Fundamentals of Insurance Planning

1
Fundamentals ofInsurance Planning
Individual Medical Expense Insurance Chapter
13
2
Chapter 13 Overview

• continuation of employer-provided coverage
• types of policies
• insuring the unhealthy

• consumer-directed medical expense plans
• policy provisions
• federal tax treatment

3
employer-provided coverage generally ceases when
--

• employment terminates
• employee ceases to be eligible
• employers master contract terminates
• maximum benefit is reached
• employees contributions cease
• dependent ceases to qualify

4
COBRA --

• Consolidated Omnibus Budget Reconciliation Act
• requires group health plans to allow qualified
  beneficiaries to extend their current health
  insurance coverage following a qualifying event
  that results in the loss of coverage
• at group rates
• for 18, 29, or 36 months
• premium usually 102 percent of the cost
• 150 percent for disabled employees after 18
  months
• applies only to employers with 20 or more
  employees

5
qualified beneficiary --

• any employee, spouse, or dependent child who, on
  the day before a qualifying COBRA event, was
  covered under the employer's group health plan

6
qualifying event --

• under COBRA, an event that triggers eligibility
  to elect continuing coverage
• employees death
• employees termination (except for gross
  misconduct)
• ineligibility due to reduced hours
• divorce or legal separation
• child ceases to be an eligible dependent

7
continuation of coverage without COBRA --

• employers may continue group coverage for
• retirees
• surviving dependents
• laid-off employees
• disabled employees

8
extension of benefits --

• most employer medical expense plans extend
  benefits for any covered employee or dependent
  who is totally disabled when coverage would
  otherwise terminate
• if disability resulted from an injury or illness
  while the person was covered under the group
  contract
• extension generally from 3 to 12 months

9
conversion privilege --

• right to purchase individual coverage if group
  coverage ends
• no evidence of insurability required
• full coverage of preexisting conditions
• 31 days allowed for conversion
• includes right to convert dependents coverage
• may not be available to anyone covered by
  Medicare
• may not be available if conversion would result
  in overinsurance

10
group-to-individual portability --

• HIPAA encourages states to facilitate
  availability of individual coverage for those
  losing employer-provided coverage
• federal requirements apply if states do not have
  a plan

11
types of individual policies --

• individual major medical
• choices may include deductibles, coinsurance,
  maximum lifetime benefit, prescription drug
  coverage, maternity coverage
• HMO
• usually identical to employer-sponsored plans

12
Medicare supplement (medigap) insurance --

• individual health insurance contract that covers
  certain expenses not covered by Medicare
• covered expenses include such items as
  deductibles, copayments, and certain noncovered
  services

13
Medicare supplement (medigap) policies --

• fills some gaps in Medicare coverage
• insurers may offer 1 or more of 12 plans
• all plans include
• coverage for hospitalization copayment other than
  initial deductible
• Part B percentage participation
• first 3 pints of blood/year
• 2 plans contain consumer-directed features

14
Medicare SELECT policy --

• a medigap policy that pays benefits for
  nonemergency services only if care is received
  from network providers
• reduced cost
• issued by insurers as PPOs also issued by some
  HMOs

15
other individual health coverages --

• dental insurance
• temporary medical insurance
• international travel medical insurance
• hospital-surgical policies
• hospital indemnity, specified disease, critical
  illness insurance

16
temporary medical insurance --

• short-term in nature
• policies for additional periods may be available
• designed for persons who are between permanent
  medical plans

17
international travel medical insurance --

• interim medical insurance for international
  travelers
• usually folded into a broader policy to cover
  many non-health-related travel contingencies

18
hospital-surgical policy --

• individual medical expense policy that provides
  limited coverage for hospital, surgical, and
  certain other medical expenses
• less comprehensive than a major medical policy

19
hospital indemnity insurance --

• medical expense policy that pays a fixed dollar
  amount for each day a person is hospitalized,
  regardless of other insurance

20
specified disease insurance --

• medical expense coverage that provides benefits
  for persons who have certain specified diseases
  or medical events, such as cancer or heart attack
• may pay actual medical expenses or, more likely,
  a specified dollar amount regardless of actual
  expenses and without regard to other coverages

21
critical illness insurance --

• supplemental medical expense insurance that
  provides a substantial one-time lump-sum cash
  benefit for listed critical illnesses

22
insuring the unhealthy --

• COBRA and HIPAA help those with prior employer
  coverage
• high-risk pools established by many states

23
consumer-directed medical expense plans

• combine high-deductible health plan and savings
  account
• health savings accounts (HSAs)
• Archer medical savings accounts
• new accounts may no longer be established
• a few still in force

24
health savings accounts (HSAs) --

• personal savings account from which unreimbursed
  medical expenses can be paid
• must be a tax-exempt trust or custodial account
  established in conjunction with high-deductible
  health plan
• contributions made by employer, employee, or both
  
• investments similar to an IRA
• unused HSA amounts accumulate tax-free and carry
  over to future years, no limit
• no federal income taxation on distributions used
  for medical expenses

25
individual health policy provisions --

• periodic premium
• grace period
• reinstatement provision
• guaranteed vs. optionally renewable

26
federal tax treatment

• premiums and unreimbursed expenses can be
  deducted to the extent they exceed 7.5 of AGI
• some exceptions apply
• benefits generally not taxable