participants are usually required to satisfy an initial deductible with comprehensive plans and either a corridor or an integrated deductible with supplemental plans • Benefits provided by group major medical plans are usually more extensive than those of individual plans • The waiting period in a Group Health policy gives an insurance company the right to delay coverage for a covered sickness for a specified number of days after the effective date of the policy Coordination of Benefits The purpose of the coordination of benefits (COB) provision, found only in group health plans, is to avoid duplication of benefit payments and over insurance when an individual is covered under more than one group health plan. • The provision limits the total amount of claims paid from all insurers covering the patient to no more than the total allowable medical expenses • The COB provision establishes which plan is the primary carrier (provider), or the plan that is responsible for providing the full benefit amounts as it specifies. • Once the primary plan has paid its full promised benefit, the insured may submit the claim to the secondary carrier(provider) for any additional benefits payable • In no case will the total amount the insured receives exceed the costs incurred or the total maximum benefits available under all plans COBRA Continuation of Benefits • COBRA is a federal law that guarantees a continuation of their group coverage if their employment is terminated for reasons other than gross misconduct. It stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. • Requires employers with 20 or more employees to continue group medical expense coverage for terminated workers for up to 18 months following termination • The law does not require the employer to pay the cost of the continued group coverage • After expiration of group benefits under COBRA, a fully insured group policy can be converted to an individual health insurance policy • The terminated employee can be required to pay the premium, which may be up to 102% of the premium that would otherwise be charged • The benefits under COBRA continuation coverage will end if the employer terminates all group health plans Group Disability Income Plans Group disability plans usually specify benefits in terms of a percentage of the individual's earnings Most group disability plans require the employee to have a minimum period of service, such as 30 to 90 days, before being eligible for coverage OTHER GROUP HEALTH PLANS Blanket Health Plans Blanket health insurance is issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are constantly changing. • A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students Franchise Health Plans • Provide health insurance coverage to members of an association or professional society • Individual policies are issued to individual members and the association or society simply serves as the sponsor for the plan • Premium rates are usually discounted for franchise plans Credit Accident and Health Plans • Credit accident and health plans are designed to help the insured pay off a loan in the event she is disabled due to an accident or sickness • If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payments due Health Savings Accounts (HSAs) • An HSA is a tax-favored vehicle for accumulating funds to cover medical expenses • Individuals under age 65 are eligible to establish and contribute to HSAs if they have a qualified high- deductible health plan • Annual contributions of up to 100% of an individual's health plan deductible can be made to an HSA • Individuals who are 55 to 65 years old can make an additional catch-up contribution Tax Treatment Earnings in HSAs grow tax-free and account beneficiaries can make tax-free withdrawals to cover current and future qualified health care costs. Qualified health care expenses include amounts paid for: • Doctors' fees • Prescription and nonprescription medicines • Necessary hospital services not paid for by insurance • Retiree health insurance premiums • Medicare expenses (but not Medigap) • Qualified long-term care services • COBRA coverage TAX TREATMENT OF GROUP HEALTH PLANS Taxation of Group Health Premiums • Employers are entitled to take a tax deduction for premium contributions they make to a group health plan, as long as the contributions represent an "ordinary and necessary business expense." • Individual participants do not include employer contributions made on their behalf as part of their taxable income • As a general rule, individual premium contributions to a group health plan are not tax deductible Taxation of Group Health Benefits • Disability benefit payments that are attributed to employee contributions are not taxable, but benefit payments that are attributed to employer contributions are taxable. ERISA • Church employee welfare plans are specifically exempt from regulation under ERISA

Chapter 8

Wisconsin General Laws Commissioner of Insurance General Powers and Duties • The Commissioner of Insurance is responsible for administering and enforcing Wisconsin's insurance laws • The Commissioner is appointed by the governor with the Senate's advice and consent The Commissioner has the following duties: • Enforce the provisions of the Wisconsin insurance statutes • Conduct examinations or investigations of any insurance matters • Examine or investigate insurance companies, adjusters, and intermediaries for compliance with state insurance laws and regulations • Issue compliance orders Examination of Records • The Commissioner or a designated examiner may conduct an examination of any domestic insurance company at the discretion of the Commissioner. Every person or firm being examined must produce and make freely available to the Commissioner all material relating to the subject of the examination • The cost of domestic insurers' examinations are paid for by the insurers Hearings The Commissioner must conduct a hearing before the Commissioner: • Revokes, suspends, or limits a permanent license • Issues an order or adopts any rule • Rules on the appeal of a denial of a license • Rules on the competency and trustworthiness of an applicant Penalties The following actions may be taken against licensees who fail to comply with the Commissioner's order or continue to violate Wisconsin insurance law: • Court injunction may be filed to restrain any violation of the insurance code • A fine of up to $5,000 a day for failing to comply with the Commissioner's order within 2 weeks of its issuance Civil penalties, in addition to any other fines are: • Twice the amount of any profit gained from the violation of insurance law • Up to $1,000 each day a person fails to obey an order issued from an enforcement proceeding • Up to $1,000 per violation of a Wisconsin insurance law or regulation • Up to $1,000 against a firm for the violations of its intermediary Criminal penalties are imposed on a person who: • Intentionally violated an insurance statue, rule, or order • Permitted any person under his authority to violate any statute, rule, or order • Aided any person in the violation of insurance laws • Penalties can be up to $10,000 for each offense for a corporation, or for a person can amount to $5,000, three years' imprisonment, or both A license may be suspended, revoked, or limited after a hearing before the Commissioner Wisconsin Insurance Security Fund The purpose of the Wisconsin Insurance Security Fund is to maintain the public's confidence in the insurance industry by protecting insureds against excessive delay and loss in the event of the insurer's insolvency. The fund is administered by a board of directors to include: The attorney general, the state treasurer, and the Commissioner of Insurance. • All insurers authorized to do business in Wisconsin are covered by and required to pay assessments to the fund • A claim is eligible for payment from the fund if it is an unpaid claim for a loss insured under a policy or annuity up to $300,000 Licensing Intermediary An intermediary is any person who earns a commission by soliciting, negotiating, or advising insurance or annuities. • No person may use the services of another as an intermediary if the person knows that the other does not have a license as required by law The following are intermediaries required to be licensed: Insurance agent: An intermediary is an insurance agent if he/she acts as an intermediary other than a broker Broker: A broker sells and negotiates insurance on behalf of the insured Surplus lines agent or broker: An intermediary separately licensed to place insurance with unauthorized (nonlicensed) insurers Corporations and partnerships: Partnerships and corporations in the insurance business in Wisconsin may be licensed Reinsurance intermediary-broker: A reinsurance intermediary-broker places ceded reinsurance and has an office in this state, or does business in this state and has an office outside this state Reinsurance intermediary-manager: A reinsurance intermediary-manager has significant authority regarding assumed reinsurance of an insurer and acts as its agent Managing general agent (MGA): A managing general agent: • Manages all or part of an insurer's insurance business • Acts as an agent for the insurer Licensing requirements Persons who want to become licensed intermediaries must: • Be competent and trustworthy • Be knowledgeable about the kinds of insurance they would like to sell • Make no false statements or misrepresentations • Able to analyze the needs of their clients and recommend appropriate insurance to meet those needs • Explain limitations of the coverage • Manage agency financial affairs according to the high standards of a fiduciary • Must take a prelicensing education course from an approved provider and receive an original certificate of completion dated not more than one year before the licensing examination date • Successfully pass a licensing examination for the line of insurance being applied for • It is not a requirement to be a resident of Wisconsin • Before selling, soliciting, or negotiating annuity products in Wisconsin, intermediaries must complete a one-time annuity training course approved for at least 4 hours. • Individuals applying for a Life Settlement Broker license must complete an initial training course of not less than 8 hours prior to applying for the license. • Not intend to become licensed for the purpose of writing controlled business Does not qualify as an intermediary The following are not intermediaries under Wisconsin law: • A regular salaried officer, employee or representative of an insurer that does not receive any compensation that is directly dependent upon the amount of insurance business obtained • A person who gives incidental advice in the normal course of a business or professional activity other than insurance consulting • A person who provides information, advice, or service for the principal purpose of reducing loss or risk • A representative of a common carrier who sells only over-the-counter, short-term travel accident ticket policies and baggage insurance • A holder of a group insurance policy, or any other person involved in mass marketing, with respect to the person's administrative activities in connection with the policy Nonresidents A person who is not a legal resident of Wisconsin may be licensed to act in this state as a nonresident insurance intermediary without taking a written examination, if all of the following conditions are met: • The person is currently licensed as a resident and in good standing in his or her home state • The person has submitted the proper request for licensure and has paid the fees prescribed by the Commissioner • The person has submitted to the Commissioner the application for licensure (or a completed uniform application) that the person submitted to his or her home state • If a nonresident fulfills the continuing education (CE) requirements in his/her home state, the intermediary does not have to fulfill CE requirements in Wisconsin as long as the agent's home state will do the same for Wisconsin intermediaries. Temporary License A temporary license may be issued in cases where an intermediary has become disabled or dies, requiring a replacement to service the intermediary's business. It also can be issued when the intermediary is actively serving in the military. • A temporary license is valid for a maximum of 12 months Continuing Education All insurance intermediaries must successfully complete 24 credit hours of continuing education every 2 years, prior to license renewal. Three of those hours must be in ethics. Record Keeping Intermediaries must maintain complete records for each individual insurance policy unless it is the responsibility of the insurer. The records must be maintained for 3 years following the transaction completion date and must be available for inspection by the Commissioner. Records must be provided upon request of the Commissioner. • Policyholder records must be kept for 3 years following the lapse/termination of a policy Change of Address Every intermediary licensed in Wisconsin must notify the Office of the Commissioner of Insurance in writing of the address change within a maximum of 30 days. Reporting of Actions An insurance intermediary must report to the Commissioner any misdemeanor or felony taken against the intermediary within 30 days of the final disposition of the matter. License Suspension, Revocation, and Limitation Suspension, Revocation, Limitation An intermediary's license remains in effect perpetually or until: • It is revoked, suspended, or limited by the Commissioner • It is voluntarily surrendered by the intermediary • The death of the intermediary • A court finds the intermediary mentally incompetent • The Commissioner finds, after a hearing, that the person, corporation, or partnership is no longer qualified to act as an intermediary The Commissioner may suspend, revoke, refuse to issue or refuse to renew an insurance intermediary license for any one or more of the following causes: • Violating any insurance laws, or violating any regulation, subpoena or order of the Commissioner or of another insurance Commissioner in any other state • Failing to pay a fee or complete continuing education requirements if the Commissioner gave the intermediary reasonable notice • Business practices and methods that endanger the public's interests • If financial resources are inadequate to safeguard the customer's and the public's interest • If an intermediary is unqualified or not of good character If a license has been revoked, the intermediary may reapply: • Immediately if license was revoked for nonpayment or failure to comply with continuing education • In five years or less if the revocation was for any of the other reasons • If the Commissioner does not specify a period, after five years The intermediary may not participate in the sale of insurance during the revocation period. Reinstatement Reinstatement can be applied for within 12 months of revocation. An intermediary must apply for relicensing at time after 12 months have elapsed from the date of revocation. State Regulation Cancellation Insurance companies cannot cancel a policy that has been in force for more than 60 days, except when the insured: • Failed to pay the premium • Committed fraud • Made serious material misrepresentations on the applications New policies When a policy first becomes effective, the insurer may cancel that policy any time within the first 60 days without providing you with a reason for the cancellation. The cancellation is not effective until at least 10 days after the insurance company mails or delivers to you a written notice of cancellation. Renewal on altered terms Sometimes an insurer will renew a policy but will raise the rates or make the terms less favorable to the insured. An insurer may not alter the terms of coverage until 60 days after a notice is mailed. Nonrenewals Nonrenewal of a policy refers to the termination of a policy at the expiration date. If an insurer decides it does not want to renew a policy, it must mail or deliver to you a nonrenewal notice at least 60 days before the policy's expiration date. If an insurer fails to provide notice, it must continue the coverage under the same prior terms and conditions for the term of the policy or one year, whichever is less. Midterm cancellations A midterm cancellation is a cancellation that occurs during the policy term and prior to the policy's expiration or renewal date. The insurer must either mail or deliver a written cancellation notice. No cancellation is effective until at least 10 days after the mailing or delivery of the notice. Reasons for an insurer cancelling a policy midterm include: • Insured fails to pay premium when due • Insured makes a material misrepresentation • Insured makes a substantial breach of policy conditions or contractual duties Anniversary cancellations This refers to a policy written for an indefinite term or for more than one year. These policies may be cancelled on any anniversary date if the policies contain cancellation provisions. If the insurer decides to cancel your policy on the anniversary date, it must mail or deliver to you a written notice at least 60 days prior to anniversary date. Certificate of Authority No insurance company may transact business in Wisconsin without a Certificate of Authority, which acknowledges that the requirements of the insurance laws have been met, and authorizes the company to transact insurance. • Failure of an insurance company to obtain a Certificate of Authority will not impair the validity of any insurance contract Commissions It is illegal for an insurer or intermediary to pay or a person to receive compensation for services as an intermediary if not properly licensed. • This law allows the payment of deferred commissions to formerly licensed intermediaries or brokers or their assignees • This law does not prohibit the proper exchange of business between intermediaries and brokers lawfully licensed in Wisconsin Proper exchange of business Proper exchange of business means the forwarding of insurance business from one intermediary to another because the forwarding intermediary is not able to place the business with any of the companies for which the intermediary is listed. The intermediary forwarding the business must be licensed in the same line of business that is being exchanged. Acts of the intermediary If a policyholder or insured failed to perform a required act in the prescribed time or manner because of the intermediary's actions or statements, the failure does not affect the insurance company's obligations under the policy. This is the case whether or not the intermediary was within the actual scope of the intermediary's authority. Affirmative warranty An affirmative warranty is an express or implied positive representation in the policy which guarantees an existence of a fact at the time the policy was entered into. Promissory warranty A promissory warranty is a warranty that certain things will be done or not be done after the policy has taken effect. Representation A statement made by an applicant that becomes part of the contract is considered to be a representation. Collusion The insurer is legally protected against actions in which an intermediary and a policyholder acted together to deceive or defraud the company. HIV/AIDS Unless otherwise specified by law, it is illegal to require an HIV-related test without first receiving the written informed consent of the subject. • Insurers cannot report that an applicant's blood tests showed the presence of the AIDS virus antibodies. They can only report that the blood test results were abnormal. • Wisconsin law requires the HIV consent form to disclose the types of individuals or organizations that may receive a copy of the test results Unfair Practices Boycott, Coercion and Intimidation It is illegal to be involved in any activity of boycott, coercion, or intimidation which results in the unfair restraint of competition or to create a monopoly. Defamation Defamation occurs when an oral or written statement is made that is intended to injure a person engaged in the insurance business. This also applies to statements that are maliciously critical of the financial condition of any person or a company. False advertising Advertising covers a wide scope of communication, from publishing an ad in a newspaper or magazine, to broadcasting a commercial on television or the Internet. Advertisements cannot include any untrue, deceptive, or misleading statements that apply to the business of insurance or anyone who conducts it. The violation of this rule is called false advertising. It is prohibited to advertise or circulate any materials that are untrue, deceptive, or misleading. False or deceptive advertising specifically includes misrepresenting any of the following: • Terms, benefits, conditions, or advantages of any insurance policy • Any dividends to be received from the policy, or previously paid out • Financial condition of any person or the insurance company • The true purpose of an assignment or loan against a policy Misrepresentation Occurs when intermediaries, their employees, or those acting on their behalf make written or oral communication about an insurance contract, insurance business, insurance company, or intermediary that contains false or misleading information. This includes: • Information which is misleading because of incompleteness • Filing a report with the intent to deceive the person examining that report • Making a false entry in a record • Failure to make a proper entry in a record for the purpose of concealing information • Using the name, slogan, emblem, or related device which will or is likely to cause an intermediary to be mistaken for another intermediary A material representation is an untrue statement made by an applicant that would influence an insurer in determining whether to accept the risk or in fixing the amount of the premium in the event of such acceptance Unfair inducement Unfair inducement occurs when an insurance company, employee, or intermediary influences another person to buy an insurance policy or to end a present insurance policy by offering benefits not set out in the policy. This includes: • kickbacks of premium • rebating anything of value • absorbs the premium tax for unauthorized insurance when the policyholder is responsible • makes any agreement not written in the policy Unfair discrimination Discrimination in rates, premiums, or policy benefits for persons within the same risk classification or with the same life expectancy is illegal. No discrimination may be made on the basis of an individual's marital status, race, national origin, gender identity, sexual orientation, creed, or ancestry unless the distinction is made for a business purpose or required by law. Restricting the choice of insurers No person who requires insurance as a condition for concluding a contract may restrict the choice of insurer of the person buying the coverage. Extra charges No person may make any charge other than premiums and premium financing charges when the charge is a condition for the financing of a purchase. Restrictions on personal financial transactions An intermediary is prohibited from borrowing or loaning money, property, or securities to a customer. An intermediary is also prohibited from acting as a custodian or having power of attorney with a customer. This applies to customers with whom they have conducted business within three years of the transaction. Controlled business Controlled business can be defined as policies written on people that the licensed intermediary has direct influence over: including family, employers, and/or any company to which the intermediary has stock control. Rebating Rebating is defined as any inducement offered to the insured in the sale of insurance products that is not specified in the policy. Rebates may include, but are not limited to, the following: • Rebates of premiums payable on the policy • Special favors or services • Advantages in the dividends or other benefits; • Stocks, bonds, securities, and their dividends or profits Both the offer and acceptance of a rebate are illegal. Gender discrimination There must be no discrimination among members of the same classification on the basis of sex or marital status. Notice of Right to File a Complaint Insureds are required to notify their insureds of the policyholders' right to file a complaint with the Office of the Commissioner of Insurance regarding problems the policyholder may have with their insurance • A notice is required for each policy issued by an insurer that reads: KEEP THIS NOTICE WITH YOUR INSURANCE PAPERS Unfair Claims Practices The following acts, omissions, or practices are defined as unfair and deceptive claim settlement practices when knowingly committed or performed with such frequency as to indicate a general business practice, and are prohibited: • Misrepresenting to insured's pertinent facts or policy provisions relating to coverage at issue • Failing to acknowledge and act reasonably promptly upon communications with respect to an insurance claim • Failing to adopt and implement reasonable standards for prompt investigation and processing of insured's claims • Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements are completed and submitted by insured's • Failing to effectuate prompt, fair, and equitable settlements of claims • Not attempting in good faith to effect prompt, fair and equitable settlements of claims on which liability has become reasonably clear; Refusing or delaying a settlement solely because there is other insurance available to partially or entirely satisfy the claim loss; the claimant who has a right to recover from more than one insurer has the right to choose the coverage from which to recover and the order in which payment is to be made • Compelling insured's to initiate suits to recover amounts due under an insurance policy by offering substantially less than the amount ultimately recovered in those suits • Attempting to settle claims on the basis of an application that was altered without the consent of the insured Fiduciary Responsibilities Any person who is appointed or who acts as an intermediary for an insurance company in Wisconsin, and who received or collects money from any source as an intermediary, will be held responsible in a fiduciary capacity for those funds. Commissions And Compensation No insurer transacting business in Wisconsin may pay any commission or other compensation to any person for services as an intermediary in obtaining insurance, except to a licensed intermediary of the company or to a licensed insurance agency having a copy of the license on file with the insurance company. It is acceptable to share commissions as long as both intermediaries are licensed in the same line of business. • An intermediary may receive compensation for insuring the intermediary's self ONLY if during the prior year the intermediary sold other insurance with the same company with total premiums exceeding the premiums on the intermediary's own risks Domestic, Foreign, and Alien Companies Insurance companies are classified according to the location of its corporation. Regardless of where the insurance company is incorporated, it still has to get a Certificate of Authority before transacting insurance within a state. The following definitions apply: Domestic insurance company: A company that resides and is incorporated under the laws of the state in which its home office is located. A company chartered in Wisconsin would be a domestic company in Wisconsin Foreign insurance company: A company whose home office is located in another state. It is considered to be a foreign company in all states except for its home office. A company chartered in Texas would be a foreign company in Wisconsin Alien insurance company: A company that is chartered and organized in any country other than the United States. It is considered an alien company in all states. A company chartered in Canada would be an alien company in Wisconsin Authorized and Unauthorized Insurers Authorized insurer: An insurance company that has qualified and received a Certificate of Authority from the Insurance Department to sell insurance in this state. • Also called an admitted insurance company Unauthorized insurer: An insurance company that has been denied or not yet applied for a Certificate of Authority and may not sell insurance in this state. • Also called a non-admitted company Stock and Mutual Company Stock Insurance Company: An insurance company that is owned and controlled by stockholders. The stockholders provide the capital and share in profits or losses • Stock insurance companies are considered nonparticipating because the policyowners do not share in the profits of the company • The objective is to produce profits for the owners, the stockholders • Stock insurance companies that issues both participating and nonparticipating policies are referred to as a company doing business on a mixed plan. Mutual life insurance companies: An insurance company owned and controlled by its policyowners. These policyholders elect a board of trustees or Commissioners to manage the firm. The profits of a mutual insurance company are returned to the policyowners in the form of dividends or retained as surplus to meet future obligations. • Mutual insurance companies are considered participating because the policyowners do share in the profits of the company • The objective is to provide insurance to its owners, the policyowners, at the lowest net cost Privacy of Consumer Information Disclosure authorizations Personal medical information is information that relates to a person's physical or mental health, medical history, or medical treatment and that is obtained from a health care provider, medical care institution, the person, or the person's spouse, parent, or legal guardian. • A form authorizing the disclosure of personal medical information to an insurer must be in plain language, be dated, and specify the type of information that will be disclosed, the purpose of the disclosure, and how long it will be valid • An authorization form may remain in valid for up to 30 months from the date it is signed Access to information If an individual or an individual's authorized representative submits a written request for access to personal medical information, the insurer must take the following actions within 30 business days: • Inform individual nature of substance of the person medical information • Give the individual the choice of either inspecting and copying the information by mail • Disclose the identities of any persons to whom the insurer has disclosed this information • Inform the individual of the procedure for requesting a correction or deletion of any personal medical information in the insurer's possession Correction or deletion of information Insurer has 30 days after receiving written request from an individual to correct or delete any personal medical information in the insurer's possession. Penalties A person who knowingly and willfully obtains information about an individual from an insurer or insurance organization under false pretenses may be fined up to $25,000 or imprisoned for up to nine months, or both. Fraud and false statements including 1033 waiver The Fraud and False Statements federal law makes it illegal to lie, falsify, or conceal information (orally or in writing) from a federal official. As it applies to insurance, any person engaged in interstate (including US Territories) insurance business who engages in intentional unfair or deceptive insurance practices, or overvalues an insurance product in a financial report or document presented to a regulatory official, will be in violation of federal law. Other violations include, but are not limited to: embezzling money from an insurance company, misappropriating insurance premiums, and writing threatening letters to insurance offices. • The punishment for violation is a fine up to $50,000, imprisonment up to 15 years, and/or license revocation • An individual convicted of a felony involving dishonesty may engage in the business of insurance ONLY after receiving written consent from the state insurance regulatory agency and a 1033 waiver Fair Credit Reporting Act The Fair Credit Reporting Act (FCRA) is a federal law that regulates the use and disclosure of consumer credit information. Credit reporting agencies, such as Experian, Equifax, and TransUnion, are regulated by the FCRA. They are required by law to provide information about a consumer stored in the agency's files. Adverse information that has been removed from a consumer's file cannot be reinstated without notifying the customer within five days. Furthermore, agencies cannot store adverse information about a consumer for longer than a set period of time. For example, information about late payments and final judgments can only stay on a credit report for up to seven years, bankruptcies - 10 years, and tax liens - seven years from the date paid. Insurance companies are also subject to the FCRA because they use consumer credit reports during underwriting and risk selection. The consumer who was investigated must be advised that credit, insurance, or employment was denied because of an unfavorable report. Wisconsin Life Laws Intermediary Responsibilities Solicitation and sales presentations Intermediaries must provide applicants and prospects with the approved NAIC Buyer's Guide. Intermediaries must also provide a Policy Summary to applicants. Policy summary The policy summary contains specific information on the provisions, benefits, and coverage of the policy applied for. • If a basic illustration is not provided, an insurer must provide a policy summary to a prospective insured when the policy is delivered Buyer's guide The buyer's guide enables applicants to compare different life insurance policies and help them choose which policy is best for their needs. A life insurance buyer's guide normally includes information such as: • Deciding on how much life insurance to buy • Comparing life insurance policy rates • Comparing life insurance policy requirements Separate benefits Every life insurance policy must specify each benefit promised in the policy. Credit life Individual credit life insurance policies shall be for nonrenewable, nonconvertible term insurance. Advertising Advertisements may not contain deceptive words, symbols, or illustrations if they exaggerate, overstate, understate, or contain incomplete information regarding a life insurance or annuity product. • Advertisements must clearly identify the insurer and may not use words or symbols that imply government sponsorship of the insurer • Advertisements must disclose whether the person giving an endorsement is being paid for doing so • Advertisements must disclose whether the insurer may change the amount of premium due during the policy term • Advertisements may not state or imply that the payment or amounts of nonguaranteed policy elements are guaranteed Illustrations An illustration is a presentation, graph, or chart that includes non-guaranteed elements of a policy of life insurance over a period of years. Non-guaranteed elements are the premiums, benefits, values, credits or charges under a policy of life insurance that are not guaranteed or not determined at issue. • Illustrations must be clearly labeled as such, and contain the following: name and address of the issuing insurer; name, age, and sex of the proposed insured; generic name of the policy; initial death benefit; and any non-guaranteed elements such as dividend options • Words, phrases or illustrations may not be used in a manner that misleads or deceives • Illustrations used in the sale of life insurance contain a statement that must be signed by the agent • If an illustration is used, a copy of it must be submitted with the application for insurance, and a copy must be provided to the applicant • The guaranteed section of a cash value life insurance illustration will show what the company guarantees • The projected or "illustrated, non-guaranteed" section will show you what could happen in the future • A life insurance illustration showing future premiums being paid out of nonguaranteed values must disclose that the policyowner may need to resume premium payments depending on actual results Backdating In order to save on premiums, a life insurance policy can legally be backdated up to 6 months. Variable life products Life, variable, and securities licenses are required for an intermediary to market variable life insurance products. Replacement The primary purpose of the replacement rule is to protect policyowners from misrepresentations and loss of benefits. Notice of Replacement: under Wisconsin law the replacement of life insurance contracts with a new contract requires the intermediary to give the applicant a written comparison and summary statement at the request of the policyholder and to follow instructions regarding replacement as obtained from the appointing insurer. Replacement: means any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuities will be any of the following: • Lapsed, forfeited, surrendered, or otherwise terminated • Reissued with any reduction in cash value • Converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values • Amended so as to affect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid • Reissued with a reduction in cash value • Used in a financed purchase Exemptions Replacement regulations do not apply to: • Group life insurance • Credit life insurance • Policies distributed on a mass merchandise basis • Policies issued in connection with a pension, profit sharing, individual retirement account, or other benefit plan qualifying for tax deductibility of premiums Duties of the intermediary • Present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the intermediary at the time of taking an application. A copy must be left with the applicant. Intermediary must maintain a copy for 3 years • Obtain a list of all existing life insurance and/or annuity policies to be replaced including policy numbers and the names of all companies being replaced. • Leave the applicant with the original or a copy of written or printed communications used for presentation to the applicant. • Submit to the replacing insurance company a copy of the Replacement Notice with the application. Duties of the replacing insurance company • Require from the intermediary a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant. • Send each existing insurance company a written communication (within 5 days of receipt of application) advising of the proposed replacement within a specified period of time of the date that the application is received in the replacing insurance company's home or regional office. A policy summary or ledger statement containing policy data on the proposed life insurance or annuity must be included. • The replacing insurer must allow the owner of the life insurance policy to return the policy within 30 days after delivery for a full refund. • Maintain copies of the replacement notice for five years or until the next regular examination by the Commissioner, whichever is later Required Provisions Grace Period The required grace period for life insurance policies in Wisconsin is 31 days. The grace period is a time which a policy remains in force after the premium is due, but not paid. If the insured dies during the grace period, the death proceeds will still be paid, minus the premium due. Contestable period A provision that the policy terms shall be incontestable after it has been in force for a period of 2 years from its date of issue (unless the purpose for taking out the coverage was fraud). Entire contract A provision that the policy and the application shall constitute the entire contract between the parties. All statements made by the policyholder are considered representations. Group Life Insurance Policyholder is entitled to a grace period of not less than 31 days for the payment of any premium due except the first. Protection of Beneficiaries from Creditors The beneficiary of any life insurance policy or annuity contract is protected from the creditors of the insured. Premiums Life insurance policies in Wisconsin must state all of the following: • Premiums are payable in advance • Premiums can be paid to an agent of the issuing company • Premiums can be paid at the home office of the issuing company Life Settlements Allows someone with a terminal illness to sell their existing life insurance policy to a third party for a percentage of the face value. The new owner continues to make the premium payments and will eventually collect the entire death benefit. Life settlement brokers must be licensed before conducting any transactions. Proceeds of the life settlement contract could be subject to the claims of creditors. • Life settlement contracts and forms must be approved prior to use by the Commissioner • Life settlement contracts must allow the owner a right to cancel the contract before the earlier of: 1) 30 calendar days after the contract is executed by all parties 2) 15 calendar days after the life settlement proceeds have been paid to the owner Suitability in Annuity Transactions Standards and procedures are in existence to ensure that anyone looking to purchase, exchange, or replace an annuity is properly informed and the recommendations given to them are in their best interests. The intended goal of this regulation is a consumer who has had their insurance needs and financial objectives properly addressed. The following list is information that should be taken into consideration when making suitable recommendations concerning the purchase, exchange, or replacement of an annuity: • Age • Annual income • Financial status • Financial experience • Financial objectives • Intended use of the annuity • Financial time horizon • Existing assets • Liquidity needs • Liquid net worth • Risk tolerance Interstate Insurance Product Regulation Compact The purpose of this compact is to promote uniformity and cooperation among the states that have accepted it. This compact is charged with the following responsibilities: • Protect the interest of consumers • Develop uniform standards for reviewing insurance products • Create interstate insurance product regulation USA Patriot Act The purpose of the USA Patriot Act is to detect and deter terrorism. The types of suspicious activity that insurers must report include: • Receipt of any cash payment in excess of $10,000 • Purchase of insurance that is not consistent with the customer's needs • Requests to have refund or surrender proceeds or other benefits paid to a party not clearly related to the purchaser • Greater interest in the early termination features of a product rather that its potential performance • Fictitious identification or reluctance to provide identification • Maximum borrowing against a product's value soon after it is purchased Wisconsin Health Laws Policy Provisions Right to examine (free-look) Health insurance policies must provide a minimum free-look period of 10 days upon policy delivery. This allows the policyowner time to decide whether or not to keep it. If the policyowner decides not to keep the policy within the 10 days allowed, a full refund will be given. • A "Right to Return" clause must be conspicuously attached to the first page of the policy Right of insurer to contest a claim This provision prevents the insurer from using information on the application to contest a benefit or claim if the policy has been in effect for 2 years or longer. Grace period A policyholder is entitled to the following grace periods following the premium due date, during which the policy remains in force: • At least 7 days for policies with premiums that are due weekly • At least 10 days for policies with premiums that are due monthly • At least 31 days for all other policies Pre-existing conditions Pre-existing conditions are those for which medical advice or treatment was recommended by or received from a health provider within six months preceding the effective date of coverage. • A claim filed 2 years after a policy became effective may not be reduced or denied because the disease or physical condition existed before the date of coverage, unless the condition specifically was excluded from coverage • A claim filed six months after a Medicare supplement, Medicare replacement, or long-term care insurance policy became effective may not be reduced or denied because the disease or condition existed before the date of coverage • Insurance for a small employer may not contain a pre-existing condition waiting period longer than 12 months Creditable coverage An individual's waiting period for pre-existing conditions is reduced when he or she has "creditable coverage." Creditable coverage is previous coverage under another group or individual health plan when there has not been a break in coverage of 63 days. The 63-day period begins when the individual's previous coverage ended. It ends when coverage under your plan begins, or, if earlier, when your group's waiting period for eligibility begins. Application responsibilities If the application contains health history questions or other insurability matters, an insurer must, within 10 days of policy issuance, furnish a separate notice or attach a notice to the front of the policy advising the policyholder to check the application for omissions or misstatements that might invalidate a future claim. • The insurer must void the policy as soon as possible after it receives information that would be the basis for refusal of coverage. If not, the insurer has waived its right to void the policy. Grievance A grievance is an expressed written dissatisfaction of the claims practices or provision of services offered by a health benefit plan or administrator. These plans include Medicare supplements or replacement plans, but not Medicare Advantage plans. Insurers issuing health benefit plans must do all of the following: • Develop and use an internal grievance procedure to resolve insured's grievances • Provide insureds with information describing the grievance procedure • Submit an annual report to the Commissioner describing the procedure • Establish a panel to investigate each grievance • Notify the insured of the disposition and action taken on the grievance • Retain records of each grievance for 3 years after the notification Independent review In the case of an adverse determination or experimental treatment determination, the insurer will notify the insured that the insured has the right to request and obtain an independent review, how to request the review, and how long the insured has to request the review. • An Independent Review must involve disputes involving a medical judgment that denies coverage because the treatment was considered not medically necessary or experimental Mandated Coverages Nurse practitioners Health insurance policies that provide coverage for Pap tests, pelvic examinations, and associated laboratory work if performed by a physician must also provide coverage for these services when performed by a nurse practitioner acting within the scope of the license. Optometrists Insurers may not refuse to provide coverage for such services provided by an optometrist if the contract or plan includes coverage for the same services or procedures when provided by another health care practitioner. Chiropractic benefits Insurers must include coverage of service by a licensed chiropractor for diagnosis and treatment of a condition or complaint within the scope of the chiropractor's professional license, if the policy covers diagnosis and treatment of the condition or complaint by a licensed physician or osteopath. Dentists All health insurance policies are required to provide coverage for treatment of a condition performed by a licensed dentist if the policy covers diagnosis and treatment of the condition if performed by any other health care provider. Newborn child coverage All individual and group health plans which provide coverage to family members of the insured must provide coverage for the insured's newborn child at the moment of birth. If a premium is required to continue the newborn's coverage, it must be paid within the first 60 days to continue coverage. Coverage includes injury and sickness, including medical care for diagnosed congenital defects and birth abnormalities. Handicapped children Coverage of a dependent child cannot be ended while the child continues to be: • Incapable of self-sustaining employment because of mental retardation or physical handicap; and • Chiefly dependent upon the person insured under the policy for support and maintenance Adopted children All health insurance policies that provide for dependent children must cover adopted children and children placed for adoption on the same terms and conditions as natural children. Grandchildren Health policies that provide coverage for an insured's child must provide the same coverage for all children of that child until that child reaches age 18. Alcohol, drug abuse, mental, and nervous disorders Treatment for alcoholism, drug abuse, and nervous and mental disorders must be covered on a no more restrictive basis than any other illness under the plan. Employers with fewer than 10 eligible employees may provide coverage with the following dollar limitation: • For group policies that cover services for inpatient hospital care, an annual amount of coverage equal to the lesser of 30 days' expenses or $7,000 (minus a 10% copayment, or $6,300) • For group policies that cover outpatient services, an annual amount of coverage of no less than $2,000 (minus a 10% copayment, or $1,800) Mammograms Coverage for a woman age 45 or older must provide coverage for periodic mammographies. Coverage is required regardless of whether the woman shows any symptoms of breast cancer. • Policies that provide coverage for a mastectomy are required to provide coverage for breast reconstruction Kidney disease Policies that cover hospital expenses must provide at least $30,000 of coverage per year for in- and outpatient treatment of kidney disease. Skilled nursing care Policies that cover hospital expenses must cover at least 30 days of skilled nursing care to patients who enter a licensed skilled nursing facility within 24 hours after discharge from a hospital. Home health care Every disability insurance policy providing coverage of expenses incurred for inpatient hospital care must provide coverage for the usual and customary fees for no less than 40 home health care visits in any 12-month period for each person covered under the policy. Cancer clinical trials No policy may exclude coverage of routine patient care to any insured who is participating in a cancer clinical trial. Lead screening All health insurance policies are required to provide coverage for blood lead tests for children under 6 years of age. Marketing Methods and Practices Advertising • Advertisements must clearly identify the insurer and the policies or services advertised. Any use of statistics in an ad must include the source of the statistics • Ads must disclose a policy's provisions relating to renewability, cancelability, termination, and changes in benefits, losses covered, or premiums because of age or other reasons • Advertisements may not describe a limitation or exception in a positive manner to imply that it is a benefit, such as by describing waiting periods as "benefit builders" or stating that "even preexisting conditions are covered after two years" • An ad that is intended to be seen or heard beyond the jurisdiction in which the insurer is licensed cannot imply that the insurer is licensed beyond that jurisdiction • An ad cannot make unfair or incomplete comparisons of policies or benefits offered by other insurers. It cannot disparage competitors or their products, services, or business methods and cannot disparage other methods of marketing insurance • Marketing materials cannot state or imply that an insurer or policy has been approved or endorsed by a governmental entity unless it is true. The nature and extent of such a recommendation, endorsement, or rating must be fully explained. • Testimonials, appraisals, analyses, or endorsements used in marketing materials must be genuine and represent the current opinion of their author. These must be reproduced accurately and completely enough to avoid misleading prospective customers about their nature or scope. • Testimonials, appraisals, analyses, or endorsements made by persons having a financial interest in the insurer must disclose this fact in the marketing materials. Paid endorsements must also be disclosed with a clear and prominent notice, such as "Paid endorsement." • Ads also cannot imply that applicants will become members under a group policy and enjoy special rates or underwriting privileges, unless that is true • Ads cannot state that a policy is an introductory, initial, or special offer and that applicants will therefore receive special advantages not available at a later date or that the offer is available only to a certain group of individuals, unless that is true Outline of coverage An outline of coverage must be delivered to a prospective applicant by the intermediary at the time of initial solicitation. This must prominently direct the attention of the recipient to the document and its purpose. • An outline of coverage must describe a policy's benefits, exclusions, renewal provisions, and continuation provisions Suitability The intermediary is responsible for determining the suitability of a disability (accident & health) policy to a potential insured. Replacement When soliciting or selling health insurance policies, insurers and intermediaries are required to follow the usual rules concerning replacement. • If the sale involves replacement, the insurer or intermediary is required to provide the applicant with a Notice Regarding Replacement. This notice must be given when the intermediary takes the application Interstate Insurance Product Regulation Compact A compact among member states that formed a commission which provides insurers with a centralized filing system for the review and approval of policy forms to be used in multiple states. • Policy forms for life, annuities, disability income, long-term care insurance can be filed with the Interstate Insurance Product Regulation Commission, as well as long-term care advertisements Long-term Care Insurance The three types of health insurance policies for long-term care are: • A long-term care policy that provides institutional and community-based benefits • A nursing home policy that provides institutional benefits • A home health care policy that provides community-based benefits Buyer's Guide Insurers and intermediaries must provide an outline of coverage and a Buyer's Guide to prospective purchasers of long-term care insurance. The rules require anticipated loss ratios of at least: • Individual policies- 65% • Group policies through mail 65% • Other group policies- 75% Long Term Care Partnership This program allows individuals who purchase a qualified Long Term Care Partnership policy to protect some or all of their assets and still be able to qualify for Medicaid should their needs extend beyond their coverage. • Individuals would be able to retain assets above the Medicaid threshold in the amount of the purchased qualified LTC Partnership policy Intermediary training for LTC partnership Intermediaries selling, soliciting, or negotiating LTC policies in Wisconsin must complete an approved training program. The training requirements are as follows: • Complete a minimum 8 hour initial training course • Continuing education of a minimum of 4 hours per session every 24 months after the initial training Medicare Supplements • The marketing of Medicare Supplements is regulated to prevent sales of excessive insurance, inaccurate policy comparisons, and the failure to display notice of limitations to the buyer • The intermediary who solicits the application is primarily responsible for determining the appropriateness of a Medicare supplement policy for a proposed insured • When a Medicare supplement policy is purchased during the open enrollment period, the policy must be issued regardless of health status • A Medicare Supplement policy must be delivered to an applicant with 7 days after intermediary has received it for delivery • To verify if replacement is involved in a Medicare Supplement sale, insurance law requires that a question about replacement appear on the application form • When a Medicare Supplement insurance policy is being replaced, the intermediary and applicant must sign the notice of replacement, notify the replaced insurance company, and give a list of all health policies the intermediary sold to applicant in the past • Medicare Supplement policy must be guaranteed renewable and cannot be cancelled due to individual's health status • Free-look period for Medicare Supplements is 30 days • The open enrollment period for Medicare (and Medicare Supplements) begin 3 months before your 65th birthday and lasts for 7 months • All Medicare beneficiaries are entitled to a 6 month open enrollment period beginning on the date they first enroll for benefits under Medicare Part B • An insurer may exclude coverage for a preexisting condition on a Medicare Supplement Policy for up to 6 months • There must be prior state approval for Medicare Supplement information used in: insurance company brochures and radio/television advertisements made by the insurer • Insurers can use government publications for communicating Medicare Supplement information without prior state approval • The insurer must provide an offer of conversion to individual coverage to certificate holders when a group Medicare Supplement insurance policy is terminated and not replaced • A Medicare Supplement policy must disclose: the right to return the policy for a full refund; any limitations on pre-existing conditions; the right of the insurer to increase premiums Prohibited Long-term care and Medicare Supplement Sales Practices • Twisting: Using misrepresentations or inaccurate comparisons to induce a person to terminate or borrow against their current insurance policy to take out an insurance policy with another insurer • High pressure tactics: Used to induce the purchase of insurance through force, fright, threat, or undue pressure • Cold lead advertising: Failing to disclose that the purpose of the marketing effort is insurance solicitation • Misrepresentation: Misrepresenting a material fact in selling a long-term care insurance policy Small Employer Group Coverage A small employer is one who employs between 2 and 50 employees in Wisconsin. An eligible employee is one who works on a permanent basis and has a normal work week of 30 or more hours. The term does not include an employee who works on a temporary or substitute basis. Special provisions Here are some special provisions relating to the sale of group or individual health insurance policies to small employers: • Small employer insurers that offer group health benefit plans in the small group market to accept any small employer in the state that applies for such coverage, and to accept any eligible individual who applies for enrollment during the period in which the individual first becomes eligible to enroll under the terms of the group health benefit plan • Insurers are prohibited from charging rates that deviate more than plus or minus 30% from the average rate charged for all groups with similar case characteristics and similar benefit design characteristics • Insurers are prohibited from increasing rates more than 15% yearly due to claim experience • Insurers are required to maintain complete and detailed records relating to its rating and renewal underwriting methods and practices Disclosure requirements Before completing an application for a policy, an intermediary is required to provide the small employer with a form providing the following information: • The insurer's right to increase premium rates and the factors limiting the amount of the increase • The extent to which benefit design characteristics affect premium rates • The extent to which rating factors and changes in benefit design characteristics and case characteristics affect changes in premium rates • The small employer's renewability rights • The small employer's right to ask for information concerning the policy's benefits and premiums under all other health insurance coverage that the insurer offers, for which the small employer is qualified The intermediary is required to sign and date the form certifying that the above information was made available to the small employer prior to completing the application and obtain the signature of the small employer acknowledging receipt of the information. The intermediary must give one copy of the form to the small employer and the intermediary or the insurer must retain one copy of the completed form. Fair marketing standards Here are the fair marketing standards for small employer health insurance plans: • Small employer insurers must actively market health benefit plan coverage to small employers in the state • Insurers may not discourage a small employer from applying for coverage or encourage the small employer to seek coverage from another insurer because of health status, claims experience, industry, occupation, or geographical location of the small employer • Insurers may not terminate or limit a contract entered into or renewed with an intermediary based on the health status, claims experience, industry, occupation, or geographic location of the small employers • Insurers or intermediary may not induce or otherwise encourage a small employer to separate or otherwise exclude an employee from health coverage • If an insurer denies an application for coverage of a small employer, it must deny the application in writing and state the reasons for denial • Insurers are prohibited from requiring a small employer to purchase or qualify for any other insurance product or service as a condition to the offer of a health benefit plan to a small employer • A small employer insurer must establish and maintain a toll-free telephone service to provide information to small employers regarding the availability of health benefit plans and how to apply for coverage Termination and nonrenewal regulation Insurers may nonrenew or discontinue a group health policy plan only for: • Nonpayment of premium • Fraud • Failure to meet minimum participation or employer contribution requirements • The insurer ceasing to offer coverage in the market in which the group health benefit plan is included • In the case of network plans, absence of any enrollee under the plan that resides, lives, or works in the service area • Where coverage is provided through a bona fide association, the employer ceasing to be a member of the association on which the coverage is based An insurer may discontinue offering a particular type of group health benefit plan in either the small or large group market if all of the following apply: • The insurer provides notice of the discontinuance to each employer and plan sponsor and to the participants and beneficiaries who have such coverage at least 90 days before the date coverage will be discontinued • The insurer offers to each employer or plan sponsor the option to purchase from among all of the other group health benefit plans that the insurer offers in the market in which the discontinued plan is included Requirements for Group Health Benefit Plans Insurers must apply minimum participation and employer contribution requirements uniformly among all employers. • They may vary minimum participation and contribution requirements only by the size of each employer group (e.g. 75% participation could be required for contributory plans and 100% participation could be required for noncontributory plans). • Insurers may increase the minimum participation or employer contribution requirements once per calendar year only if the requirements are applied uniformly to all employers applying for coverage and to all renewing employers effective on the date of renewal • Insurers may establish separate participation or employer contribution requirements that uniformly apply to all employers that provide a choice of coverage to employees or their dependents unless limited by rule Short-term medical policies A short-term medical policy is one that is sold to healthy individuals (typically under age 65) for up to 12 months. Most often these policies are issued in one month increments that are not renewable and must be qualified for. Health Benefit Purchasing Cooperatives A Health Benefit Purchasing Cooperative is a single group health plan covering employees, members, officers and dependents of the cooperative. • A cooperative is an approved organization within a geographical area approved by the commissioner • The contract for benefits is between the cooperative and the insurance company and has a three-year term. If any member withdraws from the cooperative before the end of the term, the cooperative may retain their premium for the 36 months. • Members of the Health Benefit Purchasing Cooperative who are also employers are not considered small employers if the coop provides benefits to more than 50 individuals Cancer Policy Solicitation • Insurers and intermediaries who sell cancer insurance must give each prospective buyer a copy of A Shopper's Guide to Cancer Insurance at the time the prospect is contacted with an invitation to apply • This rule does not apply to solicitations in which the booklet Wisconsin Guide for Health Insurance for People with Medicare is given to applicants as required by law AIDS Requirements • Insurers writing individual accident and health insurance in Wisconsin may require applicants for insurance to be tested for the presence of the antibody to HTLV-III and disclose whether they have obtained a test or the results of such test • Applicants for group accident and health insurance may not be required to take a test or disclose whether they have obtained a test or the result of such test • Insurers may test for the presence of the antibody to HTLV-III using only FDA-licensed tests or ask for the result of FDA-licensed tests. Insurers may disclose the results of the test only to: the applicant or insured who is tested, the applicant or insured's health care provider (if consent given), any other person authorized by the applicant • Insurers may disclose the results of the prescribed series of tests to the Medical Information Bureau only after receiving the informed consent from the applicant who undergoes the test • Any person who has tested positive for the presence of HIV or an antibody in HIV is automatically eligible for coverage under the Health Insurance Risk Sharing Plan (HIRSP) • An accident and health insurance policy is prohibited from containing any exclusions or limitations for coverage of the treatment of HIV infection or any affiliated conditions unless the same exclusions or limitations apply to all other conditions Health Insurance Risk-Sharing Plans (HIRSP) The legislature has enacted a law creating a mandatory health insurance risk-sharing plan for the residents of Wisconsin. HIRSP will provide health insurance to those eligible individuals who, for medical reasons, are unable to find adequate health insurance coverage in the private market. Notification Insurers are required to notify consumers of the existence of HIRSP, the eligibility requirements, and the way to apply whenever they send a notice of: • Rejection or cancellation of health insurance • Reduction or limitation of health insurance that substantially reduces benefits compared to benefits available to standard risks • An increase in premium exceeding 50% unless the increase applies to substantially all of the insurers' health insurance policies then in effect • Premium for a health insurance policy not yet in effect which exceeds by 50% or more the premium charged a standard risk Any person who has tested positive for the presence of HIV or an antibody in HIV is automatically eligible for coverage. Affordable Care Act "Exchanges" are created by the Affordable Care Act (ACA) health reform bill to help individuals and small businesses purchase health insurance coverage. The purposes of the exchange include: • Reduce the number of uninsured in the state • Facilitate the purchase and sale of qualified health plans in the individual market • Assist qualified employers in the state in enrolling their employees in qualified health plans • Assists individuals in accessing public programs, premium tax credits, and cost-sharing reductions Under the Affordable Care Act (ACA), the health insurance exchange will perform all of the following roles: • Certify health plans as qualified, based on pre-determined criteria • Utilize individual, unique formats for presenting health benefit plan