life and Health Insurance
Abu khaled
chapter201420health20insurance20policies.pptxHealth Insurance Policies
Life and Health Insurance FIN 3660
Chapter 14
Outline
Individual health insurance policy provisions
Individual health insurance underwriting
Financial design of individual health insurance products
Group health insurance policy provisions
Group health insurance underwriting
Funding mechanisms
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Individual Health Insurance Policies
An individual health insurance policy is an enforceable contract between an insurance company and the policy owner.
The policy owner and the insured are usually the same person; however, an individual health insurance police can cover the policy owner’s family as well.
Benefits are typically paid to the policy owner or to a health care provider on behalf of the insured.
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Individual Health Insurance Policy Provisions
Individual health insurance policies include most of the provisions that are in an individual life insurance policy.
With the exception of open contracts issued by fraternal insurers.
Some provisions are included in both individual life and individual health insurance policies, but they may contain some differences.
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Grace Period Provisions
The grace period allows the policy owner to pay a renewal premium within a stated grace period.
Coverage remains during grace period; however, coverage ends if the policy is not paid for during the grace period.
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Incontestability Provision
This provision limits the time during which the insurer has the right to avoid the contract based on material misrepresentations made in the application.
In medical, disability, and long-term care policies, this provision is different.
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Claims Provision/Legal Actions Provision
Claims provisions define both the insured’s obligation to provide timely notification of loss to the insurer and the insurer’s obligation to make prompt benefit payments to the insured.
Legal actions provision limits the time during which a claimant who disagrees with the insurer’s claim decision has the right to sue the insurer to collect the amount the claimant believes he/she is owed under the policy.
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Overinsurance Provision
This prevents an insured from profiting from an illness or injury
The benefits payable under the policy will be reduced if the insured is over insured.
An over insured person is entitled to receive:
More in medical expense benefits than the actual costs incurred for treatment or
A greater income amount during disability than the amount that would have been earned from working.
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Physical Examination Provision
The insurer has the right to have an insured who has submitted a claim examined by a physician of the insurer’s choice, at the insurer’s expense.
Allows the insurer to verify the validity of disability income claims.
It also allows the insurer to require regular medical examinations for disability recipients to verify that they are still disabled.
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Individual Health Insurance Underwriting
Underwriting for individual health insurance policies involved determining the degree of morbidity risk, the risk of illnesses or injuries.
The following affect morbidity rates:
Age
Health
Sex
Occupation
Avocation
Work History
Habits and Lifestyles
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Financial Design of Individual Health Insurance Products
The fundamental financial design is the same as life insurance products
Differences in health vs. life:
The amount payable for a life insurance claim is specifically defined by the policy.
An insurer is likely to pay a number of covered claims for each person insured by a health insurance policy.
Inflation, changes in the economy, and changes in medical practice affect the amount of benefits paid for health insurance claims more than life insurance claims.
Medical costs may vary considerably in different geographical areas; therefore, benefits payable for a particular claims can vary by geographic location.
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Financial Design Continued…
Claim Costs- the costs the insurer predicts that it will incur to provide the policy benefits promised.
Insurer estimates claim costs for each benefit provided.
Loss Ratio- the ratio of benefits an insurer paid out for a block of policies.
Calculated by dividing the total amount the insurer paid out in policy benefits for a block of policies by the total premiums the insurer received for that block of policies.
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Group Health Insurance Policy Provisions
Many policy provisions are the same in all group life and group health insurance policies.
Some provisions vary:
Group medical expense insurance
Group disability income policies
Group long-term care policies
Most group medical expense policies provide that an insured employee’s family and dependents are eligible for group insurance coverage.
Most group disability income policies do not provide coverage for dependents of group members.
Many group long-term care policies provide optional coverage for certain dependents and family members of the insured employee.
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Coordination of Benefits Provision
The coordination of benefits- prevents a group insured who is covered under more than one group medical expense policy from receiving benefit amounts that are greater than the amount of medical expenses the insured actually incurred.
When the plan designated as the primary plan has paid the full benefit amounts promised, then the provider of the secondary plan determines the amount payable for the claim in accordance with the terms of the secondary plan.
Allowable expenses- reasonable and customary expenses that the insured incurred and that are covered under the insured’s group medical expense plans.
Nonduplication of benefits provision- if included in a secondary provider’s plan, limits the amount payable by the secondary plan to the difference, if any, between the amount paid by the primary plan and the amount that would have been payable by the secondary plan had that plan been the primary plan.
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COB Provisions continued..
Most COB provisions include rules for determining which plan is the primary provider of benefits.
Most COB provisions state that when an insured also is covered by another group plan that does not include a COB provision is the primary provider of benefits; the plan with the COB provision is the secondary provider.
If more than one group plan covering an individual includes a COB provision, then the primary plan is usually defined as the plan under which the insured is covered as an employee rather than as a dependent.
Birthday rule/method- states that the plan covering the employee whose birth date falls earlier in the calendar year will be considered the primary provider of benefits for a department.
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Conversion Provision
Gives an insured group member who is leaving the group a limited right to purchase an individual medical expense policy without presenting evidence of insurability.
Limited in that the insurer can refuse to issue the individual policy if the coverage would result in the insured group member becoming overinsured.
In some jurisdictions, employees can continue their group insurance for a certain amount of time even after no longer being employed by the company.
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Group Health Underwriting
Underwriters evaluate a proposed group’s expected morbidity rate, which reflects a number of factors such as the industry in which the group members work, the age distribution of the group, and the distribution of males and females in the group.
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Funding Mechanisms
The way in which a group insurance plan’s claim costs and administrative expenses are paid.
Fully insured plan- the group policyholder makes periodic premium payments to an insurance company, and the insurance company bears the responsibility for all claim payments.
Fully self-insured plan- the group policyholder takes complete responsibility for all claim payments and related expenses.
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Fully Insured Plans
The tradition funding arrangement for a group health insurance plan.
New premiums each year based on the attained ages of the insured members of the group and the group’s claim experience.
Premiums are usually payable monthly and can be paid by the group policyholder, the individuals insured under the group, or both.
The insurer bears all the risk under a fully insured plan.
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Self-Insured Plans
Self-insurance- a risk management technique by which a person or business accepts financial responsibility for losses associated with specific risks.
Many employers choose to partially or fully self-insure the medical expense or disability income coverage they provide for their employees.
Salary continuation plan- typically provides 100% of the insured employee’s salary, beginning on the first day of the employee’s absence resulting from illness or injury and continuing for a specified period.
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Stop-Loss Coverage
Enables employers to place maximum dollar limit on their liability for paying health insurance claims.
Individual stop-loss coverage- the stop-loss insurer reimburses the employer for all claims paid for any individual that exceeds a stated amount in a stated period of time.
Individual deductible- the dollar amount of claims that an employer must pay for any individual in a stated period of time before the stop-loss insurer reimburses the employer for any excess amount.
Aggregate stop-loss coverage- the stop-loss insurer begins to reimburse the employer for claims when the employer’s total claims exceed a stated dollar amount within a specified period of time.
Attachment point- the total dollar amount of claims that the employer must pay within a stated period of time before the stop-loss insurer begins to reimburse the employer.
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Plan Administration
Self-insured plans are administered by a variety of methods.
Administrative services-only contract- an insurance company or other organization, such as a third-party administrator.
Third-party administrator- an organization other than an insurance company that provides administrative services to the sponsors of group benefit plans.
Under and ASO contract, the employer pays a fee in exchange for the administrative services provided by the insurer or TPA.
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