Trieschmann, Hoyt & Sommer
Loss of Health
Chapter 17
©2005, Thomson/South-Western
Chapter Objectives
• Describe the similarities and differences among
commercial insurers, traditional Blue Cross and Blue
Shield associations, and the new for-profit Blues
organizations
• Explain the major characteristics of health maintenance
organizations and explain how point-of-service plans and
preferred provider organizations differ from them
• Compute the amount of the covered loss that would be
reimbursable from an insurer
– Given the amount of the loss and applicable deductibles,
coinsurance provisions, and limits
• Distinguish among forms of basic health insurance
policies and describes three forms of major medical
insurance
2
Chapter Objectives
• List several characteristics to consider when purchasing
long-term care and disability income insurance contracts
• Explain the nature and structure of Medicare benefits
and the approach used to standardize Medigap policies
• Explain the mandatory and allowable provisions in
individual health insurance with respect to grace periods,
reinstatement, claim procedures, occupational issues,
misstatement of age when applying for coverage, and
the existence of more than one policy covering the same
loss
• Describe health care reforms recently enacted or
currently under consideration in the United States
3
Introduction
• The high cost of health care, combined
with concerns about the lack of availability
of health insurance for some persons
– Has led to a rapidly changing environment in
which health care is delivered in the United
States
4
Health Insurance Providers
• Health insurance is provided by several types of
organizations
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Commercial insurers
Blue Cross and Blue Shield associations
Health maintenance organizations (HMOs)
Point-of-service (POS) plans
Preferred provider organizations (PPOs)
• When payment for health expenses is provided as an
employee benefit
– Many employers set up self-insurance arrangements to either
replace or supplement coverage obtained from one or more of
these types of providers
• Some health insurance is provided by the Medicare and
Medicaid systems
– Social insurance arrangements set up through the federal and
state governments
5
Insurers and the Blues
• Until recently, commercial insurers and Blue Cross and
Blue Shield (the Blues) associations were legally very
different in terms of structure
– Though from the perspective of an individual insured they
appeared to be very similar
• The Blues were originally designed to be nonprofit
organizations
– Allowing their subscribers to prepay some types of health care
expenses
• Blue Cross associations focused on the prepayment of
hospital expenses
• Blue Shield groups covered physicians’ services
• When combined, medical expense coverage offered by
the Blues can be virtually identical to that available from
commercial insurers
6
Insurers and the Blues
• Beginning in the mid-1990s the structural differences
between the Blues and insurers began eroding
– In an effort to become more competitive, Blues in several states
began forming or acquiring for-profit subsidiaries
– A number of the Blues organizations converted to a for-profit
status in their entirety
• The Blues were independent groups organized by
doctors, hospitals, and other medical service providers in
a particular geographic region
– They agreed to meet certain common standards in exchange for
authorization to use the Blues name
– Many states granted the Blues preferential tax treatment
because of their nonprofit status
7
Insurers and the Blues
• As changes in the health care delivery
system evolved
– Many Blues found themselves insuring a large
percentage of individuals who had difficulty
obtaining health insurance elsewhere
– Caused the Blues to experience substantial
financial losses
• Additionally, traditional not-for-profit Blues
have more limited access to capital than
for-profit stock companies
8
Health Maintenance Organizations
(HMOs)
• By the beginning of the 21st century, more than 80
million persons in the U.S. were enrolled in HMOs
• All are designed to provide their members
comprehensive health services within a well-defined
geographical area
• The HMO is paid a set fee per month by its members
– And it provides all necessary medical services
• Coverage is usually broader than that provided by
insurers
– Both cost control and prevention of health problems tend to be
emphasized
• By stressing regular health care, early diagnosis and
treatment, and disease prevention
– HMOs can be effective in helping the members identify and
correct small health problems before they become major ones
9
Health Maintenance Organizations
(HMOs)
• Persons belonging to an HMO generally must receive all
medical care from physicians associated with that HMO
• Each person chooses a primary care physician within the
HMO
– This doctor is responsible for coordinating all medical care for
the patient
• Including access to medical specialists
– Primary care physicians are sometimes referred to as
gatekeepers
• Most medical specialties are represented within the
HMO
– But if highly specialized treatment is required, patients can be
referred to other doctors at no additional cost to the patient
• Arrangements also exist with hospitals in the area for the
provision of hospital services when needed
10
Health Maintenance Organizations
(HMOs)
• Group practice HMO
– A large group of physicians share facilities and support
personnel and work out of one or a few main locations
– The doctors are not employees of the HMO
• Rather, as a group they have a contractual agreement with the
HMO to provide the medical services needed
– Compensation arrangements vary, but most are paid
either on
• The amount of services provided (called a fee-per-service
basis) or
• Capitation basis
– Payment of a specified, periodic amount based on number of
patients for which a physician is responsible
» Regardless of the amount of medical services provided to
each one
11
Health Maintenance Organizations
(HMOs)
• Staff model HMO
– Doctors are employees of the HMO and are paid
salaries
• Individual practice HMO
– Has no centralized location
– Physicians work out of their individual offices and
usually are paid on a fee-per-service basis
• Many people prefer individual practice HMOs
– Because of the greater choice of physicians that is
usually provided and the number of different locations
in which medical treatment can be sought
12
Point-of-Service Plans
• Sometimes referred to as an open-ended HMO
• Can be organized in all of the same ways as an
HMO
• The philosophies of comprehensive care,
prevention, and cost control are present in both
types of plans
• The primary difference between a POS plan and
an HMO
– Individuals in POS plans have more freedom of choice
in selecting doctors and other medical care providers
– POS members have the option of using either the POS
providers or doctors unaffiliated with POS plan
13
Point-of-Service Plans
• Because of the emphasis on prevention and cost
control
– Care can usually be provided in a more cost-effective
manner if members use POS doctors than if they go
outside the plan for care
• To encourage patients to select POS providers
– Patients must pay a significantly larger share of the
medical bills when they use non-POS doctors
• The flexibility of POS plans has made them quite
popular
– Between 1997 and 2001 the market share of POS
plans grew from 17 to 22 percent
• While the market share of HMOs dropped from 31 to 23
percent
14
Preferred Provider Organizations
(PPOs)
• Currently hold a significantly larger share of the health care
market than either HMOs or POS plans
• About half of people receiving their health insurance through
their employers are members of PPOs
• Most PPOs offer a reduction in the price of health care
service in return for certain concessions by the sponsoring
organization
– For example, doctors in a particular PPO might agree to lower their
fees by 15% for PPO participants
– In exchange for the lower fees, the employers agree to
• Provide the PPO with a minimum number of patients each month
• Pay their premiums promptly
• Encourage their employees to take advantage of health education
programs that are designed to lessen health problems and lower costs
15
Preferred Provider Organizations
(PPOs)
• Health services provided through PPO
arrangements may be extensive
• In other instances, services provided by PPOs
are extremely narrow and may be focused only
on a particular treatment
– Such as vision care or prescription drugs
• A major difference between PPOs and POS
plans
– PPOs generally do not use primary care physicians to
coordinate individuals’ medical care
16
Medicaid and Medicare
• Medicaid
– Generic name for the variety of state-administered
programs that provide medical care to low-income
persons
• Who can show sufficient financial need to qualify them for
assistance
– Financed by both federal and state tax revenues
• Benefits vary somewhat among the states
– Care provided through Medicaid has been growing at
double-digit rates for several years
17
Medicaid and Medicare
• Medicare
– Designed to meet the growing need for health
insurance for persons age 65 or older
– As well as those under age 65 who have been
receiving Social Security disability benefits for at least
two years
– Has two basic parts
• A compulsory hospital plan
• A voluntary medical plan
– Called supplemental medical insurance
– Beginning in 2006, a third part will be added
• Offering optional prescription drug benefits to Medicare
beneficiaries
18
Mechanics of Cost Sharing
• Many health plans contain cost-sharing
provisions that apply at the time of the loss
• Can be effective way to help control the
use of medical services
– Because insureds are more aware of the cost
of treatment
19
Deductibles
• Deductibles are used in health insurance to combine the risk
management tools of risk retention and transfer
• The most common deductible arrangement in health insurance is
the calendar-year deductible
– Covered losses are generated throughout the calendar year until they
exceed the stated deductible
• Only after that point does the insured receive any reimbursement from the
policy
• Per-cause deductible
– Each new sickness or accidental injury results in the assessment of a
deductible
– Sometimes deductibles are applied on a family basis rather than on an
individual basis
• Another variation is to waive individual deductibles after two or three
members of the same family have had claims exceeding their
applicable calendar-year deductibles
20
Copays
• HMOs and POS plans sometimes charge
patients a small dollar amount for some
types of treatment
• This amount is a deductible applied on a
per-service basis
– Generally referred to as a copay
21
Coinsurance
• The policy specifies that the insurer will pay a
percentage (often 80%) of the covered loss after
the applicable deductible has been satisfied
• Coinsurance is a particularly important element
of POS and PPO plans
– It often provides the primary financial incentive for
encouraging insurers to seek medical care from a
particular network of doctors
• For example, one arrangement is to pay 90% of expenses
after a small deductible
– If the patient receives care from a provider within the network
– However, if the patient receives care from a doctor who is
outside the network
» The reimbursement rate may be only 60%
22
Caps
• If the policy has both a deductible and
coinsurance premium
– The cost sharing with a major health problem can be
substantial
• Policies of coinsurance provisions may include
an upper limit on the amount of cost sharing
required
• Sometimes coinsurance caps are implied rather
than stated explicitly
• Out-of-pocket cap
– Applies the limit to amounts that the insured pays for
both coinsurance and applicable deductibles
23
Maximum Limits
• A few health insurance plans have no limit on
the amount of benefits that can be paid for
covered expenses
– Whereas others have a lifetime maximum that applies
to the sum of all benefits payable under the plan
• However, lifetime maximums may be able to be
restored
– Allowing an individual to collect more than the overall
lifetime maximum stated in the policy
– Automatic restoration of the maximum may occur
gradually over time
24
Maximum Limits
• As an alternative to a gradual restoration process
– Some health policies allow insureds to provide evidence of
insurability that is then used to justify restoration of the entire
lifetime maximum all at once
• Such evidence usually consists of a medical examination showing
that the individual meets the same health standards required for
new applicants for health insurance
• A health insurance policy may have various internal
maximums that apply to particular health problems
– Treatment for alcohol and drug abuse, for example, is often
insured for much less than the coverage provided for other types
of health problems
– Internal maximums serve to protect the insurer from potentially
excessive claims
25
Health Expense Insurance
• Figure 17-1 shows a diagram of the groupings
used to classify health insurance policies
• No sharp distinction among policies exists as to
the type of medical expense for which indemnity
is provided
• Insureds should familiarize themselves with their
specific coverages
– Because there is much less standardization among
health expense coverage than for many other types of
insurance
26
Figure 17-1: Health Insurance
Classifications
27
Hospital Insurance
• A hospital insurance contract is one of the basic health
insurance policies
• Basic health insurance policies have fewer cost-sharing
provisions than policies that are not considered to be
basic health contracts
• Hospital insurance policies provide indemnification of
necessary hospitalization expenses such as
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Room and board when hospitalized
Laboratory fees
Nursing care
Use of the operating room
Certain medicines and supplies
• Specific dollar limits for hospital room and board may be
stated in the contract
28
Hospital Insurance
• Some contracts limit coverage by specifying a
maximum time period for which costs will be
reimbursed for any one illness or injury
• Covered expenses other than room and board
are often referred to ancillary charges
• Certain exclusions are contained in hospital
insurance policies
– Many policies exclude convalescence, custodial, or
rest care; voluntary hospital stays for some types of
cosmetic surgeries; private-duty nursing; and physical
examinations unrelated to the treatment of an injury
or a sickness
29
Surgical Insurance
• Covers physicians’ fees associated with covered
surgeries
• Both inpatient and outpatient surgical
procedures are usually covered in order to
prevent unnecessary hospitalizations when a
procedure can be performed without an
overnight stay in a hospital
• Some surgical policies pay only the fees
charged by the doctor who actually performs the
surgery
– Whereas other policies also provide coverage for
charges associated with assistant surgeons and
anesthesiologists
30
Surgical Insurance
• Many surgical policies were written on a scheduled basis in
the past
– Several surgical procedures were listed in the policy together with
the specified maximums payable for each one
• However, it is better for the insured if the policy is written
on an nonscheduled basis
– Covered procedures are insured up to the full amount of what is
reasonable and customary
• In judging whether a particular expense exceeds what is reasonable
and customary
– Insurers analyze the range of fees prevailing in the relevant geographical
area at the time the surgery is performed
– If the fee is more than what would be charged by most other surgeons then
some of the charges will be disallowed and will not be eligible for
reimbursement
31
Regular Medical Expense
Insurance
• Usually written in conjunction with other basic coverages
rather than as a standalone contract
• Most policies primarily cover physicians’ services other
than for surgical procedures
• Some policies require that the individual be hospitalized
– Whereas others do not have this restriction
• Coverage may be written to pay reasonable and
customary fees
– Or there may be specific limits associated with each covered
service
• Typical exclusions usually relate to routine physical
examinations, dental care, and vision care
32
Major Medical Insurance
• Usually have higher limits and fewer exclusions
then do hospital, surgical, and regular medical
expense contracts
• Some major medical policies are designed to be
coordinated with underlying basic health
insurance
– Others are designed to replace basic health coverage
and insure all medical expenses within one policy
• Called a comprehensive form
• Usually have substantial deductibles and
coinsurance provisions
• Nearly always written on a reasonable-andcustomary-fee basis
33
Major Medical Insurance
• Covers all of the same types of expenses
insured by hospital, surgical, and regular
medical expense contracts
• Additionally, after satisfaction of applicable costsharing provisions
– Major medical policies may cover expenses not
addressed by basic health contracts
• Such as prescription drugs, ambulance services, physical
therapy, crutches, and wheelchairs
• Excess major medical
– Usually pays only after another major medical policy
has exhausted its limits
34
Dental Insurance
• A newer form of health expense coverage
• Coverage services typically include fillings, crowns,
extractions, bridgework, dentures, root canal therapy, X
rays, treatment of gums, and orthodontics
• Preventive care such as oral examinations, X rays, and
semiannual cleanings are nearly always covered
• Most policies have relatively low annual limits and some
limit coverage by applying fee schedules for various
dental procedures
• Deductibles and coinsurance provisions normally are
used for nonpreventive types of care
• Cost sharing is usually waived for routine examinations,
cleanings, and X rays
35
Long-Term Care Insurance
• With increased life expectancies and an aging
population
– There is an increase in risk of loss associated with the
eventual need of many persons for nursing home
care or other assistance with daily living
• The market for long-term care (LTC) insurance is
growing rapidly
• All states have adopted legislation regulating
LTC insurance
– Some standardization is achieved for a product that is
still evolving
36
Long-Term Care Insurance
• It is important to consider the following points
when comparing different LTC policies
– Some policies cover only the named insured
• Whereas others cover the insured’s spouse as well
– Policies must specify the conditions that trigger
benefit payments
• To qualify for favorable tax treatment the LTC policy must
make benefits available when insureds cannot perform two or
more of the following activities of daily living
– Eating, bathing, toileting, transferring, dressing, and continence
– Most policies specify a maximum daily benefit and an
overall minimum limit on the number of days for which
the benefit will be paid
37
Long-Term Care Insurance
• When selecting a policy, insureds usually must select an
elimination period
– A form of a deductible
– For example, a policy with a twenty-day elimination period would
not pay benefits during the first twenty days of a covered stay in
a nursing home or other eligible facility
• The longer the elimination period, the lower will be the premium
• Some early LTC policies excluded losses related to
Alzheimer’s disease
– Or paid only for skilled and intermediate nursing home care and
not custodial care
• Many policies have options that make benefits available
for adult day care, home health care, and other
miscellaneous forms of assistance that might be needed
by people at an advanced age
38
Medicare
• Currently includes both a compulsory hospital
insurance plan and a voluntary and medical
insurance plan
• The hospital insurance, often referred to as Part
A, provides coverage in the following main areas
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Inpatient hospital care
Skilled nursing home care
Home health services
Hospice care
39
Medicare
• Medicare’s supplementary medical insurance
(Part B) covers doctor bills and related expenses
that are medically necessary
• Persons covered under Part A are automatically
covered under Part B
– Unless they reject the coverage
• A monthly premium is also charged for Part B
– Which has its own set of deductibles and coinsurance
provisions
40
Medicare
• Currently all Part B beneficiaries pay the same
flat monthly premium
– However, in 2007 the Medicare reform law passed in
2003, beneficiaries with incomes exceeding a certain
amount will pay higher premiums
• Expenses covered under Part B
– Bills for physicians’ services, physical and
occupational therapy, speech pathology, diagnostic X
ray and laboratory tests, blood transfusions,
radioactive isotope therapy, medical equipment and
supplies, ambulance services, organ replacements,
and artificial limbs and eyes
41
Medicare
• In general, neither Part A nor Part B will pay for
the following
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Services that are not medically necessary
Payments covered by workers’ compensation benefits
Services performed by a relative
Services rendered outside the United States
Routine physicals, eye exams, hearing aids, dental
care, foot care, and cosmetic surgery
– Prescription drugs taken at home
– Most immunizations
– Private nurses
42
Medicare
• One of the largest gaps left by Medicare is
the lack of coverage for prescription drugs
• Beginning in 2006 optional prescription
drug coverage will be available
– The monthly premium will initially be about
$35
– With a $250 deductible
– After that, the beneficiary will pay 25% of the
cost for drug costs up to $2,250
43
Medicare
• Because of the existence of deductibles,
coinsurance, and coverage limitations in the
Medicare program
– Many persons purchased private insurance to “fill in
the gaps”
– Sometimes referred to as Medigap insurance
– These policies are the subject of past controversies
alleging deceptive sales practices and coverages
– Standardization of Medigap policies is achieved
through a system devised by the NAIC
44
Other Health Expense Insurance
• Many other specialized forms of health
insurance are available including
– Prescription drug coverage that is separate from both
major medical and basic health insurance coverages
– Vision care insurance
• Covers the cost and eyeglasses, contact lenses, and periodic
routine eye exams
– Dread disease coverage
• Designed to pay expenses associated only with particular
diseases such as cancer
– Accident insurance
45
Disability Income Insurance
• Provides periodic income payments to the
insured while he or she is unable to work as a
result of sickness or injury
• Benefit duration
– Benefits terminate at the earlier of
• As soon as the disability ends
• When benefits have been paid for the maximum benefit
duration period
– Short-term disability (STD) insurance usually pays
benefits for up to six months
– Longer-term disability (LTD) insurance arrangements
pay for a longer period of time, such as 5 or 10 years
46
Definition of Disability
• Contracts with very strict definitions tend to be less
expensive and less useful to insureds
– For example, if an insured is not considered disabled unless
confined to his or her home except for trips to see a doctor
• Few people would qualify for benefits even though their health
conditions may prevent them from earning a living
• Most policies link their definitions to one’s ability to work
– Some policies require the insured to be unable to engage in any
type of paid work in order to collect benefits
– Other types provide the insured is disabled if they are unable to
perform the major duties of any occupation for which he or she is
reasonably suited through education, training, or experience
47
Definition of Disability
• The most liberal definition is the own
occupation definition
– The insured is considered disabled if unable
to perform the major duties of his or her own
occupation
– Results in the highest premiums
– Most LTD policies that use this definition do
so for an initial period time
• After which the definition changes to the less
liberal “any occupation for which reasonably
suited”
48
Definition of Disability
• Many LTD policies also provide some coverage
for partial disability
– But this may be restricted only to those periods that
follow a period of total disability
– The definition of partial disability often is similar to the
definition of total disability
• As an alternative, partial disability may be defined solely in
terms of a person’s earnings
– Contracts that use this type of income-related definition usually
specify that an insured is considered to have some residual
disability that qualifies him or her for partial disability payments
» As long as earnings are less than some percentage of the
former level
49
Elimination Period
• Both STD and LTD policies use elimination periods
• When a disability occurs, no benefits are payable during
the elimination period
– Thus, they are really deductibles that reduce premiums by
eliminating coverage for small losses
• The longer the elimination period the lower the premium
– The premium savings tends to decrease at a diminishing rate as
the elimination period becomes longer
• Sometimes STD policies have different elimination
periods that depend on the cause of the disability
– Disabilities due to sickness are subject to longer elimination
periods than those resulting from an accident
50
Benefit Level
• Disability insurance policies are designed
to replace only a percentage of earnings
– So that the insured has a financial incentive to
recover and return to work
• Benefit levels of 50 to 75 percent are
common
– Subject to overall maximum limits
• Some policies provide for cost-of-living
adjustments in benefits
51
Benefit Level
• Insureds should be aware that if they are completely
unable to engage in any type of gainful employment due
to accident or illness
– Social Security may provide some disability income benefits for
covered persons after a five-month elimination period
• However, if the definition of disability in the insurance
policy is more liberal than the Social Security definition
– Then an insured may be eligible for insurance benefits but not
for Social Security payments
• Insurers offer Social Security income options that can be
added to basic disability income policies
– The basic monthly payment is increased by a stated amount if
the insured is receiving insurance benefits that does not qualify
for disability payments under Social Security
52
Continuation Provisions
• Used to describe the contractual rights regarding the
renewal of a health insurance policy
• Policies with more guarantees for renewal will have
higher premiums
• The importance of these provisions has diminished with
the passage in 1996 of the Health Insurance Portability
and Accountability Act
– Requires insurers to continue to renew their health expense
insurance policies regardless of the health of the insureds
– Does not affect the continuation rights of other types of health
policies
53
Continuation Provisions
• A term contract expires at the end of a specified
period of time and cannot be renewed
– Generally used in connection with special events or
trips for which a particular form of health insurance is
desired
• If an insurer retains the right to cancel a policy at
any time for any reason
– The contract is said to be cancelable
• States generally require that at least five daysfor notice of
the cancellation be provided
54
Continuation Provisions
• It is more common for a policy to be
– Optionally renewable
• Generally places no restrictions on the rights of
insurers
• Increases in premiums and termination of
coverage are solely at the discretion of the insurer
– Conditionally renewable
• Specify the allowable reasons for nonrenewal but
prohibit termination due to deterioration of the
insured’s health
55
Continuation Provisions
• The most valuable and most expensive
continuation provisions are those associated with
guaranteed renewal policies and noncancelable
contracts
– Termination of coverage is prohibited before a specified
age as long as the insured pays all premiums when due
– A guaranteed renewable policy can have its premium
increased only if premiums are raised for an entire class
of insureds
– Noncancelable contract premiums are fixed in advance
and cannot be increased during the life of the contract
• Premiums do not have to be level during the entire period, but
they cannot deviate from the schedule specified when the policy
is issued
56
Grace Period and Reinstatement
• Insurers must provide a grace period for the
payment of premiums not received by the due
date
• Often 31 days, although a period as short as ten
days is allowable for premiums payable on a
monthly basis
• Coverage remains in effect for claims arising
during the grace period
– But the policy lapses following expiration of the period
• Lapsed policy can be reinstated under conditions stated in
the contract
• But insurer is not required to reinstate a lapsed policy
57
Claims
• The insured generally is required to provide written notice to the
insurer within 20 days or as soon as practical
– When an illness or accidental injury occurs
• The insurer is required to provide appropriate claim forms within 15
days after being notified of the claim
• Generally, within 90 days of the loss
– The insured must submit details proving the incurred expenses being
submitted for payment by the insurer
• After the insurer receives all of the information supporting a
particular claim
– It is allowed a reasonable period to check the claim’s validity
– If the insurer deems it necessary, it has the right to require the insured
to submit to a physical exam
• With few exceptions, after three years have passed since the
insurance was issued
– Misstatements in the application generally cannot be used as grounds
for denying a claim, unless fraud was involved
58
Claims
• Legitimate medical expenses covered by the policy must
be paid immediately
– With disability income claims payable at monthly or shorter
intervals
• Generally, benefits are paid directly to the insured
– Although they can also be paid to physicians, hospitals, or other
medical providers if the insured requests it and the insurer
agrees
• When an insurer denies a claim
– The insured may file a lawsuit disputing the decision
• Individual health insurance policies specify that such
suits are not valid if filed sooner than 60 days or later
than three years
59
Miscellaneous
• Individual health insurance policies must
contain clauses stating that the policy and
attached endorsements constitute the
entire contract between the insured and
the insurer
• If a health policy contains a death benefit
– The insured must be allowed to change the
designated beneficiary by providing written
notification to the insurer
60
Optional Provisions
• Occupation
– Insurers can specify that no coverage will be provided for losses
incurred while committing a felony or while working in an illegal
occupation
• If such actions contributed to the result in injury or illness
– When insured changes to a more hazardous occupation
following the issuance of a health insurance policy
• The insurer is allowed to reduce the benefits to whatever the paid
premium would have purchased for a person engaged in the more
hazardous occupation
• Misstatement of age
– If age is misstated in a health insurance application
• The benefits can be adjusted to equal what could have been
purchased had the true age been known
61
Optional Provisions
• Other insurance
– Many health insurance policies contain clauses
stating how much the contract will pay when
there are other policies that also cover the loss
– Insurers are allowed to reduce their benefits
when there is another health insurance covering
a loss
• Particularly if the insurer has not been notified about
the existence of such coverage before the loss
– A premium refund for the excess coverage must be paid to
the insured
62
Optional Provisions
• Miscellaneous
– It is common for health insurance policies to state that
contractual provisions that conflict with state statutes
are automatically amended to meet minimum
requirements specified by the state in which the
insured resides at the time the policy is issued
– Another possible provision is to allow the insured to
deduct unpaid premiums from claim payments
– Some insurers provide that losses resulting from the
use of drugs or other intoxicants are not payable
unless the drugs were taken on the advice of a
physician
63
Health Care Reform
• Beginning in the late 1990s numerous
proposals were made to enact into federal
law a “patients’ bill of rights”
– Would protect patients in a variety of ways
from abusive practices by insurers, HMOs,
and other health insurance providers
• Philosophical disagreements and other
pressures have prevented enactment of
such proposals
64
Guaranteed Access to Health Care
• One concern involves those who have no health
insurance
– Particularly those who are unable to obtain coverage due to
existing health problems
• The passage of the Health Insurance Portability and
Accountability Act of 1996
– Guarantees that many individuals and small businesses will be
able to obtain health insurance
• Regardless of the health of the individuals involved
• Limitations are placed on the right of an employer to
deny health benefits to new employees who have
ongoing health problems when hired
65
Guaranteed Access to Health Care
• The protection provided under this new
law is not universal for individuals
– Guarantees generally apply only to individuals
who have previously had health insurance
protection
– No provision exists for unemployed persons
or those who have not yet been able to obtain
insurance
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Health Savings Accounts
• In 2003 Congress passed legislation creating
Health Savings Accounts (HSA)
• The basic idea is that people will be more
careful consumers of health care if they are
paying for much of their care with their own
money
– Rather than relying on insurance to pay for most
health care costs
• To be eligible for a HSA
– A person must be covered under a high-deductible
health plan
• Defined as a plan with a deductible of at least $1,000 for
individual coverage or at least $2,000 for family coverage
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Health Savings Accounts
• The individual or his or her employer has
the ability to make an annual contribution
to an HSA up to the amount of the
deductible
• All contributions are tax-deductible
– Distributions are tax-free as long as they are
used to pay for qualified medical expenses
• Unused balances can roll over from year
to year
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Health Savings Accounts
• Proponents argue
– HSAs will introduce a new element of consumerism into
the health care market
– These plans are only beneficial to the healthy and
wealthy
• Will result in adverse selection as healthy people opt for them
– Leaving only unhealthy people in traditional health plans
– Those choosing HSAs may consume too little health
care
• Leading to poor health and ultimately higher health care costs
• Supporters feel that HSAs will introduce stronger
market forces into the health care arena
– That will result in reduced health care cost increases
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Minimum Required Benefits
• The zeal of some HMOs and POS in pursuing
cost control
– Has led some of these plans to deny inpatient
hospital stays in perhaps questionable circumstances
• Including childbirth and mastectomies
• The Newborns and Mother’s Health Protection
Act mandates that plans that cover childbirth
provide a minimum of 48 hours of inpatient
hospital care following a regular delivery
– With at least 96 hours of inpatient care following a
caesarean
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Minimum Required Benefits
• The states have also been very active in this
area
– Areas often addressed include mental health care,
mammography and other screening tests for cancer,
alcohol and drug abuse treatment, and well-child care
• Mandated coverages increase the cost of health
insurance
– May lead some employers to cease offering health
insurance to their employees
• Leading to a larger number of uninsured
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Patients’ Bill of Rights
• Although no federal patients’ bill of rights has
been enacted
– Many managed care companies have voluntarily
changed their policies in recent years to address
many issues of concern
• Direct access to specialists
– HMOs and POS plans usually control the accessibility
of their patients to specialists
• Proposals abound to allow patients to bypass their primary
care physicians when they need to see certain types of
specialists including
– Obstetrics, gynecology, and pediatrics
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Patients’ Bill of Rights
• Definition of an emergency
– HMOs require that their physicians be used in all
cases except for emergency situations
– However, when individuals are confronted by actual
situations
• They often have found themselves in disagreement with their
health providers about the definition of an emergency
– Many federal proposals include a provision requiring
HMOs and POS plans to define emergencies in a
standard manner
• Consistent with a prudent nonmedical person’s definition
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Patients’ Bill of Rights
• Liability provisions
– Should an HMO or other such entity be legally
liable for coverage decisions?
• For instance, if an HMO improperly refuses to pay
for a heart transplant and the patient dies
– Should the family be able to sue the HMO for damages?
– Highly contentious issue in Congress and in
the courts
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Other Proposed Restrictions
• Any willing provider laws
– The essence of cost savings potential of HMOs, PPOs, and POS
plans is the ability of these organizations to construct networks of
select physicians and other health care providers
• Who agree to adhere to the network’s cost-saving philosophy as well
as their mechanisms for reviewing the quality of care provided
– However, some providers who are not included in the networks
being formed believe they will suffer financially as a result of their
exclusion
• They have convinced legislatures in many states to pass any willing
provider laws
– Force HMOs and other networks to accept all physicians and other health
care providers who agree to the network’s terms in the structures
– Eliminates the ability of HMOs to select only certain doctors
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Other Proposed Restrictions
• Anti-gag provisions
– Some early HMOs and POS plans discouraged their
physicians from discussing alternative forms of
treatment with their patients
– These gag provisions prohibited doctors from acting as
advocates for their patients
– Several states passed legislation prohibiting these
types of gag provisions
• Allowing physicians more freedom to act in the best interest of
their patients
– Rather than being concerned only about the lowest cost treatment
plan
– As doctors reacted negatively to gag provisions in their
contracts, many HMOs and POS plans dropped that
concept entirely
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