CHAPTER 9
Health and Disability Income Insurance
Pssst. Here are a few words to the wise: Don’t Get Sick.
More Americans Wanted the Health Care Bill to Do More
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Health Care Costs

The United States has the highest per capita
medical expenditures of any industrialized
country in the world
 Predicted over $9,000 per person in 2011
 This amount is over twice as much as the average
for the 24 industrialized countries in Europe and
North America
 6% of the GDP in 1965, but expenditures rose to
over 17.6% of our GDP in 2010 – $2.5 trillion!
 And it is growing fast − 21½% by 2018?
 Health expenditures jumped 5.7% in 2009 National Coalition on Health Care
“Americans want too much of a very good thing.”
Health insurance rose dramatically in 2011
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Why Does Health Care Cost So Much?

High administrative costs – Insurance companies!
 26% of health care dollar vs. 1% in Canada

Use of sophisticated, expensive technologies
 Duplication of tests and technologies
 Increases in the variety and frequency of
treatments
 Increasing number and longevity of elderly people

From ages 60 to 70, the average person uses more
health-care resources than they did from ages 0 to 59
These are the most significant reasons, especially the first and
the last reasons. Malpractice insurance is often used as a
scapegoat for spiraling costs but it is a very small amount.
What is Being Done About the High
Costs of Health Care?
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
Careful review of fees and charges
 Establish incentives for...
 Preventive care
 Services provided out of the hospital where medically
acceptable

Community health education programs to get
people to take better care of themselves
 Preventive care is almost always cheaper than allopathic
care

Medical “vacations”
 750,000 in 2007; 6 million by 2010?
The real answer to this question is, “Not much.”
Are you willing to forego medical care?
Which Would You Choose?
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You are 50 years old. Recently, you have been experiencing severe
abdominal pain and a nagging cough. You go to your family doctor who
sends you immediately to the hospital. After a few tests, the specialist
asks you to sit down with her and tells you that you have stage 4 liver
cancer that has spread to your lungs and spine. She tells you that you
probably have three to six months to live. She gives you two choices:
Choice 1: You decide to forego radical
treatment. Instead, you are given pain
medication and placed in hospice care
after two months. Your chances of
living 5 years are 1 in 1,000.
You die in four months.
Choice 2: You decide to undergo
radical treatment. You have surgery,
radiation treatment, and several
rounds of chemotherapy. Your
chances of living 5 years are 1 in 85.
You die in nine months.
Total cost: $45,000
Total cost: $1,250,000
How Can You Reduce Your
Personal Health Care Costs?

Stay well – focus on prevention
 Eat a balanced diet and keep your weight
under control
 Learn to deal effectively with
 Don’t smoke – Don’t drink to excess
 Get enough rest, relaxation, and exercise
“Yeah, sure, Mom.
Right.”
Do financial health and medical health have any correlation?
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Disability Income Insurance
and Financial Planning

Disability income insurance protects your most
valuable asset – your ability to earn an income
 One of the most neglected forms of insurance
 No matter what your age during your working years,
you are more likely to become disabled than to die
 Young, healthy people don’t think about the risks
related to all their future earning potential
 Provides regular cash income lost by employees as
the result of an accident, illness or pregnancy
 If you become disabled your income drops but your
expenses usually go up
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Disability Income Insurance
and Financial Planning
(continued)

Carefully read a policy’s definition of disability
 May (will!) only pay if you can not work at any job
 Look for a policy that pays if you are unable to work
at your regular job (You will not be able to find any!)

Aim for a benefit that when added to your other
income will equal 60-70% of your gross pay
 I have never seen more than this

How long do benefits last? To age 65? For life?
 How long is the waiting period? 90, 180 days?
 Look for a policy that is...
 Non-cancelable
 Guaranteed renewable
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Four Sources of Disability Income

Employer-sponsored disability insurance
 Group disability policy may be short or long term
but usually not enough by itself

Individual disability insurance
 Good Luck! It is very hard to find and, if found, is
expensive and restrictive
 What a deal, huh?

Social Security
 Covers total disability that lasts more than one year

Workman’s Compensation
 If you are injured at work
Health Insurance and
Financial Planning

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Health insurance alleviates the financial burdens
people suffer due to illness or injury
 Part of your overall risk management plan to
safeguard your family’s economic security
 A week in the hospital can literally kill you (financially,
that is)

47 million Americans have no health insurance
 Two-thirds are full-time workers and their families
 Older college students can now be covered by their
parent’s policy until age 26 under the new law
This number was climbing as more and more smaller
businesses claimed they can no longer afford the cost of health
insurance for their employees. The new health care law is
supposed to reduce this number to just below 20 million.
Health Insurance and
Financial Planning

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(continued)
Medical Savings Accounts (MSAs)  (HSAs)
 Allows small businesses and self-employed
workers to place pre-tax money into an account
set aside solely for medical expenses

Health Savings Accounts (HSAs)
 Are replacing the MSAs (less restrictions)
 Anyone is now eligible if they have low-cost (?),
high-deductible comprehensive major medical
insurance
 The major problem is “low-cost” insurance ain’t so
low-cost anymore!
 We used to have an MSA/HSA but we switched to
Southwestern’s HMO
Types of Health Care Coverages

Comprehensive major medical insurance
 Low or high deductible offered without a
separate, basic plan

Hospital indemnity
 Pays a fixed amount for each day you are in a
hospital
 Cheap and not very useful

Dread disease and cancer insurance policies
 Focus on unrealistic fears, and only pay out for
very specific conditions
 Often sold by people working on commission
 Expensive and not very useful
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Types of Health Care Coverages
(continued)

Dental expense insurance
 Group coverage for exams, cleaning,
x-rays, fillings, oral surgery

Vision care
 Some group plans include exams and glasses

Long-term care insurance
 Virtually unknown 20 years ago, but now is
growing faster than any other form of insurance
 Oversold, especially to younger adults who could
easily start an investment plan to self-insure their
long-term care
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A Good Health Insurance Plan Should…






Offer basic coverage for hospital and doctor bills
Cover at least 120 days hospital room and board
Provide at least $1,000,000 lifetime maximum per
person (still plenty of coverage)
Impose no unreasonable exclusions
Pay at least 80% of out-of-hospital expenses after
the yearly deductible is met
Limit your out-of-pocket expenses to no more
than $4,000 to $5,000 in a year, excluding dental,
optical and prescription costs – a.k.a. “stop-loss”
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Health Insurance Policy Provisions

Eligibility
 Varies with age, marital status and dependency

Internal limits
 Fixed amount/day for hospital room

Co-payment
 Cost sharing in the form of a flat dollar amount
you pay, such as $15.00 per office visit or Rx

Exclusions and limitations
 Pre-existing conditions for the first year

Coordination of benefits
 If more than one insurance company is covering
you, they will not together pay more than the total
cost of medical bills
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Health Insurance Policy Provisions
(continued)

Guaranteed renewable / Cancellation &
Termination
 Can only be cancelled if you don’t pay
premium
 Premiums can only go up for the entire group
 Can convert to an individual policy if you leave
group
Sources of Health Insurance and
Health Care

Group plans comprise close to 90% of all health
insurance issued
 Most group plans are employer sponsored, and the
employer pays part or most of the cost
 The Health Insurance Portability and Accountability Act
(HIPAA) provides some protection
 If you changes jobs you need not lose your health
insurance

Individual health insurance policy
 Typically (but not always) cost more than group policies

Mangled care, uh… Managed care
 Two of the prime examples are HMOs & PPOs …
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Sources of Health Insurance and
Health Care
(continued)

Health Maintenance Organizations (HMOs)
 Contract with care providers
 Fixed monthly premium
 Focus on prevention and wellness

Preferred Provider Organizations (PPOs)
 Several providers to choose from
 Costs more than a HMO, but you have more
choice and fewer restrictions
 If you go to another provider it costs more
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“Catastrophic” Health Insurance

Low-cost / High-deductible insurance




It is really a comprehensive major medical plan
Choose your own health care providers
Pay out of pocket
Can usually negotiate lower fees
 Just mention this magic little four-letter word, “Cash”


Protected against large losses
Great for small businesses, the self-employed
and employees with cafeteria plans that allow
employees to opt-out
 Example: Southwestern Community College
 But our Administration wants out of it! (It is expensive)
Medical Information Bureau (MIB)

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The MIB operates much in the same manner as
the credit reporting agencies
 Used by the life insurance in much the same manner
as the credit reports and the C.L.U.E. reports
 Protected by the same laws as the credit agencies
 Fair Credit Reporting Act

MIB must correct any inaccurate information or
allow you to report your side of the story
 Allowed one free report each year (like credit reports)
 866-692-6901
 www.mib.com
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Government Health Care Programs

Medicare – Federal program for those age 65
and older, and certain disabled persons
 Part A – compulsory
 Covers hospital costs including doctor
 Part B – voluntary
 Doctor’s office visits & prescriptions
 Now being “means tested”
 More about this later when we get to retirement…


Medigap – Will pay what Medicare does not
Medicaid (MediCal in California)
 Low income people of all ages
 State administered with Federal guidelines
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Bottom Line on Health Insurance

BOHICA
 That’s right – it is pretty much the bottom line
on all insurance…
Oh, Yeah. Don’t Forget. Don’t Get Sick.