Health and Disability Insurance

1. Health and Disability Insurance Chapter 10

2. Cost of Health Care in U.S. • Today health care expenditures are about 13% of GDP vs. less than 4% in 1980 • That’s about $4,500 per person vs $300 per person in 1970 • Largest portion goes to hospital costs (33%) and professional services (33%) • Rising at twice the rate of inflation but rate of increase has lessened

3. Figure 10.1: How Much Americans Spend on Health Care

4. Figure 10.2: Distribution of Health Care Expenditure by Type

5. Figure 10.3: The Rising Cost of Health Care

6. Some Causes of Rising Health-Case Costs • Demographics • More older people in U.S. (aging of baby boomers) • Number of people age 75+ has doubled in last 25 years • Advances in medical technology • New drugs • Complex surgical procedures • Sophisticated diagnostic equipment • Improved quality but increased our costs • Increase in 3rd party payments • Gives consumers little reason to not go to doctor

7. Some Causes of Rising Health-Case Costs • Litigation • Doctors attempt to avoid malpractice so order unnecessary tests • Rising administrative costs • Increased government paperwork • Increased insurance company paperwork • Government mandates • Increased requirements on insurers and health benefit plans

8. Who Pays Our Health-Care Bills? • You pay out-of-pocket expenses • 1970: 40% • Today: 15% • Private health insurance • 1970: 24% • Today: 33% • Government: Medicare (elderly); Medicaid (poor) • 1970: 35% • Today: 50%

9. Figure 10.4: Who Pays America’s Health Care Bills?

10. Providers of Health-Care Coverage • Private group health insurance • Became popular in 1930s and 40s • Wage and price controls during WWII caused employers to offer incentives for workers, such as group health insurance • After controls lifted after war, employees didn’t want health insurance to end • Include basic coverage, major medical and disability • Some large employers are self-insured • Advantage of group insurance • Less expensive (to individual), more comprehensive coverage than individual plans • Most employers pay a portion of premium while employee pays remainder

11. Figure 10.5: Sources of Health Insurance Coverage

12. Group Health Insurance • Employers spend over $200 billion annually on health insurance (in U.S.) • Have cut benefits • Increase employee-paid premiums • Moved employees to managed-care plans • Terminated health coverage

13. Group Health Insurance • Under Federal law (COBRA) employers offering group health insurance must continue coverage • Up to 18 months for workers who are laid off or resign • Up to 36 months for widows and divorced spouses & dependents • Employees (former) must pay entire premium, however

14. Providers of Health-Care Coverage • Individual Health Coverage • Blue Cross/Blue Shield • Locally organized non-profit and for-profit organizations that contract with hospitals, physicians, etc. at negotiated rates • Commercial insurance companies • Applicants must show evidence of insurability • Existing medical conditions may cause insurer to reject application, charge higher rates or exclude item from coverage • More expensive than group health insurance • Can lower your cost by choosing policy with high deductible and low % co-payment (by insurer)

15. Providers of Health-Care Coverage • Government Programs • Medicare • Federal health insurance program designed to protect elderly and severely disabled Americans • Available to almost everyone 65+ • Available to younger people if disabled for 24+ months, need dialysis, or kidney transplant • Taxes fund Medicare • Federal and payroll taxes

16. Medicare • Offers • Hospital insurance • Helps pay for in-patient hospital services, etc. • Medical insurance • Helps pay for physicians’ services, out-patient care, etc. • Does NOT provide FREE health care • Co-pays are part of the picture • Does not cover prescription drugs • Wise to cover the difference with supplemental insurance (“Medi-gap” insurance)

17. Providers of Health-Care Coverage • Medicaid • Assistance for low-income individuals and families • Eligibility based on income and net worth • Benefits vary from state to state • Generally pays hospital and doctor bills • Long-term care

18. Proposed Changes to Medicare and Medicaid • Some projections indicate that Medicare will be paying out more than it collects within the next 10-15 years • Baby boomers hit retirement (around 2010) • Possible solutions • Raise premiums and deductibles • Limit benefits to high-income recipients • Shift all recipients to managed-care programs • And/or raising Medicare taxes

19. Managed-Care Programs • Traditional fee-for-service plan • Indemnity: you pay first and get reimbursed • Managed-care program • Most bills are paid for by plan but you have less say about plan • Must see doctor within a given set • Referral to see specialist, etc. • Increased in popularity in last 15 years due to attempt by government/employers to cut costs

20. Health Maintenance Organization (HMO) • Provides all health care, including hospitalization • Must use HMO’s doctors and treatment facilities • No deductibles and low co-payment • Emphasize preventive medical care • Emphasize unnecessary medical tests/treatment

21. Preferred Provider Organization (PPOs) • Broker negotiates contract between physicians and hospitals and employers to provide medical care at discount rates to employees • With PPO you choose a primary-care doctor, but can easily change • If see your non-primary-care doctor will probably pay a higher deductible/co-payment whereas with HMO you will probably pay entire cost out-of-pocket

22. Assessing Managed-Care Programs • Proponents argue • Managed-care is main reason costs have not increased as rapidly recently • Opponents • Argue that it’s about managing costs, not care • Difficult to see specialist

23. Understanding Your Health-Care Plan • Terms and provisions • Who’s covered • You and dependents? • Make sure you carefully follow instructions to add new dependent • Time Period • Most begin immediately and are renewable annually • Coordination of Benefits • If two-wage family with multiple insurance plan, this clause helps you determine which plan is primary and which is secondary • File claims with primary insurer first and secondary insurer may pay for services not covered with primary • Secondary insurer may also pay co-pays/deductible not paid by primary

24. Understanding Your Health-Care Plan • Second Opinions and Prior Approvals • May require an opinion from another doctor and may authorize a limited number of days for hospital stay • Policy Limits • Limits on amounts, episodes, per illness/accident, time period limits, lifetime limits, etc. • Usually associated with mental health services • Deductibles (fee-for-service) and Co-Pays • Deductibles usually listed per person or family • Common is $150 per person or $400 per family • Co-Pays • Fee-for-service usually 20% • Managed-care usually $10-$15 • Filing Claims • Fee-for-service: You pay ‘small’ claims yourself and file for reimbursement • Managed-care: You pay co-pay and health-care provider files directly for difference

25. Coverages Provided • Most plans provide comprehensive coverage • Hospital, physician, surgery, drugs • Plans can vary by deductible, co-pay, limits, etc. • Hospital-expense portion • Fee-for-service specifies max amount allowed per day • Managed-care covers fee for semi-private room for max number of days

26. Coverages Provided • Surgical expense portion • Pays cost of surgery and anesthesia • Benefits are paid according to a fee schedule or up to ‘reasonable-and-customary’ charge allowed for each procedure • What if insurer won’t pay what doctor charges? • Physician expense portion • Covers cost of care provided by physician • Plan specifies maximum allowed for specific procedures • Miscellaneous • Drugs, wheelchairs, etc.

27. Items Not Covered • Cosmetic surgery • Experimental treatments • Organ transplants • Pre-existing conditions • Each plan treats this differently • Some pay, some charge higher deductibles, etc.

28. Choosing the Right Plan For You • Should consider • Cost, including monthly premiums, deductibles, co-pays • Choice and access—how important is this to you? • Differences in coverage • Do you have a pre-existing condition? What about differences in limits? • Patient satisfaction • Talk with coworkers

29. Pros/Cons of Fee-For-Service vs. Managed-Care • Fee-for-service • Pros • WIDE range of doctors, hospitals, etc. to choose from • Easy access to specialists • Can change doctors whenever desired • Fewer limits on tests and diagnostic procedures • Cons • Higher out-of-pocket expenses • Possibly higher monthly premiums • Paperwork/delays in getting reimbursed • Potentially more disputes with insurance company over charges • Often doesn’t pay for routine physicals and immunizations

30. Pros/Cons of Fee-For-Service vs. Managed-Care • Managed-care • Pros • Little, if any, paperwork • Lower out-of-pocket expenses • No wait for reimbursement • Possibly lower monthly premiums • Often pays for routine care—physicals and immunizations • Cons • Limited choices for insured • More difficult to change doctors • Restricted access to specialists • Limits on diagnostic tests • Possible delays in obtaining emergency care

31. Choosing the Right Plan For You • What works for you now might not be best later • Get married, have kids, needs change • Thoroughly research plans before you make your choice • Critics of managed-care plans argue that some general practitioners are being pressured to offer more specialized care and to hold down hospital stays and referrals

32. Dental and Vision Insurance • Some plans include it, but oftentimes optional and requires additional premiums • Dental insurance • Stresses preventive care • May cover 100% of cleanings, etc., but only a portion of other procedures such as root canals • May have large deductible and co-pays with limit on annual benefits • Vision insurance • Covers portion of eye exam, glasses and contact lens costs • Problems with vision as a result of accident or disease are normally covered by regular health plan • If you have to pay 100% of premium for dental/vision insurance, it may not be worth it

33. Disability Income Insurance • Much more likely that you will become disabled than die while you are employed • Disability insurance (AKA: salary continuation insurance) partially replaces lost income • Most overlooked form of insurance • Social Security • Offers disability insurance in 5th month if disability will last 1+ years • Denies about 90% of claims filed due to strict requirement

34. Disability Income Insurance • Private disability insurance • Available on individual or group basis • Many employers provide disability insurance as a fully or partially-paid fringe benefit • Amount of replacement income usually limited to 60-70% of actual income with set payment ceiling

35. Determining How Much Disability Insurance You Need • Estimate your monthly expenses and expected monthly sources of income • The net amount (if +) represents shortfall to be made up with disability insurance

36. Important Terms and Provisions • Initial and secondary claims • Initial—most policies define disability as inability to perform duties of your occupation and pays benefits from 2-5 years • Secondary—continues to pay benefits only if you are unable to work at any occupation for which you are reasonably suited • May include a benefit for partial disability • Inability to perform one or more (but not all) job duties • Waiting period • Payments will not be made during this time—ranges from 1 week to 1 year

37. Important Terms and Provisions • Length of payment • Long- (may extend up to lifetime of insured) or short-term (benefits up to 2 years) • Social Security Rider • Available for extra cost if Social Security denies your claim • Cost-of-Living adjustments • You want this—benefits are indexed to inflation

38. Saving Money on Disability Insurance • Rule of thumb: policy will cost 2% of income replaced • If you’re replacing $50,000, it’ll cost about $1000/year in premiums • Expensive, so shop around • Buy policy through your employer • Reduce term of coverage • If you have adequate retirement savings, you don’t need disability insurance past age 65 • Settle for smaller % of income replacement

39. Saving Money on Disability Insurance • Increase waiting period • Go for a 1 year period rather than a 6-month • Consider policy with stringent definitions for ‘disabled’ • Accept policy with a cap on cost-of-living adjustment • Consider buying policy from company that specializes in disability insurance and buy directly from company

40. Workers’ Compensation • Helps pay for job-related injuries and illnesses • Types of benefits • Disability: • Most states pay 2/3 of worker’s lost wages up to a maximum • Medical • Worker may or may not get to choose own doctor • Death benefits • To spouses and underage children