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© The McGraw-Hill Companies, Inc., 2004. All Rights Reserved.

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CHAPTER 11

Personal Finance

Health and Disability Insurance

Kapoor Dlabay Hughes

7e

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Health Care Costs

The US has the highest per capita medical expenditures of any industrialized country in the world. $5,162 per person in 2001.

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Why Does Health Care Cost So Much?

High administrative costs. 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.

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Why Does Health Care Cost So Much?

Increasing number of accidents and crimes that require emergency medical services.

Limited competition and restrictive work rules in the health care delivery system.

Labor intensiveness and rapid earnings growth for health care professionals.

Using more expensive care than necessary. Innovative treatments for AIDS, cancer. Built in inflation in health care delivery system. Other factors such as malpractice insurance.

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What Can You do to Reduce Your Personal Health Care Costs? Stay well - focus on prevention.

Eat a balanced diet and keep your weight under control.

Avoid smoking, and don’t drink to excess.

Get enough rest, relaxation, and exercise.

Drive carefully and watch out for accident and fire hazards in the home.

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Health Insurance and Financial Planning

43 million Americans have no health insurance. Health insurance alleviates the financial burdens

people suffer due to illness or injury. It’s part of your overall risk management plan to

safeguard your family’s economic security. Disability income insurance protects your

ability to earn an income.

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Health Insurance and Financial Planning

Group plans comprise more than 85% of all health insurance issued.

Most group plans are employer sponsored, and the employer pays part or most of the cost.

The 1996 Health Insurance Portability and Accountability Act provides federal portability standards, nondiscrimination in health insurance, and guaranteed renewability. If you change jobs you need not lose your

health insurance. Individual insurance is also available.

(continued)

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Health Insurance and Financial Planning You can supplement your group policy.

The coordination of benefits provision in a policy says that benefits received from all sources are limited to 100% of allowable medical expenses.

(continued)

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Disability Income Insuranceand Financial Planning No matter what your age, you are more

likely to become disabled than to die. 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 go up.

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Carefully read a policy’s definition of disability. May only pay if you can’t work at any job. Look for a policy that pays if you are unable to

work at your regular job. Aim for a benefit that when added to your other

income will equal 60-70% of your gross pay. How long do benefits last? To age 65? For life? How long is the waiting period? 30 days? 90

days? Look for a policy that is both noncancelable and

guaranteed renewable.

Disability Income Insuranceand Financial Planning (continued)

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Four Sources of Disability Income Employer (many, but not all, offer this).

Group disability policy may be short or long term but is usually not enough by itself.

Social Security. Covers total disability that lasts more than twelve

months. Workman’s Compensation.

If you are injured at work or your injury is a result of your type of employment.

Disability insurance. You get it to supplement other income sources to

achieve 70-80% of your take home pay. 11-12

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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 for

each family member. Pay at least 80% of out-of-hospital expenses after

the yearly deductible of $500/person is met . Impose no unreasonable exclusions. Limit your out-of-pocket expenses to no more

than $3,000 to $5,000 in a year, excluding dental, optical, and prescription costs. 11-13

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Types of Health Care Coverages Three choices: Basic, major medical or both. Basic includes…

Hospital expense insurance.Hospital room and board and other charges.

Surgical expense insurance.Surgeon's fee for an operation.

Physician expense insurance.Pays for physician’s care that does not

include surgery, such as office visits, lab tests and X-rays.

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Types of Health Care Coverages

Major medical expense insurance. Covers expenses for a serious injury or long-term

illness. Has a deductible, coinsurance, and a stop-loss provision.

Comprehensive major medical insurance. Low deductible offered without a separate, basic

plan. Covers hospital, surgical, and other bills. Dread disease and cancer insurance policies.

Focus on unrealistic fears, and only pays out for very specific conditions. Often sold by people working on commission. Poor value.

(continued)

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Types of Health Care Coverages

Hospital indemnity. Pays a fixed amount for each day you are in a

hospital. Best for people in high-risk groups. Dental expense insurance.

Covers exams, cleaning, x-rays, fillings, root canals, and oral surgery.

Vision care. Exams, contact lenses, and glasses.

Long term care insurance. Virtually unknown 25 years ago, but now is growing

faster than any other form of insurance.

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Health Insurance Policy Provisions Eligibility.

Varies with age, marital status,and dependency.

Assigned benefits. Insurance pays your doctor or hospital directly.

Internal limits. Fixed amount per day for a hospital room.

Copayment. Cost sharing in the form of a flat dollar amount

you pay, such as $15.00 per office visit or $10 per prescription. 11-18

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Health Insurance Policy Provisions Service benefits - entitlement. Benefit limits - maximum dollar

amount or maximum number of days in the hospital.

Exclusions and limitations. Coordination of benefits - if you

have coverage under more than one policy.

Guaranteed renewable. Cancellation and termination -

explains the circumstances.

(continued)

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Trade-Offs in Choosing a Policy Reimbursement versus indemnity. Inside limits versus aggregate limits. Deductibles and coinsurance. Out-of-pocket limit, or stop-loss.

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Private Sources of HealthInsurance and Health Care Private insurance companies.

Individual policy. Group policy sold to an employer.

Hospital and medical service plans. Blue Cross - hospital care

benefits. Blue Shield - surgical and

medical services benefits. Managed care.

Prepaid health plan.Primary care physician. 11-21

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Types of Managed Care Health Maintenance Organization.

Contracts with selected care providers. Fixed pre-paid monthly premium. Focus is on prevention and wellness. Basic and supplemental services.

Preferred Provider Organization. Several providers to choose from. Costs more than a HMO, but you have more

choices, and fewer restrictions. If you go to a non PPO provider you pay more.

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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 if have proof of coverage.

Doctor’s office visits & prescriptions. Medigap - may pay what Medicare doesn’t. Medicaid.

Low income people of all ages. State administered with federal guidelines.11-23

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