Understanding Health Insurance Policies and Provisions, Exams of Insurance Economics

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Health Insurance Exam-Illinois/ 138 Q&A/ A+ Score

Solution.

Incontestability Clause - Answer: after the policy has been in effect two years the insurance company cannot contest a policy doe to any misstatement or concealment unless it can prove fraud (tax) premiums on ind. hospital/medical expense policies - Answer: can sometimes be tax deducted; depends on whether an ind is self-employed and if ind. itemizes on tax returm (tax) premiums paid by an ind. on ind. disability income policies - Answer: usually cannot be tax deducted (non-qualified) (tax) ind. expense policies, ind disability income policies, are usually - Answer: tax free and have no tax on the benefits (tax) premiums paid by employer usually - Answer: can be tax deducted by the employer (tax qualified)

(tax) group expense coverage is usually - Answer: no tax on benefits (tax free) Private Health Insurance Companies were originally established to - Answer: issue risk indeminity policies Private Health Insurance Companies have the _____ restrictions to where the insured can go for service - Answer: fewest Service Organizations - Answer: the subscriber is entitled to obtain hospital/medical services from any hospital/doctor service provider that is a member of the network; outside network will not be covered Blue Cross originally assured payment of - Answer: hospital charges Blue Shield originally assured payment of - Answer: physician's charges Preferred Provider Organizations (PPO's) - Answer: provides medical services at negotiated discounted rates and offer lower deductibles and co-insurance requirements to apply if the insured receives service from a hospital in network Health Maintenance Organization (HMO's) entitle individuals - Answer: to obtain medical services from hospital service providers that are part of the plan network If HMO insured obtains servie from a hospital or physician service provider that is not in network... - Answer: insured is not covered unless in an emergency situation HMO's have the ______ restrictions on where the insured can go for service - Answer: greatest/most limitations

HMO's have the _____ premium rates - Answer: lowest HMO's practice manage healthcare to the ______extent - Answer: greatest Managed Health Care (MHC) requires participants to - Answer: see a primary care physician referred to as a "gatekeeper" Capitated fee basis (define and purpose) - Answer: pays the service provider a flat fee for each participant instead of a fee-for-service purpose to provide financial incentive to avoid unnecessary treatment and to contain costs Point of Service (POS) plans are issued by - Answer: HMOs the managed health care practiced by the HMO the insured receives - Answer: lower premium rates compared to private insurance risk indemnity plans, Blue Cross/Blue Shield service plans and PPO plans POS benefit for network - Answer: The insured has the benefit of being able to go to hospital/medical service providers outside of the HMO network with higher deductables and coinsurance requirements applying Workers Compensation Insurance - Answer: is a type of casualty insurance not health insurance; Private, Blue Cross/Blue Shield, PPOs and HMO plans usually exclude expenses covered by Workers Comp Subrogation - Answer: is when after an insurance org pays a claim Affordable care act ___contain impairment riders - Answer: cannot

Impairment Rider excludes - Answer: particular health conditions, or group of health conditions by name The purpose of hospital/medical expense insurance is - Answer: to protect insureds against the financial risk of illness or injury expenses they cannot individually afford Essential Health Benefits (10 items) - Answer: 1. outpatient care

2. emergency room treatment
3. hospital inpatient care
4. maternity leave
5. mental health and substance use disorder services
6. prescription drugs
7. rehabilitative and habilitative therapy
8. laboratory tests
9. preventative health care
10. pediatric care services including children's dental and vision care Hospital expense coverage - Answer: pays benefits for only hospital expenses. Deductibles, coinsurance and/or co-payments may apply Daily hospital benefits - Answer: pays for hospital room, board, general nursing care, and other routine services Miscellaneous Hospital Expense benefits - Answer: pays for hospital laboratory, x-ray, anesthetic, operating room, and medicine and dressing expenses Surgical Expense benefits - Answer: expressed according to a surgical schedule or a surgical relative value table

Physicians expense benefits - Answer: pays doctor charges incurred in the hospital and sometimes after being discharged for conditions treated in the hospital Major Medical covers - Answer: usual, reasonable, and customary eligible expenses When Hospital Expense and Major Medical coverage are combined they are referred to as - Answer: Comprehensive Medical Expense coverage Deductable - Answer: is an initial amount of loss which the insured must pay before the insurance company will begin to indemnify; most often annually Coinsurance also known as - Answer: Policyholder participation; insurance co pays a % and the insured pays the rest Stop Loss - Answer: the stated level of eligible expenses where the insurance company begins indeminifying 100% of the insured's expenses and where the insured's losses stop Maximum Out-of-Pocket - Answer: is the max the insured will be required to pay under both the deductible and policyholder participation requirements Co-Payment - Answer: is a small, specific amount that the insured must pay before the insurance company begins to indemnify for a particular type of expense Purpose of co-payment, deductible, and policy holder participation... - Answer: is to encourage the insured to avoid unnecessary expenses and to eliminate small claims that the insured can afford and which would cost the insurance company to administer High Limit of Liability - Answer: Major medical coverage always has a high limit of liability except in the affordable care act

Health Savings Accounts (HSAs) - Answer: cover hospital/medical expenses not covered by a high deductible health plan (tax) contributions to HSAs are - Answer: usually tax deductible Flexible Spending Accounts (FSA) - Answer: the employer reduces the employee's wages by an agreed amount; these amounts are credited to a Flex spending account Cafeteria plan - Answer: part of the FSA is used to pay premiums on the employee's health insurance. the employee can select coverage options. it allows the employee to tailor benefits to his/her personal or family needs Disability - Answer: is when a person is unable to work due to an illness or injury Disability income insurance protects - Answer: an insured against the financial risk of loss of income due to disability Disability income indemnifies when the insured - Answer: is permanently and totally disabled Disability income will be paid even if the insured - Answer: is not confined to a hospital Disability income are usually - Answer: non-coordinating (tax)Individual Disability income policy premiums usually - Answer: cannot be tax deducted; no tax on ind. Disability income benefits (tax free) (tax) Group Disability income policy premiums usually - Answer: can be tax deducted by the employer; benefits usually are subject to tax

Definitions of Total Disability: Insured's own occupation - Answer: the policy pays benefits as long as the insured is unable to perform functions of his/her own occupation (high premiums; very liberal; highly compensated or specialized positions) Definitions of Total Disability: Any occupation for which the insured is reasonably suited by education and background - Answer: most skilled, business, technical people Definitions of Total Disability: Any occupation - Answer: insured is unable to perform the functions of any occupation at all (low premiums; most conservative) Waiting (elimination) period provision - Answer: the longer the waiting period, the lower the premium. no benefits are payable during the waiting period Retroactive waiting (elimination) period provision - Answer: after the waiting period requirement is satisfied, the insurance company will pay the insured the benefits he/she would have been entitled to during the waiting period Nonretroactive waiting (elimination) period provision - Answer: will usually have a lower premium during waiting period Purpose of waiting (elimination) period - Answer: is to discourage avoidable, short-term disabilities and to eliminate small claims that the insured can afford and which would cost the insurance company to administer Probationary Period Provision - Answer: specified time requirement; usually a period of employment that must be satisfied before the prospective insured is eligible to apply for coverage

Purpose of probationary period provision - Answer: is to avoid adverse selection Waiver of Premium Rider - Answer: extra premium charge; it waives premiums as long as the policy owner is disabled starting after a specified period, such as after the sixth month of disability Option to Purchase Additional Insurance Rider - Answer: also known as guaranteed insurability rider or inflation protection rider; if added for extra premium charge, it guarantees the insured the option to purchase additional amounts of insurance at the premium rate for the insured's attained age without evidence of insurability Partial Disability Rider - Answer: sometimes called residual disability rider; if added for an extra premium charge, this provision will pay benefits to the insured person only after a period of total disability Partial Disability Rider pays - Answer: a reduced benefit amount for a reduced benefit period Social Security Disability Benefits (fully insured status) - Answer: contributed to Social Security at least 40 quarters or 10 years Social Security Disability Benefits (partially insured status) - Answer: contributed to Social Security at least 20 quarter in the 40 quarters prior to the disability Social Security Disability qualification - Answer: must be expected to either last 12 months or result in death for a person to qualify for benefits Hospital Indemnity (income) coverage - Answer: it is a supplement to other coverages and pays a stated benefit amount each day the insured is confined in an hospital; non-coordinating

Limited Disease coverage - Answer: It is a supplement to other coverages and pays benefits only if the insured incurs a disease specified in the policy (ex cancer or heart disease); pays a fix, stated amount and is non-coordinating Limited Disease coverage sold as - Answer: an individual policy or sold as a part of an employer sponsored plan at the worksite Accidental Death and Dismemberment coverage - Answer: non-coordinating; covers only total and irrevocable loss; pays a stated fixed benefit amount Accidental Death and Dismemberment covers - Answer: loss of hand at or above wrist loss of an arm at or above the elbow loss of foot at or above the ankle loss of leg at or above the knee Double Benefit provision - Answer: pays double the principal (capital) sum, if the insured dies in a specified type of accident, such as while a fare paying passenger on a common carrier; also called double indemnity Medicare Hospital Insurance Plan (Part A) - Answer: for anyone who is eligible for Social Security benefits at age 65; no charge to insured person Medigaps - Answer: eligible hospital expenses directly to the hospital service provider, subject to very large deductibles Medicare-skilled nursing home - Answer: no deductible for 1-20 days; has to have been in the hospital at least 3 days and be admitted to the skilled facility within 30 days of hospital discharge

60 day benefit period (spell of illiness) provision - Answer: if a senior citizen has to go back to the hospital within 60 days, it will be classified as the same spell of illness, not as a new one. will pick up where left off on his or her benefit period Medicare Supplementary Medical Insurance Plan (Part B) - Answer: automatic when enrolling in Part A; fed gov pays part of the cost and insured pays rest; Part B after the annual deductible is satisfied - Answer: Part B pays 80% of reasonable and customary Medicare approved eligible medical expenses Employed senior citizen has less than 20 members - Answer: Medicare is primary and group plan is secondary Employed senior citizen has more than 20 members - Answer: group plan primary and medicare secondary State insurance regulations authorize # - Answer: 14 Medicare supplement plans lettered A through N All insurance companies that offer Medicare Supplement Plans must offer - Answer: Plan A Medicare Part C-Medicare Advantage Plans - Answer: is an alternative to participating in Part A and B and buying a supplement policy Under Medicare Advantage Plan, Medicare pays - Answer: Part A and B costs to the insurance company Medicare Advantage Plans usually charge - Answer: a premium charge to the insured

Medicare Advantage Plans are often issued by - Answer: HMO's Medicaid - Answer: federally funded, state administered program for anyone who is medically in need and without income or financial resources; referred to as public aid Long-Term Care (LTC) Insurance is to avoid - Answer: significantly depleting assets in the case of a long-term nursing home stay LTC pays - Answer: benefit amount for each day of service for a set benefit period LTC pays if insured is unable to perform 2 or more - Answer: Activities of Daily Living such as Bathing, Dressing, Toileting, Transferring, Continence, and Eating LTC with a pre-existing condition provision can - Answer: go back no more than 6 months and forward no more than 6 months LTC must be - Answer: Guaranteed Renewable; the insurance company cannot refuse to renew but can rase rates only by broad classification LTCs and cancellation provisions - Answer: usually does not have and is referred to as noncancelable Inflation Protection riders - Answer: must be offered for an extra premium charge; guarantees the insured the option to purchase additional amounts of insurance at the premium rate for the insured's attained age without evidence of insurability LTC policies are usually - Answer: non-coordinating and have waiting period provisions

HIPAA (Health Insurance Portability and Accountability Act) - Answer: is a federal law that established federal health insurance standards and assures portability COBRA - Answer: federal law that applies to a group of 20 or more; continue the same hospital/medical expense coverage for specified periods at the same premium rate plus up to 2% for administrative costs State Health Insurance Continuation Laws - Answer: Are state laws that apply to groups of less than 20; continues the same insurance benefits Dependent Coverage - Answer: children must be allowed to be covered under their parents' coverage through age 25 their age 26 birthday Blanket Accident Insurance - Answer: covers only injury expenses if the insured (child) is injured in an accident while engaging in a covered activity; does not cover illness expenses 12 Required Uniform Policy Provisions - Answer: 1. Entire Policy-changes

2. Time limit on certain defenses
3. grace period
4. reinstatement/waiting period 5.notice of claim(notice of loss)
5. claim forms
6. Proof of loss
7. time of payment of claims
8. payment of claims
9. Physical examination and autopsy 11.Legal actions
10. change of beneficiary

Time Limit on Certain Defenses - Answer: Incontestability 2 year Grace Period - Answer: 7,10,&31 days Reinstatement - Answer: 45 days reinstated after application has been submitted 10 days illness claims only; no coverage for 10 days Notice of Claims (Notice of Loss) - Answer: 20 days Claim Forms - Answer: 15 days from notice of loss Proof of loss - Answer: 90 days from notice of loss and every 6 months Time of payment of clause - Answer: immediately and no less often than monthly Legal Actions - Answer: 60 days, 3 years (after 60 days and before 3 years if you want to sue) 10 optional uniform policy provisions - Answer: 1. change of occupation

2. misstatement of age
3. other insurance with the same company
4. insurance with other companies
5. Relation of earnings
6. unpaid premiums
7. cancellation
8. conformity with state statutes
9. illegal occupation
10. intoxicants and narcotics

Change of occupation - Answer: optional; may reduce benefits for more hazardous job or reduce premiums for less hazardous job Misstatement of Age - Answer: optional; can reduce benefits to the amount that the company would normally provide for the person of the insured's actual age and sex Relation of earnings - Answer: optional; purpose is to avoid disincentive; reduces benefits to insured monthly income at disability or his/her last 2 year average income Cancellation - Answer: optional; 30 days notice if insurance company wants to cancel the policy Illegal occupation - Answer: optional; excludes coverage while insured is engaged in an illegal occupation Intoxicants and Narcotics - Answer: optional; excludes coverage while insured is under the influence Assignment clause - Answer: optional; transfer policy to another; insurance company is not responsible for the validity (legality) of the assignment Guaranteed Insurability Rider - Answer: optional; also called option to purchase additional insurance rider and/or the inflation protection rider Renewability provisions; optionally renewable - Answer: insurance company's option with no guarantee that the policy will be renewed Renewability provisions; conditionally renewable - Answer: insurance company can refuse to renew only for reasons stated in the policy

Renewability provisions; guaranteed renewable - Answer: insurance company must renew the policy but can change rates only by class Renewability provisions; Noncancelable and Guaranteed renewable - Answer: insurance company must renew the policy and cannot cancel the policy; the premium rates cannot be changed at all Risk type expenses - Answer: cannot be planned and is unintended Purpose of health insurance is - Answer: to protect a insured against the risk of financial loss he/she cannot individually afford caused by illness, injury, or disability Indemnity - Answer: Reimbursement Coordination of Benefits provision - Answer: is in some health insurance policies; allows insurance companies to reduce benefits so that the insured will be paid no more that his/her actual loss. prevents the insured from collecting under multiple policies more than his/her actual loss Coordination policy - Answer: is a policy that includes a coordination of benefits provision Non-coordinating policy - Answer: is a policy that does not include a coordination of benefits provision Accepted questions on application to base premiums - Answer: age, family composition, geographic region of residency, tobacco use unacceptable question on application to base premiums - Answer: past medical history, gender, occupation, ethnicity

Attending Physician Statement - Answer: the underwriter contacts physician who has treated the applicant in the past for an evaluation; it's purpose is to confirm information on the medical report Errors and Changes on the Application - Answer: if error on application, underwriter may require it be corrected and changes must be approved and initialed by the applicant Medical information bureau (MIB) report - Answer: it is a clearing house for medical information for insurance companies that belong to it Credit Report - Answer: Determines if total benefits are reasonable compared to applicant's income so as to avoid disincentive Inspection report - Answer: to verify that the producer completed the application accurately and completely is the first purpose of an inspection report