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Slides by Pamela L. Hall

Western Washington University

Health and Disability Insurance

Chapter 10

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Cost of Health Care in U.S.

Today health care expenditures are about 13% of GDP vs. less than 4% in 1980 That’s about $4,500 per person vs

$300 per person in 1970 Largest portion goes to hospital costs

(33%) and professional services (33%)Rising at twice the rate of inflation

but rate of increase has lessened

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Figure 10.1: How Much Americans Spend on Health Care

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Figure 10.2: Distribution of Health Care Expenditure by Type

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Figure 10.3: The Rising Cost of Health Care

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Some Causes of Rising Health-Case CostsDemographics

More older people in U.S. (aging of baby boomers) Number of people age 75+ has doubled in last 25 years

Advances in medical technology New drugs Complex surgical procedures Sophisticated diagnostic equipment

Improved quality but increased our costs

Increase in 3rd party payments Gives consumers little reason to not go to doctor

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Some Causes of Rising Health-Case Costs

Litigation Doctors attempt to avoid malpractice so order

unnecessary tests

Rising administrative costs Increased government paperwork Increased insurance company paperwork

Government mandates Increased requirements on insurers and health

benefit plans

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Who Pays Our Health-Care Bills?You pay out-of-pocket expenses

1970: 40% Today: 15%

Private health insurance 1970: 24% Today: 33%

Government: Medicare (elderly); Medicaid (poor) 1970: 35% Today: 50%

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Figure 10.4: Who Pays America’s Health Care Bills?

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Providers of Health-Care Coverage Private group health insurance

Became popular in 1930s and 40s Wage and price controls during WWII caused employers to

offer incentives for workers, such as group health insurance After controls lifted after war, employees didn’t want health

insurance to end Include basic coverage, major medical and disability Some large employers are self-insured Advantage of group insurance

Less expensive (to individual), more comprehensive coverage than individual plans

Most employers pay a portion of premium while employee pays remainder

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Figure 10.5: Sources of Health Insurance Coverage

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Private grouphealth

insurance

Privateindividual

healthinsurance

Medicare Medicaid Uninsured

Mill

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Group Health Insurance

Employers spend over $200 billion annually on health insurance (in U.S.) Have cut benefits Increase employee-paid premiums Moved employees to managed-care

plans Terminated health coverage

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Group Health Insurance

Under Federal law (COBRA) employers offering group health insurance must continue coverage Up to 18 months for workers who are laid

off or resign Up to 36 months for widows and divorced

spouses & dependentsEmployees (former) must pay entire

premium, however

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Providers of Health-Care Coverage Individual Health Coverage

Blue Cross/Blue Shield Locally organized non-profit and for-profit organizations

that contract with hospitals, physicians, etc. at negotiated rates

Commercial insurance companies Applicants must show evidence of insurability

Existing medical conditions may cause insurer to reject application, charge higher rates or exclude item from coverage

More expensive than group health insurance Can lower your cost by choosing policy with high

deductible and low % co-payment (by insurer)

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Providers of Health-Care Coverage

Government Programs Medicare

Federal health insurance program designed to protect elderly and severely disabled Americans

Available to almost everyone 65+ Available to younger people if disabled for

24+ months, need dialysis, or kidney transplant

Taxes fund Medicare Federal and payroll taxes

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Medicare

Offers Hospital insurance

Helps pay for in-patient hospital services, etc. Medical insurance

Helps pay for physicians’ services, out-patient care, etc.

Does NOT provide FREE health care Co-pays are part of the picture Does not cover prescription drugs Wise to cover the difference with supplemental

insurance (“Medi-gap” insurance)

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Providers of Health-Care Coverage

Medicaid Assistance for low-income individuals

and families Eligibility based on income and net worth Benefits vary from state to state

Generally pays hospital and doctor bills Long-term care

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Proposed Changes to Medicare and Medicaid

Some projections indicate that Medicare will be paying out more than it collects within the next 10-15 years Baby boomers hit retirement (around 2010)

Possible solutions Raise premiums and deductibles Limit benefits to high-income recipients Shift all recipients to managed-care

programs And/or raising Medicare taxes

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Managed-Care Programs

Traditional fee-for-service plan Indemnity: you pay first and get reimbursed

Managed-care program Most bills are paid for by plan but you have

less say about plan Must see doctor within a given set Referral to see specialist, etc.

Increased in popularity in last 15 years due to attempt by government/employers to cut costs

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Health Maintenance Organization (HMO)

Provides all health care, including hospitalization Must use HMO’s doctors and treatment

facilities No deductibles and low co-payment Emphasize preventive medical care Emphasize unnecessary medical

tests/treatment

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Preferred Provider Organization (PPOs)

Broker negotiates contract between physicians and hospitals and employers to provide medical care at discount rates to employees With PPO you choose a primary-care

doctor, but can easily change If see your non-primary-care doctor will

probably pay a higher deductible/co-payment whereas with HMO you will probably pay entire cost out-of-pocket

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Assessing Managed-Care Programs

Proponents argue Managed-care is main reason costs have

not increased as rapidly recently

Opponents Argue that it’s about managing costs, not

care Difficult to see specialist

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Understanding Your Health-Care Plan Terms and provisions

Who’s covered You and dependents?

Make sure you carefully follow instructions to add new dependent Time Period

Most begin immediately and are renewable annually Coordination of Benefits

If two-wage family with multiple insurance plan, this clause helps you determine which plan is primary and which is secondary

File claims with primary insurer first and secondary insurer may pay for services not covered with primary

Secondary insurer may also pay co-pays/deductible not paid by primary

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Understanding Your Health-Care Plan

Second Opinions and Prior Approvals May require an opinion from another doctor and may authorize a

limited number of days for hospital stay Policy Limits

Limits on amounts, episodes, per illness/accident, time period limits, lifetime limits, etc.

Usually associated with mental health services Deductibles (fee-for-service) and Co-Pays

Deductibles usually listed per person or family Common is $150 per person or $400 per family

Co-Pays Fee-for-service usually 20% Managed-care usually $10-$15

Filing Claims Fee-for-service: You pay ‘small’ claims yourself and file for

reimbursement Managed-care: You pay co-pay and health-care provider files

directly for difference

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Coverages Provided

Most plans provide comprehensive coverage Hospital, physician, surgery, drugs Plans can vary by deductible, co-pay, limits, etc.

Hospital-expense portion Fee-for-service specifies max amount allowed

per day Managed-care covers fee for semi-private room

for max number of days

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Coverages Provided Surgical expense portion

Pays cost of surgery and anesthesia Benefits are paid according to a fee schedule or up to

‘reasonable-and-customary’ charge allowed for each procedure

What if insurer won’t pay what doctor charges?

Physician expense portion Covers cost of care provided by physician Plan specifies maximum allowed for specific procedures

Miscellaneous Drugs, wheelchairs, etc.

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Items Not Covered

Cosmetic surgeryExperimental treatmentsOrgan transplantsPre-existing conditions

Each plan treats this differently Some pay, some charge higher deductibles, etc.

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Should consider Cost, including monthly premiums,

deductibles, co-pays Choice and access—how important is this

to you? Differences in coverage

Do you have a pre-existing condition? What about differences in limits?

Patient satisfaction Talk with coworkers

Choosing the Right Plan For You

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Pros/Cons of Fee-For-Service vs. Managed-Care Fee-for-service

Pros WIDE range of doctors, hospitals, etc. to choose from Easy access to specialists Can change doctors whenever desired Fewer limits on tests and diagnostic procedures

Cons Higher out-of-pocket expenses Possibly higher monthly premiums Paperwork/delays in getting reimbursed Potentially more disputes with insurance company over

charges Often doesn’t pay for routine physicals and immunizations

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Pros/Cons of Fee-For-Service vs. Managed-Care Managed-care

Pros Little, if any, paperwork Lower out-of-pocket expenses No wait for reimbursement Possibly lower monthly premiums Often pays for routine care—physicals and immunizations

Cons Limited choices for insured More difficult to change doctors Restricted access to specialists Limits on diagnostic tests Possible delays in obtaining emergency care

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Choosing the Right Plan For You

What works for you now might not be best later Get married, have kids, needs change

Thoroughly research plans before you make your choice

Critics of managed-care plans argue that some general practitioners are being pressured to offer more specialized care and to hold down hospital stays and referrals

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Dental and Vision Insurance Some plans include it, but oftentimes optional and requires

additional premiums Dental insurance

Stresses preventive care May cover 100% of cleanings, etc., but only a portion of other

procedures such as root canals May have large deductible and co-pays with limit on annual

benefits

Vision insurance Covers portion of eye exam, glasses and contact lens costs Problems with vision as a result of accident or disease are

normally covered by regular health plan

If you have to pay 100% of premium for dental/vision insurance, it may not be worth it

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Disability Income Insurance

Much more likely that you will become disabled than die while you are employed

Disability insurance (AKA: salary continuation insurance) partially replaces lost income Most overlooked form of insurance Social Security

Offers disability insurance in 5th month if disability will last 1+ years

Denies about 90% of claims filed due to strict requirement

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Disability Income Insurance

Private disability insurance Available on individual or group basis Many employers provide disability insurance as

a fully or partially-paid fringe benefit Amount of replacement income usually limited

to 60-70% of actual income with set payment ceiling

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Determining How Much Disability Insurance You Need

Estimate your monthly expenses and expected monthly sources of income

The net amount (if +) represents shortfall to be made up with disability insurance

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Important Terms and Provisions

Initial and secondary claims Initial—most policies define disability as inability to

perform duties of your occupation and pays benefits from 2-5 years

Secondary—continues to pay benefits only if you are unable to work at any occupation for which you are reasonably suited

May include a benefit for partial disability Inability to perform one or more (but not all) job duties

Waiting period Payments will not be made during this time—ranges from

1 week to 1 year

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Important Terms and Provisions

Length of payment Long- (may extend up to lifetime of insured)

or short-term (benefits up to 2 years)

Social Security Rider Available for extra cost if Social Security

denies your claim

Cost-of-Living adjustments You want this—benefits are indexed to

inflation

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Saving Money on Disability InsuranceRule of thumb: policy will cost 2% of

income replaced If you’re replacing $50,000, it’ll cost about

$1000/year in premiums Expensive, so shop around

Buy policy through your employerReduce term of coverage

If you have adequate retirement savings, you don’t need disability insurance past age 65

Settle for smaller % of income replacement

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Saving Money on Disability Insurance

Increase waiting period Go for a 1 year period rather than a 6-month

Consider policy with stringent definitions for ‘disabled’

Accept policy with a cap on cost-of-living adjustment

Consider buying policy from company that specializes in disability insurance and buy directly from company

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Workers’ Compensation

Helps pay for job-related injuries and illnesses

Types of benefits Disability:

Most states pay 2/3 of worker’s lost wages up to a maximum

Medical Worker may or may not get to choose own doctor

Death benefits To spouses and underage children