Chapter 3: Medical Expenses Insurance

A Hospital/Surgical Expense policy was purchased for a family of four in March of 2013. The policy was issued with a $500 deductible and a limit of four deductibles per calendar year. Two claims were paid in September 2013, each incurring medical expenses in excess of the deductible. Two additional claims were filed in 2014, each in excess of the deductible amount as well. What would be this family's out-of-pocket medical expenses for 2013? - $2,000 - $1,500 - $1,000 - $500

* $1,000 - in this situation, the insured's maximum out-of-pocket expenses for 2013 would be $1,000.

dental expense insurance

* A form of medical health insurance covering the treatment, care and prevention of dental disease and injury to the insured's teeth. * an important feature of a dental insurance plan which is typically not found in a medical expense insurance plan is that they cover diagnostic and preventive care such as teeth clanging and fluoride treatment.

This type of deductible provision states that should more than one family member be involved in a common accident, or suffer the same illness, only one individual deductible amount shall be applied * common accident deductible - family maximum deductible - corridor deductible - individual deductible

* Common accident deductible

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 • 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 • 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 • 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

Which of the following statements BEST describes the intent of a Coinsurance clause in a Major Medical policy? - minimizes the waiting period * discourages over utilization of the insurance coverage - minimizes the need for deductibles - discourages adverse selection

* Discourages overutilization of the insurance coverage - A purpose of the Coinsurance clause in a Major Medical Policy is to discourage overutilization of the insurance coverage.

Which of the following situations does a Critical Illness plan cover? - severe car accident - alcohol rehabilitation - leukemia - asthma

* Leukemia - Leukemia is a type of cancer and would be covered under a Critical Illness plan.

health savings accounts (HSAs)

* Plans designed to help individuals save for qualified health expenses. * are tax deductible. An individual 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 tax deductible and contributions by an employer are not included in the individual's taxable income.

Limited Risk Policies / dread disease

* 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.

medical expense insurance

* Provides financial protection against the cost of medical care f or 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.

coinsurance

* a requirement found in major medical policies that require the insured to participate in the payments of some of the expenses. * typically, the percentage of payment required by the insured is 20 % and the insurance company pays 80%.

MAJOR MEDICAL EXPENSE PLANS

* as opposed to the limited coverage available under the basic medial expense policies, major medical expense policies offer a broad range of coverage under one policy. - 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. Major medical expense plans offer broad coverage under one policy: • Benefit periods are generally for one year • Benefits for reasonable and necessary medical expenses, subject to policy limits * Comprehensive coverage for hospital expenses (room and board and miscellaneous expenses, nursing services, physicians' services, etc.) * also provides coverage on miscellaneous expenses, nursing services and physician's services as well as catastrophic medical expense protection, benefits for prolonged injury or illness... these policies usually carry deductibles, coinsurance requirements and large benefit maximums. • 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 • Coverage is provided for both inpatient and outpatient hospital expenses • Hospice benefits under a major medical plan normally includes coverage for pain management, home- based services, and counseling • The list of prescription drugs covered by a pharmacy benefit is called a drug formulary c

In order to establish a Health Reimbursement Arrangement (HRA), it MUST: -be offered in conjunction with other employer provided health benefits -limit the benefits to prescription drugs only -be established by the employer -limit the amount of money the employee can contribute toward the account

* be established by the employer

A health reimbursement arrangement MUST be established: - with other employer-sponsored benefit plans - only during specific open enrollment periods - with employee funding * by the employer

* by the employer - HRAs are employer- established benefit plans that must be funded by the employer

basic medical expense insurance: * has lower benefits than major medical insurance - pays for lost wages while hospitalized - normally has a deductible - covers an illness but not an accident

* has lower benefits than major medical insurance

stop loss

* most major medical polices contain a stop-loss feature to limit the amount of expense the insured by be exposed to in policy year. * Often, the stop-loss will state that after the insured has paid a specific amount towards his covered expenses, the insurance company will pay 100% of the remaining expenses for the remainder of the policy year

critical illness policy

* pays a lump sum to the insured upon the diagnosis and survival of a critical illness. * the policy owner must survive the illness for a certain period of time, typically 30 to 90 days.

limited benefit policies

* there are a variety of health insurance policies providing limited coverage for specific accidents or sickness. Benefits may be paid on a reimbursement or indemnity basis.

BASIC MEDICAL EXPENSE PLANS

* this is often referred to as Physicians Nonsurgical expense coverage bc it provides coverage for nonsurgical services a physician provides. However, the benefits are usually limited to visits to patient confined in the hospital • 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 • Basic medical expense insurance typically has lower benefit limits than major medical insurance • The benefits provided by basic medical expense insurance are LOWER than the actual expenses incurred • A particular fee charged by a physician or other health professional is called a usual, customary, and reasonable expense • The amount of the patient's claim payment will be based on the terms of the policy

relative value scale

* when this is used, each surgical procedure will be assigned a number of points that are relative to the number of points assigned to the maximum benefit. * the maximum points are usually assigned to major surgical procedures, such as open-heart surgery ---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

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. * these limits may not provide for the full amount of hospital room and board charges incurred by the insured. ****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 • Hospital room and board benefits cover expenses for occupancy of the room and bed, general nursing care, food and beverages, and personal hygiene items • 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• 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

deductible

- With major medical insurance, the insured is required to satisfy a deductible before benefits are payable. - Depending upon the specific policy, the deductible may be a flat detectable, corridor deductible or integrated deductible - 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. A policy can have multiple types of deductibles.

basic medical expense coverage can be purchased to cover the following:

- emergency accident benefits - maternity benefits - mental and nervous disorder care - hospice care - home health care - outpatient care - nurse's expenses

two common types of major medical policies

- supplemental major medical polices - comprehensive major medical policies

Family Maximum Deductible

A family maximum deductible waives the deductible for all family members after some of them have satisfied individual deductibles within the same year. Once the family deductible is satisfied, future covered medical expenses of all family members are paid just as if each member of the family had satisfied his or her individual deductible.

Internal Limits

Certain types of expenses may have limits placed on the dollar amount of certain services or on the type of service provided. For example, the policy will only pay for a semi-private room, not for a private room; or it will pay only medical expenses that are usual and customary; or it will pay lifetime alcohol or drug rehab expenses only up to $10,000, or for 75 days, etc.

Which of the following BEST describes a Hospital Indemnity policy? - coverage that reimburses an insured for surgeon expenses - coverage that pays a stated amount per day of a covered hospitalization - coverage that replaces lost income due to hospitalization - coverage that pays for hospital room and board

Coverage that pays a stated amount per day of a covered hospitalization

This type of deductible provisions waives the deductible for all family members after some of them have satisfied individual deductibles within the same year: - common accident deductible - individual deductible * family maximum deductible - corridor deductible

Family maximum deductible

Restoration of Used Benefits

Major medical policies that have a lifetime maximum benefit or a per year maximum will always have the possibility that the limit could be exhausted. This provision allows the maximum benefit to be restored after a specific amount of the benefit is used or after the plan has been in effect for a specified period of time. • The amount of coverage restored is usually a percentage of the used benefit

Physician Assistants

No agency, institution or physician providing a service for which payment or reimbursement is required to be made under a policy governed by State law shall be denied such payment or reimbursement on account of the fact that such services were rendered through a physician assistant.

Common Accident or Sickness Deductible

Some major medical plans include a common accident or sickness provision which states that only one deductible (usually equal to the individual deductible amount) need be satisfied when two or more insureds from the same family are injured in the same accident or suffer concurrently from the same illness.

Flat (initial) deductible

a stated dollar amount that applies to a covered loss (for example $500). This deductible is applied per occurrence, per insured individual. - sometimes referred to as "initial deductible"

Coinsurance

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 and the insured share in the remainder of expenses. • The insurance company pays a high percentage of the additional expenses (usually 75% or 80%) and the insured pays the remainder. • Typically, the percentage of payment participation required of the insured is 20% and the insurance company pays 80% • Coinsurance requires the insured to participate in the payment of expenses - the purpose of coinsurance is to eliminate unnecessary care.

Benefit Period

either begin immediately when the accident or illness occurs or when the insured meets the deductible - benefit period varies from policy to policy. EX) some benefit periods extend up to 2 years while others end each year.

A comprehensive major medical health insurance policy contains an Eligible Expenses provision which identifies the types of health care services that are covered. All of the following health care services are typically covered EXCEPT for: - physician fees - hospital charges - nursing services - experimental and investigative services

experimental and investigative services

hospital indemnity/ fixed rate policy

provides a specific amount on a daily, weekly or monthly basis while the insured is confined to a hospital.

Medical expense insurance

provides financial protection against the cost of medical care by reimbursing the insured, fully or in part, for these costs, called reimbursement plans. Examples of medical expense insurance are Medicare supplement insurance and long-term care insurance. - Medical expense insurance provides financial protection against the cost of medical care for accidents and illness. Loss due to accident and illness are the perils covered by medical expense insurance. 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. Medical expense insurance typically excludes coverage for care provided in a government facility. Individual medical expense insurance typically is written for a term of 1 year.

Per Cause Deductible

the insured must satisfy a deductible for each accident or illness.

All-cause deductible

the insured only has to meet the deductible amount once during the benefit period.

Health Savings Accounts (HSA)

• A tax-advantaged medical savings account available to individuals who are enrolled in a high-deductible health plan. • The funds contributed to an account are not subject to federal income tax at the time of deposit and roll over and accumulate year to year if not spent. • HSAs are owned by the individual and are an alternate tax-deductible source of funds used to pay for qualified medical expenses at any time without federal tax liability or penalty. • Health savings accounts (HSAs) are designed to help individuals save for qualified health expenses such as deductibles, coinsurance, prescription drugs etc. that they, their spouse, or their dependents incur • 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 20%

Comprehensive Major Medical

• Combines the features of basic expense coverage and major medical coverage, sold as one policy • they 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. - An example of a comprehensive health policy is a major medical policy. • Most major medical plans contain a "lifetime maximum benefit" that limits the insurer's total exposure under a contract, while few contain a "per cause maximum benefit" which limits the medical expenses covered for each cause • More expensive plans are characterized by an unlimited lifetime limit

Medical Savings Accounts (MSA)

• Created to help employees of small employers, as well as self-employed individuals, pay for their medical care expenses. • MSA's are tax-free accounts set up with financial institution such as banks and insurance companies. • Qualified medical savings accounts are available for employers with no more than 50 employees

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 • For self-employed individuals, 100% of their health insurance premium is tax deductible (as of 2003)

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. * there is usually a specific waiting period after which the pre-exisiting condition will be covered. • 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 Reimbursement Arrangements (HRA)

• Must be established by the employer • Employer-funded, tax-advantaged health benefit plans that reimburse employees for out-of-pocket medical expenses and individual health insurance premiums. • Unused amounts may be carried forward for reimbursement in future years. • Reimbursements may be tax-free if the employee paid for qualified medical expenses or a qualified medical plan • Employee does NOT contribute to an HRA

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

Stop-Loss (Out of Pocket Maximum/Maximum Out of Pocket)

• 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 for the remainder of the policy year, up to the maximum limit of the policy. * maximum benefits pay up to the maximum limit of the policy

Flexible Savings Accounts (Flexible Spending Accounts)

• Tax-advantaged accounts that can be set up through a cafeteria plan of an employer. • An FSA allows an employee to set aside a portion of earnings to pay for qualified medical expenses (such as prescription medication) as established in the cafeteria 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

Corridor deductible

• covers the gap between basic coverage and major medical. 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. For 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