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• What kind of limitations are there on the coverage of prescribed medications?
• What are the deductible and any co-payment amounts?
• What is the maximum that I would have to pay out of health care expenses, either in a calendar
year or during my lifetime?
• How are billing or service disputes handled under the plan?
Students may be willing to discuss possible answers to these questions in a classroom discussion.
9-15 Explain the differences between hospitalization insurance and surgical expense
insurance.
9-16 What are the features of a major medical plan? Compare major medical to
comprehensive major medical insurance.
9-17 Describe these policy provisions commonly found in medical expense plans: (a)
deductibles, (b) co-insurance, and (c) coordination of benefits.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
rather than the entire amount. Co-insurance helps reduce the possibility that policyholders will
fake illness and discourages them from incurring unnecessary medical expenses.
A coordination of benefits provision clause prevents you from collecting more than 100
percent of covered charges by collecting benefits from more than one policy.
9-18 What are the key provisions of COBRA? How do they relate to continuation of group
coverage when an employee voluntarily or involuntarily leaves the insured group?
9-19 Explain the cost containment provisions commonly found in medical expense plans.
How might the provision for second surgical opinions help an insurer contain its costs?
Typical cost containment provisions include the following:
9-20 Why should a consumer consider purchasing a long-term care insurance policy?
9-21 Describe the differences among long-term-care policies regarding (a) type of care, (b)
eligibility requirements, and (c) services covered. List and discuss some other important
policy provisions.
a. Type of care: Policies will cover care in either a nursing home or in the home of the
insured, or both. Obviously, a better policy will cover both situations.
9-22 Discuss some of the questions one should ask before buying long-term-care insurance.
What guidelines can be used to choose the right policy?
9-23 What is disability income insurance? Explain the waiting-period provisions found in
such policies.
9-24 Describe both the liberal and strict definitions used to establish whether an insured is
disabled.
9-25 Why is it important to consider benefit duration when shopping for disability income
coverage?
Critical Thinking Cases
9.1 Evaluating Walter’s Health Care Coverage
Walter Burton was a self-employed window washer earning approximately $700 per week.
One day, while cleaning windows on the eighth floor of the Commercial Bank Building, he
tripped and fell from the scaffolding to the pavement below. He sustained severe multiple
injuries but miraculously survived the accident. He was immediately rushed to the local
hospital for surgery. He remained there for 60 days of treatment, after which he was
allowed to go home for further recuperation. During his hospital stay, he incurred the
following expenses: surgeon, $2,500; physician, $1,000; hospital bill for room and board,
$250 per day; nursing services, $1,200; anesthetics, $600; wheelchair rental, $100;
ambulance, $150; and drugs, $350. Walter has a major medical policy that has a $3,000
deductible clause, an 80 percent co-insurance clause, internal limits of $180 per day on
hospital room and board, and $1,500 as a maximum surgical fee. The policy provides no
disability income benefits.
Critical Thinking Questions
1. Explain the policy provisions as they relate to deductibles, co-insurance, and internal
limits.
2. How much should Walter recover from the insurance company? How much must he pay
out of his own pocket?
Expense Item
Charge
Paid by Insurance
Paid by Walter
Surgeon
$2,500
1,500
1,000
Physician
1,000
1,000
Hospital room, board
(Charged $250 x 60
days; limit $180 x 60
days)
15,000
10,800
4,200
Nursing
1,200
1,200
Anesthetics
600
600
Wheelchair
100
100
Ambulance
150
150
Drugs
350
350
Total
$20,900
$15,700
Deductible
3,000
3,000
After deductible
$12,700
Payment is 80%/20%
10,160
2,540
$10,740
3. Would any other policies have offered Walter additional protection? What about his
inability to work while recovering from his injury?
4. Based on the information presented, how would you assess Walter’s health care
insurance coverage? Explain.
9.2 Luis and Dora Barillas Evaluate Their Disability Income Needs
Luis Barillas and his wife, Dora, have been married for two years and have a 1-year-old
son. They live in Charlotte, North Carolina, where Luis works for Advanced Marketing
Analytics. He earns $3,200 per month, of which he takes home $2,300. Luis and his family
are entitled to receive the benefits provided by the company’s group health insurance
policy. In addition to major medical coverage, the policy provides a monthly disability
income benefit amounting to 20 percent of the employee’s average monthly take-home pay
for the most recent 12 months prior to incurring the disability. (Note: Luis’s average
monthly take-home pay for the most recent year is equal to his current monthly take-home
pay.) In case of complete disability, Luis would also be eligible for Social Security payments
of $700 per month. Dora is also employed. She earns $700 per month after taxes by
working part-time at a nearby grocery store. As a part-time employee, the store gives her
no benefits. Should Luis become disabled, Dora would continue to work at her part-time
job. If she became disabled, Social Security would provide monthly income of $400. Luis
and Dora spend 90 percent of their combined take-home pay to meet their bills and provide
for a variety of necessary items. They use the remaining 10 percent to fulfill their
entertainment and savings goals.
Critical Thinking Questions
1. How much, if any, additional disability income insurance does Luis require to ensure
adequate protection against his becoming completely disabled? Use Worksheet 9.2 to assess
his needs.
DISABILITY BENEFIT NEEDS
Name(s):
Luis Barillas
1.
Estimate current monthly take-home pay
$ 2,300
2.
Estimate existing monthly disability benefits:
a. Social security benefits
$____700_
b. Other government benefits
________
c. Company benefits
_____460_
d. Group disability policy benefits
3.
Total existing monthly disability benefits
(2a + 2b + 2c + 2d)
$ 1,160
4.
Estimated monthly disability benefits needed
([1] – [3])
$ 1,140
Luis would need additional disability insurance to completely replace his take-home pay.
Without the additional disability insurance, his family would be at risk of losing their savings
and would have a substantially different life style.
2. Does Dora need any disability income coverage? Explain.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
$2,100 per month. With Dora’s Social Security, they would have $2,300 + $400, total of $2,700.
Thus, they would be able to cover their current living expenses. Dora does not need to purchase
disability insurance.
3. What specific recommendations regarding disability income insurance would you give
Luis and Dora to provide adequate protection for themselves and their child?
Terms Found in the Chapter
Blue Cross/Blue
Shield plans
Prepaid hospital and medical expense plans under which health care
services are provided to plan participants by member hospitals and
physicians.
Community rating
approach to health
insurance premium
pricing
Policyholders in a community (area) pay the same premium without
regard to their personal health, age, gender, or other factors.
comprehensive
major medical
insurance
A health insurance plan that combines into a single policy the coverage
for basic hospitalization, surgical, and physician expenses along with
major medical protection.
coordination of
benefits provision
A provision often included in health insurance policies to prevent the
insured from collecting more than 100 percent of covered charges; it
requires that benefit payments be coordinated if the insured is eligible
for benefits under more than one policy.
deductible
The initial amount not covered by an insurance policy and thus the
insured’s responsibility; it’s usually determined on a calendar-year
basis or on a per-illness or per-accident basis.
disability income
insurance
Insurance that provides families with weekly or monthly payments to
replace income when the insured is unable to work because of a
covered illness, injury, or disease.
exclusive provider
organization (EPO)
A managed care plan that is similar to a PPO but reimburses members
only when affiliated providers are used.
flexible spending
account (FSA)
Employee pre-tax contributions to an account that must be spent on
qualified medical (or dependent care) expenses.
group HMO
An HMO that provides health care services from a central facility;
most prevalent in larger cities.
group health
insurance
Health insurance consisting of contracts written between a group
(employer, union, etc.) and the health care provider.
guaranteed
renewability
A policy provision ensuring continued insurance coverage for the
insured’s lifetime, so long as the premiums continue to be paid.
Health Insurance
Portability and
Accountability Act
(HIPAA)
A federal law that protects people’s ability to obtain continued health
insurance after they leave a job or retire, even if they have a serious
health problem.
health maintenance
organization
(HMO)
An organization of hospitals, physicians, and other health care
providers that have joined to provide comprehensive health care
services to its members, who pay a monthly fee.
health
reimbursement
account (HRA)
An account into which employers place contributions that employees
can use to pay for medical expenses. Usually combined with a high
deductible health insurance policy.
health savings
account (HSA)
A tax-free savings account—funded by employees, employer, or
both—to spend on routine medical costs. Usually combined with a
high deductible policy to pay for catastrophic care.
indemnity (fee-for
service)
plan
A health insurance plan in which the health care provider is separate
from the insurer, who pays the provider or reimburses you for a
specified percentage of expenses after a deductible amount has been
met.
individual practice
association (IPA)
A form of HMO in which subscribers receive services from physicians
practicing from their own offices and from community hospitals
affiliated with the IPA.
internal limits
A feature commonly found in health insurance policies that limits the
amounts that will be paid for certain specified expenses, even if the
claim does not exceed overall policy limits.
long-term care
The delivery of medical and personal care, other than hospital care, to
persons with chronic medical conditions resulting from either illness or
frailty.
major medical plan
An insurance plan designed to supplement the basic coverage of
hospitalization, surgical, and physician expenses; used to finance more
catastrophic medical costs.
managed care plan
A health care plan in which subscribers/users contract with the
provider organization, which uses a designated group of providers
meeting specific selection standards to furnish health care services for
a monthly fee.
Medicaid
A state-run public assistance program that provides health insurance
benefits only to those who are unable to pay for health care.
Medicare
A health insurance plan administered by the federal government to
help persons age 65 and over, and others receiving monthly Social
Security disability benefits, to meet their health care costs.
Medicare
Advantage plans
Commonly called Plan C, these plans provide Medicare benefits to
eligible people, but they differ in that they are administered by private
providers rather than by the government. Common supplemental
benefits include vision, hearing, dental, general checkups, and health
and wellness programs.
optional
renewability
A contractual clause allowing the insured to continue insurance only at
the insurer’s option.
participation
(co-insurance)
clause
A provision in many health insurance policies stipulating that the
insurer will pay some portion— say, 80 or 90 percent—of the amount
of the covered loss in excess of the deductible
Patient Protection
and Affordable
Care Act and the
Reconciliation Act
of 2010
Health care reform legislation that requires all Americans to have or
buy health insurance, requires insurers to cover the children of those
they insure up to the age of 26, prohibits insurers from denying
coverage or setting unrealistically high premiums for pre-existing
medical conditions, establishes health care insurance exchanges, and
requires small firms to provide health insurance coverage for its
employees.
pre-existing
condition clause
A clause that used to be included in most individual health insurance
policies permitting permanent or temporary exclusion of coverage for
any physical or mental problems the insured had at the time the policy
was purchased; under the ACA, insurers now are prohibited from
denying coverage for preexisting conditions, making this clause moot.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole
or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
prescription drug
coverage
A voluntary program under Medicare (commonly called Part D),
insurance that covers both brand-name and generic prescription drugs
at participating pharmacies. Participants pay a monthly fee and a yearly
deductible and must also pay part of the cost of prescriptions, including
a copayment or co-insurance.
point-of-service
(POS) plan
A hybrid form of HMO that allows members to go outside the HMO
network for care and reimburses them at a specified percentage of the
cost.
preferred provider
organization (PPO)
A health provider that combines the characteristics of the IPA form of
HMO with an indemnity plan to provide comprehensive health care
services to its subscribers within a network of physicians and hospitals.
supplementary
medical insurance
(SMI)
A voluntary program under Medicare (commonly called Part B) that
provides payments for services not covered under basic hospital
insurance (Part A).
waiting
(elimination)
period
The period after an insured meets the policy’s eligibility requirements,
during which he or she must pay expenses out-of-pocket; when the
waiting period expires, the insured begins to receive benefits.
workers’
compensation
insurance
Health insurance required by state and federal governments and paid
nearly in full by employers in most states; it compensates workers for
job-related illness or injury.
Insuring Your Health
Chapter Outline
Learning Objectives
I. The Importance of Health Insurance Coverage
II. Health Insurance Plans
A. Private Health Insurance Plans
1. Traditional Indemnity (Fee-for-Service) Plans
2. Managed Care Plans
a. Health Maintenance Organizations (HMO)
b. Preferred Provider Organizations (PPO)
c. Other Managed Care Plans
3. Blue Cross/Blue Shield Plans
B. Government Health Insurance Plans
1. Medicare
2. Medicaid
3. Workers' Compensation Insurance
C. Rationale for Health Care Reform
1. Affordable Health Care Act of 2010
III. Health Insurance Decisions
A. Evaluate Your Health Care Cost Risk
B. Determine Available Coverage and Resources
C. Choose a Health Insurance Plan
IV. Medical Expense Coverage and Policy Provisions
A. Types of Medical Expense Coverage
1. Hospitalization
2. Surgical Expenses
3. Physician Expenses
4. Major Medical Insurance
5. Comprehensive Major Medical Insurance
6. Dental Services
B. Policy Provisions of Medical Expense Plans
1. Terms of Payment
a. Deductibles
b. Participation (Co-insurance)
c. Internal Limits
d. Major Medical Policy: An Example
e. Coordination of Benefits
2. Terms of Coverage
a. Persons and Places Covered
b. Cancellation
c. Pre-existing Conditions
d. Pregnancy and Abortion
e. Mental Illness
f. Rehabilitation Coverage
g. Continuation of Group Coverage
C. Cost Containment Provisions for Medical Expense Plans
V. Long-Term Care Insurance
A. Do You Need Long-Term Care Insurance?
B. Long-Term Care Insurance Provisions and Costs
C. How to Buy Long-Term Care Insurance
VI. Disability Income Insurance
A. Estimating Your Disability Insurance Needs
B. Disability Income Insurance Provisions and Costs
1. Definition of Disability
2. Benefit Amount and Duration
3. Probationary Period
4. Waiting Period
5. Renewability
6. Other Provisions
