Accident and Health Insurance

Definitions of the Term Accident

- Under ACCIDENTAL BODILY INJURY (ABI), only criterion is that the loss be accidental; only the end result must be unforeseen and unintended - Under ACCIDENTAL MEANS, both the cause AND the end result must be unforeseen and unintended - only ABI can be used in group policies in NC **accidental bodily injury = end results only (least restrictive) **accidental means = cause and end results (most restrictive)

Accident and Health Insurance

- a contract where the insurer, in exchange for the premium submitted, indemnifies the insured for the medical expenses caused by illness or injury and/or the loss of earnings due to disabilities as long as the expense or disabling occurrence happened during the policy period

Disability Buyouts

- allow the healthy partner(s) to purchase the interest of the disabled partner - does NOT apply to a sole proprietorship

Managed Care Plans

- attempt to control or limit unlimited access on when to see and doctor and which doctor to see - HMO, PPO - characteristics 1. primary care physicians act as "gatekeepers" by controlling access to further health care 2. preventative care in order to maintain wellness and minimize health care costs 3. use of case management techniques such as concurrent review, pre-admission certifications, second surgical opinions, etc.

Case Management Provisions

- attempt to control the cost of medical procedures and contain premium costs 1. Second Surgical Opinions: paid by the insurer; used to verify the need of a recommended procedure 2. Pre-Certification Provisions: require expected procedures to be submitted for approval; prevent unnecessary expenses 3. Concurrent Review: allows the insurer to monitor the hospital stay to make sure everything is proceeding as planned

Residual Disability

- attempts to measure the amount of income lost - will be paid when a partial disability reduces total income below a designated level - benefit paid will be the same percentage of the total disability benefit that the insured is losing of their income - benefits are reduced as income increase - compensates for cut in pay; when your new job pays less than the old one you had before you became disabled

Health Maintenance Organizations (HMOs)

- began to appear in the 1970s and offered to employers with more than 25 employees - offered for a monthly subscription fee - can be "closed panel", where HMO care providers are restricted to treating only HMO subscribers, or "open panel", where providers can also see non HMO patients

Comprehensive (Supplemental) Major Medical

- combine a basic medical expense policy and a major medical policy into one - provide excess coverage over a basic medical expense policy

Policy Exclusions

- common exclusions are war, military service, intentionally self-inflicted injuries, aviation, overseas residence, and disabilities arising from committing a felony - coverage may also be denied if a loss is caused by the insured being intoxicated or under the influence

Limited Benefit Policies

- cover a limited number of accidents, illnesses, or have a limited dollar benefit (must contain a statement of "This is a Limited Policy" on the first page - limited benefit policy types: 1. Limited Accident (Travel Accident): provide limited benefits for specific injuries (travel, automobile, etc.) 2. Limited Sickness (Dread Disease): cover a limited number of illnesses (polio, cancer, etc.) 3. Hospital Indemnity Plans: pay a stated dollar amount for each day hospitalized without regard to other coverage; made directly to insured

Business Overhead Expense

- covers a disabled owner; covers expenses such as rent, mortgage interest, utilities, and payroll - does NOT cover the business owner's salary - benefits paid are taxable

Surgical Expenses

- covers a surgeon's fee for procedures done while hospitalized - a surgical schedule in the policy states a relative value that determines maximum benefit payable using a conversion factor (absolute values are rare and do not use conversion factors) - operations not listed are paid on a usual and customary and reasonable basis (UCR)

Key Person Disability

- covers the cost of hiring replacements plus it permits the owner to continue the salary of regular employees (third-party contract)

Medical Expense Policies

- deals with medical expenses that are incurred when an individual become sick or injured - types: 1. Basic Medical Expense 2. Major Medical Policies 3. Comprehensive (Supplemental) Policies

Major Medical Policies

- developed to cover CATASTROPHIC medical expenses - an "all-risk" concept of coverage in that all medical expenses will be covered unless specifically excluded from coverage

Social (Government) Disability Insurance

- disabilities may also be eligible for benefits provided by some form of social insurance - private policies will coordinate their benefits to consider the possibility of over-insuring individuals who receive social program benefits **Social Security and Workers Comp**

Limitations to Coverage Under Major Medical Policies

- due to the all-risk nature of major medical policies, some items which were excluded in basic medical policy, do retain limits (referred to as inside(internal) limits): 1. Maternity Care: treated on a "same as any disabling occurrence" basis 2. Mental Illness: typically limits the max benefit for each visit to a yearly max for outpatient care (inpatient granted full benefits) 3. Substance Abuse: typically limited much the same as mental illness except that outpatient treatment only covered if qualified substance abuse treatment facility

Multiple Employer Welfare Arrangements (MEWA's)

- groups of employers who pool together in order to provide group insurance benefits to their employees; employer must first join a Trust Agreement - must be established by an association of employers or professional that is governed by a constitution or by-laws - MEWA's may be formed on a self-funded or fully funded basis - self-funded MEWAs are not subject to the Guaranty Association

Partial Disability

- inability to perform one or more duties of an occupation - less than half of business time - typically, partial disability concerns injuries only - usual benefit will be 50% of the amount payable for total disability and paid for a specified maximum time (such as 6 months) **policy will state what % you will get for partial disability based on payout for total disability)

Affordable Care Act

- mandates preventative care - pre-existing conditions have to be covered - children can remain on parents policy until age 26 - no lifetime benefit limits

Total Disability

- may arise from either illness or injury related occurrences - may be defined as: 1. Inability to perform duties of ANY occupation (most restrictive) 2. Inability to perform duties of any occupation for which he/she is reasonably suited by education, training, or experience 3. Inability to perform duties of his/her OWN occupation (least restrictive) - most policies contain a combination of the definitions above; will be liberal at the beginning of a disability and become more restrictive after a period of time (protects the company from MALINGERING)

Dental Insurance

- may be added to some policies by rider - characteristics: deductibles apply, co-pay, low policy limits (yearly max), one or two fluoride treatments a year, bridge replacements once every 5 years, excludes pre-existing conditions, excludes strictly cosmetic procedures

Benefit Period

- may be short term (up to 2 years) or long term (over 2 years with a max to age 65)

Non-Occupational v. Occupational (Full) Coverage

- non-occupational: benefits restricted to only non-occupational related occurrences - occupational: coverage provided both on and off the job; provides around the clock protection without regard to any payment received under workers comp - occupational coverage is generally reserved for those individuals not covered under a workers comp plan

Presumptive Disability

- obvious total, permanent disability requiring no demonstration of inability to work (loss of sight, hearing, speech, or two or more limbs)

Preferred Provider Organizations (PPO)

- organized by insurance companies to provide pre-paid health care to insureds without restricting the choice of doctor or facility - recuit medical professionals to provide care at pre-arranged fees - if treatment is with a preferred provider, out-of-pocket cost is lower and predictable as only a per visit co-pay is paid to the doctor - if treatment is with an unlisted professional (out of network) provider, benefits are paid under a major medical concept (deductible) ***advantage of a PPO over an HMO is that the PPO offers a wider choice of providers

Accidental Death and Dismemberment

- pays a scheduled amount for each specific type of loss - pays FACE (PRINCIPAL) amount if killed accidentally; payable to a beneficiary - pays some percentage of the face amount or (CAPITAL) amount for dismemberment

Basic Medical Expense

- pays hospital confinement expenses on a reimbursement basis (paying benefits to the policy holder) or on a service basis (to the medical professionals) - combination of a hospital policy, basic medical policy, and surgical coverage - generally do not have a deductible or coinsurance feature (1ST DOLLAR COVERAGE)

Taxation

- premiums paid for medical expense insurance, deductibles, coinsurance, and dental can be used as a tax deduction if these expenses in a year exceed 7.5% of the persons adjusted gross income for the year - disability taxation depends on who pays the premiums on the policy

Disability Income Policy

- provide weekly or monthly benefits to replace salary or wages lost while sick or injured - will rarely be 100% of gross income; typical maximum benefits are 50% or 70% of gross income - may also be referred to as loss of time or loss of income policies - benefits will be taxable if an employer pays the premiums; if the cost is shared, the benefit in proportion to the employer's premium payment will be taxable (if YOU pay all the premiums, benefits are not taxable)

Blanket Accident and Surgery

- provides group coverage for special situations where group membership changes rapidly (schools, public gatherings, employer sponsored recreational activities, etc.) - policy is issued to the head of the organization and the covered individuals do not receive a policy or certificate - the policy defines the group and coverage is provided to any individual who meets the definition of the group **Key: CONSTANTLY CHANGING MEMBERS, therefore no certificate is needed

Medical Expense

- provides limited benefits for non-surgical expenses that are not charged by the hospital - include physicians expense, x-ray, lab, emergency room, ambulance, second surgical opinions, private duty nursing, and fixed dollar maternity

Purpose of Accident and Health Insurance

- provides protection against the financial impact of illness or injury and provides payment for loss of income and/or expenses brought about because of this

Recurrent Disability

- the onset of disability, after recovery from a preceding disability period, resulting from the SAME accident or illness - will be treated as a continuation of the previous disability if occurring within a stated period of time, such as 6 months (do not have to meet elimination period again, but part of benefit period has already passed)

Uniform Policy Provisions

- there is not a mandated exact word contract, but most states have certain provisions that must be addressed in each policy that must comply to certain standards - 12 Uniform Mandatory Provisions - 9 Uniform Optional Provisions

Probationary Period

- time from issuance to the effective date of the policy, generally 30 days or less during which time losses from sickness will not be covered; losses from accidents may be covered - purpose is to eliminate coverage for pre-existing conditions and protect against adverse selection

Elimination (Waiting) Period

- time from onset of a disability until benefit payment begins - a time deductible that eliminates benefits for a period the insured feel appropriate (30 days, 60 days, etc.); the longer the elimination period, the lower the premium - found only in disability policies; benefits start after this - can receive back pay for the elimination period with a retroactive feature

Permanent Disability

- total or partial disability that is expected to remain for the duration of life

Temporary Disability

- total or partial disability where complete recovery is anticipated

Coordination of Benefits (COB) Clauses

- used to reduce the cost of insurance and to adhere to the principle of indemnity - determines order of premium payment among several medical expense contracts that may apply to a loss (ex: if spouses are on each other's insurance policy at work) - determines which carrier will act as primary and which will act as secondary - important with group insurance

Group Health Insurance

- written on members of a common group; must have been formed for a purpose other than obtaining insurance

Two Perils Covered By Health Insurance

1. Accidents 2. Sickness

General Regulations of Accident and Health Policies

1. Application for health insurance must be attached to the policy; any request for additional copies of the app must be answered WITHIN 15 DAYS of the request 2. Any policy with a stated age limit on coverage must continue through the policy period in which the insured reaches the age limit; misstatement of age limits insurers liability to a refund of premium 3. Insurers may not refuse benefits because services were provided by a nurse, chiropractor, optometrists, etc. and not directly by a physician 4. Group insurance coverage may not be terminated through non-pay of premium unless each certificate holder is given 45 days notice 5. Policies cannot be declared lapsed without 15 DAYS PRIOR WRITTEN NOTICE of impending lapse 6. Must provide benefit for the treatment of chemical dependency ; group contracts must establish minimum per person benefits of $8000 per year, $16000 per lifetime for chemical dependency treatment

9 Uniform Optional Provisions (protect the insurer)

1. Change of Occupation - change to a MORE hazardous occupation, BENEFITS REDUCED; change to a less hazardous occupation, RATE REDUCTION, REFUND OF EXCESS PREMIUM 2. Misstatement of Age - benefits will be changed to that which the premiums would have purchased at the correct age (cannot touch premiums like in life insurance) 3. Other Insurance in this Insurer - more than one policy in the SAME COMPANY, may elect which policy shall pay benefit on claim; other will cancel and return premiums to insured 4. Insurance with Other Insurers (Medical Expense Policies) - duplicating coverage with other insurers; company's liability shall be their pro-rate proportion relative to all other policies in forcer 5. Insurance with Other Insurers (Loss of Time/Disability Policies) - same as above 6. Relation of Earnings to Insurance - loss of time benefits shall not exceed current earnings of the insured or the average monthly income of the past two years, whichever is greater, but not less than $200 7. Unpaid Premiums - may be deducted from claims payments 8. Conformity with State Statutes - provisions that conflict with statutes of the state are automatically amended to meet requirements 9. Illegal Occupations - liability may be denied if insured is injured while committing an illegal occupation

Common Provisions of Group Health Insurance

1. Continuation of Group Benefits: grants right of the certificate holder to continue group coverage at up to 102% of the rate charged for coverage under the group policy for up to 18 MONTHS (as long as premiums are paid) after losing eligibility; reserved for individuals who have been covered for at least 3 CONSECUTIVE MONTHS prior to termination (except dental, vision, and prescription drugs) 2. Conversion Privilege: at termination or end of 18 month continuation period, certificate has 31 days to convert to their own individual insurance policy without evidence of insurability; premium will be based on individual's age and sex; conditions covered previously cannot be considered pre-existing

Disability Optional Benefits/Riders

1. Cost of Living Rider: increase maximum benefits during a period of disability in relation to increases in the Consumer Price Index (known as the Cost of Living Adjustment Rider, COLA); must have been receiving benefits for 12 months before activated 2. Guaranteed Purchase Option (Guaranteed Insurability): insured can purchase additional amounts of benefits at selected intervals without proving insurability 3. Waiver of Premium: will make premium payments on behalf of the insured from the date of disability if disabled for longer than the elimination period

12 Uniform Mandatory Provisions (protects the insured)

1. Entire Contract: Changes - contract = policy, endorsements, and application; only an executive officer, not an agent, can make changes; prevents external documents from being added to the policy 2. Time Limit On Certain Defenses (Incontestable) - no statements (except fraud) shall be used to deny a claim after the policy has been in force for two years 3. Grace Period - 10 days if payments made monthly, 31 days if made annually; protects against unintentional lapses 4. Reinstatement - can be done with app if premium is accepted; if app is required, reinstatement is automatic if premium not refunded within 45 days of issuance of conditional receipt; accidents covered IMMEDIATELY, sickness after 10 DAYS 5. Notice of Claim - must notify company within 20 DAYS of a loss; notice of continuation of disability may be require every 6 months 6. Claims Forms - insurer must supply claims forms WITHIN 15 DAYS after learning of claim 7. Proof of Loss - insured must provide within 180 DAYS OF LOSS 8. Time of Payment of Claims - claims are to be paid immediately; loss of time benefits paid not less frequently than monthly 9. Payment of Claims - death benefits are to be paid to beneficiary or estate; other claims to the service provider at the insurer's option 10. Physical Exam and Autopsy - insurer's right to examine the insured; not allowed where PROHIBITED BY LAW 11. Legal Actions - insured must wait 60 DAYS after submitting proof of loss before legal action can be taken, but not later than 3 years 12. Change of Beneficiary - consent of beneficiary not require unless irrevocable

Other Uniform Provision Requirements

1. Entire money and considerations must be expressed 2. Effective and termination dates must be expressed 3. Statements are binding only if application is attached 4. Only the APPLICANT can alter statements on the application 5. False statements on the application may bar recovery on a claim only if they are MATERIAL to the acceptance of risk 6. If a misstatement of age leads the insurer to accept premiums beyond a state age limit, the insurers liability is limited to a refund of premium 7. No policy provision may waive, restrict, or modify the listed Uniform Provisions 8. Exceptions and Reductions must be clearly labeled 9. No undue prominence may be given to any section 10. All Accident and Health Insurance policies must insure only one person or one policy holder for family coverage. Children may be insured under family coverage through age 26 11. Each policy form (including riders) must be identified by a number in the lower left-hand corner of the 1st page

Characteristics of a PPO

1. Form of prepaid healthcare (managed care) 2. No claim forms - provider files claim 3. Co-Pays (flat amount) 4. Subscriber/Member 5. Preventative Care - routine physicals 6. Still have in-network providers, but MUCH wider selection; out-of-network doctors/providers covered, but have co-insurance concept (deductible, etc.) 7. Pick primary care physician 8. Got rid of gatekeeping system (no longer need a referral to see a specialist) 9. No panel system

Characteristics of an HMO

1. Form of prepaid healthcare (managed care) 2. No claim forms - provider files the claim 3. Co-Pays 4. Subscriber/Member 5. Preventative Care - Routine Physicals 6. In-Network v. Out of Network (not covered) 7. Primary Care Physicians - Assigned Doctor 8. Gatekeeping System (referral/specialist) 9. Open v. Closed Panel 10. Independent Practice Association (open panel)

Other Common Policy Provisions

1. Free Look Period (10 Day) 2. Renewal Clauses: - Optionally Renewable - Conditionally Renewable - Guaranteed Renewable -Non-Cancelable 3. Coordination of Benefits Clauses 4. Case Management Provisions - Second Surgical Opinions - Pre-Certification Provisions - Concurrent Review

Characteristics of Group Health Insurance

1. Head of organization gets a Master Policy and each person in the group gets a Certificate of Insurance 2. Can be non-contributory (100% participation) or Contributory (75% participation) 3. Employees must become eligible for the group coverage no later than 90 DAYS after beginning employment (full-time employees included non-seasonal persons working 30 hours or more per week) 4. Physical exam not required for groups of 50 or more if the individual joins within first 31 days of eligibility 5. After first year of coverage, premiums for group health insurance may be adjusted every six months with 45 days notice of rate increase to employees (cost of coverage depends on amount of benefits, ratio of males/females, average age, and loss experience of group) 6. No fiduciary (employer) may cause the cancellation of group insurance through non-pay of premiums unless employers are provided 45 DAYS ADVANCE WRITTEN NOTICE

Basic Medical Expense Coverage (Includes)

1. Hospital Expenses 2. Surgical Expenses 3. Medical Expenses

To Calculate Deductible

1. Insured Pays: Total - Deductible, x Co-Pay, + Deductible 2. Insurer Pays: Total - Deductible, x Co-Pay (Insurer's Portion)

Specialty Policies

1. Limited Benefit Policies 2. Accidental Death and Dismemberment 3. Key Person Disability 4. Business Overhead Expense 5. Disability Buyouts 6. Dental Insurance

Two Major Types of Losses in Accident and Health Insurance

1. Loss of Income (Disability) 2. Hospital/Medical Expenses

Characteristics and Provisions of Major Medical Policies

1. Maximum Benefit/Aggregate Limit: per person over their lifetime; may be applied on a lifetime or per occurrence basis 2. Deductible: initial deductible applies to each person, each year (family deductibles limit total deductibles applicable to a family each year) 3. Common Accident Provision: only one deductible would apply is several family members were injured in a common accident 4. Co-Insurance/Participation Provision: medical expenses are shared by the insured and insurer based on a ratio 5. Stop-Loss Clause: limits max out-of-pocket payment of co-insurance paid by the insured to a specified dollar amount in which 100% is paid by insurer for the rest of the year 6. Carry-Over Provision: expenses incurred in last three month of the year that received NO reimbursement can be used towards deductible for the following year (avoids paying 2 deductibles in a short period of time) 7. Restoration of Benefits Provision: replaces a certain amount of the aggregate limit each year to reinstate coverage lost due to claims 8. Pre-Admission Certification: form of case management; requires treatment be pre-authorized; requires that provider submit expected procedures for approval (prevent unnecessary tests and treatments)

Renewal Clauses

1. Optionally Renewable: insurer may cease coverage on the renewal date for any reason 2. Conditionally Renewable: insurer may cease coverage on the renewal date only if specified conditions exist at that time; premiums may be increased upon renewal only on a class basis 3. Guaranteed Renewable: insurer cannot cease coverage; premiums may increased only on a class basis 4. Non-Cancelable: insurer cannot cease coverage; premiums cannot be increased (MOST FAVORABLE)

Nature of Accident and Health Policies (Requirements Regarding the Forms)

1. Policies must contain a statement to the effect of "Your policy may not be in force when you have a claim! Please read your policy!" 2. Minimum 10 day free look period 3. Policies may be renewed at the option of the insured unless the insurer provides, in writing, notice of intent to non-renew (30 days to 2 years notice of nonrenewal, depending on length of policy) 4. Rates can be increased on a CLASS BASIS with approval from the commissioner with 45 DAYS NOTICE 5. Coverage cannot be terminated upon reaching termination date if it is found that the child is incapable of self-sustaining employment due to mental or physical handicap 6. Policies that include dependent children begin at moment of birth and will cover congenital deformity (Newborns covered from moment of birth, but must be added within 31 days) 7. Cannot use genetic material to determine insurability (or sickle cell TRAIT) 8. Must provide coverage for preventive measures (mammograms, pap smears, etc.); also must cover cancer treatment drugs for benign and malignant tumors 9. Forms or Rates for accident and health coverage must be disapproved by the commissioner within 90 days, or can be used

Possible Structures of a HMO

1. Staff Model: HMO owns the facility and health care providers are on staff to the HMO; services are received at the HMO facility and treatment outside the facility will not be provided (CLOSED PANEL) 2. Group Practice Model: HMO is organized by a cooperative of medical practitioners as a for-profit enterprise; services are provided at the HMO facility with benefits not paid or greatly reduced for treatment outside of the facility; can be closed or open paneled 3. Individual (Independent) Practice Association Model: individual doctors participating in the HMO continue to see patients at their offices rather than at a central facility and provide services at prearranged prices; Health care providers are NOT employees of the HMO (OPEN PANEL)

Exclusions to the Basic Medical Expense Policies

1. Vision Care 2. Out-Patient Prescription Drugs 2. Outpatient Treatment

Exclusions to Major Medical Policies

1. War and Military Duty 2. Intentionally Self-Inflicted Injuries 3. Strictly Cosmetic Procedures 4. Vision Care 5. Dental Care 6. Treatment in a Government Facility (such as a VA hospital - double coverage) 7. Occurrences covered by Workers Comp

Common Characteristics of Comprehensive (Supplemental) Major Medical Policies

1. initial benefits are paid in accordance with policy limits and schedules as established in the basic expense portion of the coverage without an initial deductible up to a certain amount 2. Corridor Deductible is the amount of money that the insured must pay after the basic medical (hospital) expense coverage has reached its limits and before the major medical benefits begin; amount typically lower than the initial deductible found in major medical and assessed in the middle of coverage as opposed to the beginning 3. After corridor deductible is satisfied, major medical coverage performs in the same manner as normal utilizing both co-insurance and stop-loss clause

Hospital Expenses

Covers: - in-patient care - hospital room and board, up to a stated dollar limit per day for a max number of days - miscellaneous (ancillary) expense (operating room, lab charge, drugs, etc.); may be allocated (scheduled) or unallocated (unallocated is subject to a max expense benefit) - intensive care coverage

Social Security Disability

Eligibility Requirements: - available to those individuals who have made a minimum of 40 quarters (work credits) of FICA contributions - disabilities must be permanent and total, with permanent being defined as in existence for 5 months and anticipated to last at least 1 year or end in death - total disability is defined as the complete inability to do ANY productive work - benefit is based upon the amount of FICA tax contributions and number of dependents **social security is NOT funded by the federal government; the PIA is the base used to calculate a person's eligible benefits