Chapter 7INSURING YOUR HEALTH AND YOUR LIFE

Learning Objectives

1. Explain why health insurance is important.

2. Describe different features of health insurance.

3. Understand the need for life insurance.

4. Discuss the ways people obtain insurance.

Objective 1 – Explain why health insurance is important

Insurance - a financial product that provides reimbursement to a person in the event of a certain type of financial loss

Health Financial product that provides

payment for medical services when people suffer a financial loss as a result of illness or injury

Limits potential liabilities

Medical care is expensive

Without it, net worth can be eliminated

Life An insurance plan that pays a

specific person(s) when the policy holder dies

Sources of Health Insurance

1. Private companies = the most expensive way to obtain insurance

2. Your employer - It’s better to get insurance through the company you work for if possible

3. The federal government has TWO programs: Medicare and Medicaid

Medicare and Medicaid

Medicare Government sponsored health insurance

plan that is funded largely by taxes most working people pay

Must be 65 and qualify for social sec.

Or disabled individuals

Medicare Part A: hospital insurance at no cost

Medicare Part B: doctor visits and other care provided outside of a hospital – recipients pay some premium*

Medicaid Government sponsored program that

provides health insurance for low income individuals

Designed for elderly , blind, disabled, and needy families with dependent children

Premium* - regular payments paid to an insurance company in return for coverage

Health Care Costs

Health care costs have become much more expensive over the years

Many employers are cutting back or dropping health insurance as a benefit for their employees

Reasons health care is increasing:

People live longer

Expensive new technology is being used in the health care field

Fraudulent insurance claims are affecting the cost of healthcare (someone submits false information in order to get a financial benefit)

Health Care Facts

Health care spending is expected to rise sharply in the years ahead

American health-care spending in 2010 average more than $8,000/person

Health-care costs are a factor in about 50% of all bankruptcies

More than 15% of Americans have no health insurance

**Health care is likely to become a bigger and more complex issue because the cost of healthcare is rising quickly and the population is aging

Objective 2: Describe different features of health insurance

Indemnity Plans Vs Managed Care

Indemnity Allow participants to seek health

care from any qualified medical provider

Managed Care Limits participants to a specific list of

providers

Medical Tourism: When Americans travel overseas for health care treatment that are less expensive in foreign countries PPACA: Patient Protection and Affordable Care Act – passed in 2010 and made a number of changes– allows young adults to remain on parent’s health insurance until 26 regardless of student status

Information

Group Plans – insurance plans that cover a large group of individuals such as employees at a company – risk is spread across entire pool of group members – everyone pays same for coverage – cheap and good coverage

Location Restrictions – some US companies only cover medical care delivered inside the US (if traveling abroad, you may want to purchase short-term health insurance for your trip)

Preexisting Conditions – health conditions that existed before one’s insurance policy was granted

Cancellation Options – companies cannot legally cancel your health insurance policy at any time (aka rescission)

Information

Deductibles – the amount of money a policy holder pays prior to the insurance company’s payment (example: once you pay your $500 deductible, your insurance company begins paying for some of the covered expenses)

the higher the deductible, the lower your premium and vice versa

Policies with very high DEDUCTIBLES and comparatively low PREMIUMS trade lower insurance costs for higher risk of out-of-pocket expenses

Good candidates for high deductibles are young, healthy people who have a low risk of serious illness or injury

Information

Coverage Limits – policies will limit the total amount they will pay for certain procedures, exclude some procedures completely (voluntary surgeries like improving eyesight or plastic surgery), or not cover experimental procedures, or an excessive amount of days in the hospital

Policies differ on Rx drugs

Study the your policy and ask a representative prior to scheduling nonemergency procedures

Co-insurance – (aka Co-pay) share of costs for covered services that the insured person is required to pay out of pocket (usually 80/20 – people will pay a certain percentage of each doctor visit and/or prescription drugs)

Co-pay – amount you pay when you visit the doctor, usually around $20, and the insurance will pay the rest

Example

John had an accident on his skateboard. His hospital bill is $40,250. Based on his insurance policy information below, how much will John have to pay?

Deductible: $250

Coinsurance: 80/20

Cap on coinsurance: $2,000

Example Continued

Deductible: $250

Coinsurance: 80/20

Cap on coinsurance: $2,000

$40, 250 – 250 (deductible) = $40,000

$40,000 x 20% = $8,000

$8,000 > John’s $2,000 cap

$2,000 cap + $250 deductible = $2,250 total

Provider Networks

HMO (health maintenance organizations) Based on negotiated agreements

with specific doctors to provide health care

People choose PCP (primary care physician) from an approved list and must be referred for any additional specialized care

PPO (preferred provider organization) Similar to HMOs but provide a larger

network of providers

Cost more than HMOs

Objective 3: Understand the need for life insurance

Life Insurance

Provides payments to a specific person/persons when the policyholder dies

The policyholder pays, the other benefits

Beneficiary – the person who receives the payment

Example: If you have a $100,000 policy and die, your beneficiary will get $100,000 (life insurance payments are not subject to income tax)

Purchased from a company, must pay premiums

Some employers provide full or partial life insurance coverage for their employees as a benefit

Role of Life Insurance

It’s a component of your financial plan

Whether you need it and how much to purchase depends on your financial goals

Most common financial goal or reason for buying life insurance is to make sure those who depend on you have financial support in the event of your death

More critical for someone who provides income for the household/the breadwinner

Types of LIFE Insurance

Whole• PERMANENT insurance

• Provides coverage for as long as the policyholder continues to pay the premiums

• This account builds in cash value (the more premiums you pay, the more money you have)

• Can serve as a source of liquidity and as a kind of investment

Term• Provided over a specific

period of time

• Usually 5-20 years

• Builds no savings, not an investment

• Has lower premiums

• You risk outliving your life insurance policy

Universal• Coverage for a specified term

• Builds savings

• Combination of whole and term

• Allows more flexibility (you can add units of term coverage, or years, and alter payments)

Objective 4: Understand the need for life insurance

Getting Insurance

Most Americans rely on THEIR EMPLOYERS to obtain health insurance

Some employer-provided coverage includes:

Disability – provides income in the event illness or injury makes it impossible to work and earn a living

Dental

Life

Term-Life

Vision

Supplemental health insurance

HIPAA and COBRA

HIPAA Health Insurance Portability &

Accountability Act

Ensures workers can continue their health insurance coverage if they switch jobs

Prohibits companies from denying new employees access to coverage based on their health or preexisting conditions

COBRA Consolidated Omnibus Budget

Reconciliation Act

Allows you to continue health insurance coverage for up to 18 months after your employment ends

You still must pay premiums that employer was paying for coverage

*The trend in recent years suggest that in comparison to present employees, future employees will be LESS LIKELY to obtain insurance coverage from their employees