Health, Disability,
and Life Insurance
Chapter 14
Health Insurance and
Financial Planning
Section 14.1
What is Health Insurance
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Protection from illness or injury
Includes both medical expense insurance
and disability income insurance
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Medical expense insurance pays actual medical
costs
Disability income insurance covers income person
lost from illness and injury
Group Health Insurance
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Most people who have insurance are covered
under this type of plan
Usually employer sponsored, or by labor
unions or professional associations
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They cover most or all of cost
Cost is fairly low because so many people
are insured under the same policy
Coordination of Benefits
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Allows you to combine benefits from more than
one insurance plan
Benefits are limited to 100%
Individual Health Insurance
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Buy from the company of your choice
Individual or family plans available
COBRA
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Allows those who lose job to keep former
employer’s group coverage for a set time
Have to work for a private company or state
or local govt. to be eligible
Basic Health Insurance Coverage
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Hospital Expense
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Surgical Expense
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Some or all of daily cost of room and board
Routine nursing, minor medical supplies, use of
other hospital facilities as well
Pays all or part of surgeon’s fees
Physician Expense
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Meets some or all of the costs that do not involve
surgery
Routine visits, x-rays, lab tests
Major Medical Expense Insurance
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Covers long hospital stays and multiple surgeries
Coinsurance
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Stop-Loss Provisions
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Set % of medical expenses you must pay in addition to
deductible amount
20 to 25% of expenses
Policyholder must pay all costs up to a certain amount then
insurance will pay rest
$3,000 to $5,000
Comprehensive Major Medical
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Pays hospital, surgical, medical, and other bills
Limits on what they will pay on expenses
Dread Disease Policies
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Policies sold through the mail, newspapers,
magazines
For dread disease, trip accident, death
insurance, cancer
Play upon people’s fear and are illegal in
many states
Usually only cover very specific conditions
which are normally already covered under
major medical plans
Dental Expense Insurance
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Encourages preventative dental care and
pays for maintenance care
Oral examinations, x-rays, cleanings, fillings,
extractions, oral surgery, dentures, and
braces
May have a deductible and coinsurance
Vision Care Insurance
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May be part of group plan
Covers eye examinations, glasses, contact
lenses, eye surgery, treatment of eye
diseases
Long-Term Care Insurance
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Provides expense for daily help you may
need if you become seriously ill or disabled
and cannot care for yourself
Nursing homes
Dressing, bathing, household chores
Premiums are $900 to $15,000 depending on
age and amount of coverage
Major Provisions
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Eligibility – defines those covered under a policy
(usually spouse and children to a certain age)
Internal Limits – specific levels of repayment for
certain services (hospital room could cost $400 a
day but internal limit only pays $250)
Co-Payment – flat fee you pay every time you
receive a covered service
Preexisting Conditions – conditions diagnosed
before the insurance plan took effect; often not
covered along with cosmetic surgery
Health Insurance Plans
Should….
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Offer basic coverage for hospital and doctor bills
Provide at least 120 days hospital room and board
in full
Provide at least $1 million lifetime maximum for
each family member
Pay at least 80% for out-of-hospital expenses after a
yearly deductible of $500 per person or $1000 per
family
Impose no unreasonable exclusions
Limit your out-of-pocket expenses to no more than
$3000 to $5000 a year, excluding dental, vision
care, and prescription costs
Private and Govt.
Plans
Section 14.2
Private Health Care Plans
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Private Insurance Companies
Hospital and Medical Service Plans
Managed Care
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Health Maintenance Organizations (HMO)
Preferred Provider Organizations (PPO)
Point of Service Plan (POS)
Private Insurance Companies
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Provide group health plans to employers
Premiums may be fully or partially paid for by
employers
Employees pay remainder of cost
Hospital and Medical Service
Plans
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Blue Cross/Blue Shield are statewide
organizations similar to private companies
Each state has a Blue Cross/Blue Shield
Blue Cross provides hospital care
Blue Shield provides surgical and medical
services
Managed Care
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Prepaid health plans that provide
comprehensive health care to their members
Designed to control cost of health care
services by controlling how they are used
HMO’s, PPO’s, and Point of Service Plans
Health Maintenance
Organizations (HMOs)
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Preapproved doctors to provide care in exchange for
fixed, prepaid premiums
Give preventative care like immunizations, screening,
diagnostic tests with the idea they will minimize future
medical problems
Coverage for surgery, hospital care, and emergency
care
Usually pay small co-payment for each service
Vision coverage and prescription services are extra
Any treatment from doctors not on approved list you
have to pay cost yourself
Exception is if there is an emergency that would
threaten your life
Tips on Choosing HMO
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Make sure doctors are near your home
You should be able to change doctors if you
don’t like your first choice
Second opinions should always be available
at HMO’s expense
Should be able to appeal any case in which
HMO denies care
Preferred Provider
Organizations (PPO)
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Group of doctors and hospitals agree to
provide specified medical service at
prearranged fees
PPO plan members pay no deductibles, but
may have small co-payments
PPO plan members can go to doctors not on
pre-approved list, but may pay larger
deductibles and co-payments
Government Health Care
Programs
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Medicare
Medicaid
Medicare
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Federally funded to those over 65 or those with
certain disabilities
Part A – hospital insurance
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Social Security tax
Inpatient hospital and nursing facility care, home health,
and hospice
Part B – medical insurance
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Doctor’s services and other services not covered by Part A
Deductible and 20% coinsurance
Supplemental, meaning additional coverage for those who
don’t feel fully covered
Medicare Finances
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In danger
Health care costs growing
Population of senior citizens growing
Projections from 2004 say it will be bankrupt
by 2019 if no changes made
What is not covered by
Medicare?
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Skilled or long-term nursing care
Out of hospital prescription drugs
Routine checkups
Dental care
Most immunizations
If doctor does not accept Medicare’s
approved payment in full, patient must pay
themselves
Medigap
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Eligible people are those who receive
Medicare
Supplements the gap between Medicare
payments and medical costs nto covered by
Medicare
Medicaid
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Low income individuals and families
Financed by state and federal funds
Benefits include:
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Physician services
Inpatient hospital services
Outpatient hospital services
Lab services
Skilled nursing and home health services
Prescription drugs
Eyeglasses
Preventative care for people under 21
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The US market-based health care system relies heavily on private and not-forprofit health insurance, which is the primary source of coverage for most
Americans. According to the United States Census Bureau, approximately 84%
of Americans have health insurance; some 60% obtain it through an employer,
while about 9% purchase it directly. Various government agencies provide
coverage to about 27% of Americans (there is some overlap in these figures).
Public programs provide the primary source of coverage for most seniors and
for low-income children and families who meet certain eligibility requirements.
The primary public programs are Medicare, a federal social insurance program
for seniors and certain disabled individuals, Medicaid, funded jointly by the
federal government and states but administered at the state level, which covers
certain very low income children and their families, and SCHIP, also a federalstate partnership that serves certain children and families who do not qualify for
Medicaid but who cannot afford private coverage. Other public programs include
military health benefits provided through TRICARE and the Veterans Health
Administration and benefits provided through the Indian Health Service. Some
states have additional programs for low-income individuals.
In 2006, there were 47 million people in the United States (16% of the
population) who were without health insurance for at least part of that year.
About 37% of the uninsured live in households with an income over $50,000.
Lifestyle Choices:
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7 in 10 Americans do not exercise
regularly
4 in 10 Americans are not physically
active
60 percent of all Americans are
overweight
Prescription Drug Costs:
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• 23 prescription drugs account for 50
percent of prescription sales
• $1 billion in sales attributed to 30 drugs
• 17 percent increase in cost from 2000 to
2001 or $22.6 billion
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Cost Shifting:
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43 Million Americans do not have health
insurance or are underinsured
Medical Technology:
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Up to 1/3 of the projected increase in health
care in the US during the next five years will
be the result of new technology
Disability Insurance
Section 14.3
Disability Insurance
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Cash income when unable to work due to
pregnancy, non-work related accident, or an
illness
Very common
Word disability can vary from insurer to
insurer
Sources of Disability Income
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Worker’s Compensation
Employer
Social Security
Private Income Insurance Programs
Worker’s Compensation
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Result of accident or illness that occurred on
the job
Benefits depend on salary and work history
Employer
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Provided through group insurance plans
Employer pays part or all of cost
Could be continued wages for several
months or for long-term
Social Security
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Eligible if you paid into Social Security system
Depends on salary and number of years you’ve
been working
Dependents may qualify for some benefits
Strict rules
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Physical or mental condition that prevents work for at least
12 months
Or, have a condition that may result in death
Starts paying 6 months after person is disabled
Private Income Insurance
Programs
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Weekly or monthly cash payments to those
who cannot work from accident or illness
Pays 40 to 60% of normal income, although
some may pay up to 75%
Disability Insurance Trade-Offs
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Waiting or Elimination Period – one to six months,
longer the wait the less the cost
Duration of Benefits – look for those that last
throughout life
Amount of Benefits – look for benefit that will equal
70 to 80% when added to other sources of income
Accident and Sickness Coverage – look for those
that also pay for sickness in addition to accidents
Guaranteed Renewability – make sure that they will
not cancel coverage when you fall ill
Life Insurance
Section 14.4
What is Life Insurance?
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Contract in which you pay a certain premium
periodically
Stated money amount paid upon your death
Paid to your beneficiary – person named to
receive your benefits
Purpose of Life Insurance
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Pay off mortgage or other debt
Money for children when they reach certain age
Education or income for children, survivors
Charitable donations
Retirement income
Accumulate savings
Set up an estate plan
Pay estate and death taxes
Principle of Life Insurance
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Estimate how long people will live
Set the price of life insurance on tables
Higher premiums for those who will die
sooner
Types of Life Insurance
Policies
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Term Insurance
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Pays out only if you die during the term it covers
May only get covered for the time you have children
Renewable Term allows to renew after original
term is up
Multiyear Level Term – Guarantees you pay the
same premium for the duration of policy
Conversion Term – Allows you to change from term
to permanent, with a higher premium
Decreasing Term – Pays less to beneficiary as time
passes
Whole Life Insurance
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Pay a set amount for the rest of your life
Also serves as an investment