Kapoor PF 13e PPT Ch011

Chapter 11
Health, Disability, and

Long-Term Care Insurance
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Chapter 11
Learning Objectives
LO11-1 Explain why the costs of health insurance and health care have
been increasing.
LO11-2 Define health insurance and disability income insurance and
explain their importance in financial planning.
LO11-3 Analyze the benefits and limitations of the various types of
health care coverage.
LO11-4 Evaluate private sources of health insurance and health care.
LO11-5 Appraise the sources of government health care programs.
LO11-6 Recognize the need for disability income insurance.
11-2
Health Care Costs
LO11-1:
Explain why the costs of health insurance and
health care have been increasing.
• The United States has the highest per capita medical

expenditures of any country in the world.
– The average per capita cost for health care was estimated
to be $11,670 in 2019.
– This amount is twice as much spent on health care as the
average for the 24 industrialized countries in Europe and
North America.
11-3
High Medical Costs
• Health care costs are estimated at $3.9 trillion (19.7%
of GDP) in 2019.
- Expected to grow to $5.7 trillion by 2026
• Yet about 32 million people have no health insurance.
• High administrative costs
- 11% of health care dollar versus 1% in Canada
11-4
Why Does Health Care Cost So Much? (1
of 2)
• 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
• Regulations that result in cost shifting rather than cost

reduction
• Increasing number of accidents and crimes that require
emergency medical services
11-5
Why Does Health Care Cost So Much? (2
of 2)
• Limited competition and restrictive work rules in the health
care delivery system
• Labor intensiveness and rapid average earnings growth for
health care professionals
• Using more expensive medical care than necessary
• Malpractice insurance and fraud
• Built-in inflation in health care delivery system
• Aging baby boomers
11-6
What is Being Done About the
High Costs of Health Care?
• Careful review of fees and charges
• Establish incentives for preventive care and services
provided out of the hospital where medically acceptable
• Involve community in balancing health care needs and health
care resources
• Encourage prepaid group practices
• Support community health education programs so people
take better care of themselves
• Physicians encourage patients to pay cash for routine care
11-7
What Can You Do to Reduce Personal Health
Care Costs? (1 of 3)
• Consider participating in a flexible spending account.
• Consider a high-deductible health plan.
• Ask for less expensive generic drugs.
• Use a mail-order or online pharmacy for long term
drugs.
• Review free or low-cost coverage for uninsured children
through state.
11-8
• Review state plans for prescription drug assistance.
• Follow up with doctor by phone if allowed.
• Investigate non-urgent procedures recommended by
doctor.
• Review billing statements for errors.
• Appeal unfair decisions by your health plan.
• Practice preventive care.
11-9
• Stay well:
- Eat a balanced diet and keep your weight under control.
- Avoid smoking and don’t drink to excess.
- Get sufficient rest, relaxation, and exercise.
- Drive carefully and watch out for accident and fire
hazards in the home.
- Maintain a healthy lifestyle.
- Get recommended health screening and manage chronic
conditions.
11-10
Health Insurance and
Financial Planning
LO11-2:
Define health insurance and disability income
insurance and explain their importance in financial
planning.
• HEALTH INSURANCE reduces the financial burdens people

suffer due to illness or injury.
– It’s part of your overall insurance program to safeguard
your family’s economic security.
– Includes both medical expense insurance and disability
income insurance.
11-11
Group Health Insurance (1 of 2)
• Group plans comprise about 90% of all health insurance.
• Most group plans are employer sponsored; employer pays

part or most of the cost.
• The Tax Cuts and Jobs Act of 2017 requires large employers
(more than 50 employees) to provide health insurance
coverage to all employees.
• In June 2018, the U.S. Department of Labor expanded access
to affordable health coverage options for small businesses
and their employees through Association Health Plans
(AHPs).
11-12
Group Health Insurance (2 of 2)
• The Health Insurance Portability and Accountability Act of

1996 (HIPAA) legislates new federal standards for health
insurance portability, nondiscrimination in health insurance,
and guaranteed renewability.
11-13
Individual Health Insurance and
Supplementing Your Group Insurance
• INDIVIDUAL HEALTH INSURANCE

- A policy tailored to your particular needs from the
company of your choice
• SUPPLEMENTING YOUR GROUP INSURANCE

- The coordination of benefits provision in a policy
says that benefits received from all sources are
limited to 100% of allowable medical expenses.
11-14
Medical Coverage and Divorce
• Coverage under a former spouse’s medical plan can be
continued for 36 months and premiums are paid entirely by
the individual.
• COBRA requires many employers to offer employees and
dependents the option to continue their group coverage for a
set period of time following a divorce; does not cover federal
government and religious institution employees.
11-15
Types of Health Insurance Coverage
LO11-3:
Analyze the benefits and limitations of the various
types of health care coverage.
• A Good Health Insurance Plan should:

– Offer basic coverage for hospital and doctor bills
– Provide at least 120 days’ hospital room/board
– Provide at least $1 million lifetime maximum for each family
member
– Pay at least 80% out-of-hospital expenses after annual
deductible of $1,000 per person or $2,000 per family
– Impose no unreasonable exclusions
– Limit out-of-pocket expenses to $4,000-$6,000
11-16
Types of Medical Coverage (1 of 3)
• Hospital Expense Insurance

- Hospital room, board, and other charges
• Surgical Expense Insurance

- Surgeon's fee for an operation
• Physician Expense Insurance

- Pays for physician’s care such as office visits, lab
tests, and x-rays
- It does not include surgery
11-17
• Major Medical Expense Insurance

- Covers expenses for a serious injury or long-term
illness; adds to basic plan
- Has a deductible, coinsurance, and a stop-loss
provision
• Comprehensive Major Medical Insurance

- Low deductible offered without a separate, basic plan
- Covers hospital, surgical, medical, and other bills
11-18
• Hospital Indemnity Policies
- Pays cash benefit when hospitalized
• Dental Expense Insurance
- Covers exams, cleaning, x-rays, fillings, root canals,
oral surgery, etc.
• Vision Care Insurance
- Exams, contact lenses, and glasses
• Other Insurance Policies
- Dread disease, trip accident, and cancer policies;
focus on unrealistic fears; poor value
11-19
Deductibles and Coinsurance
• Example:
Ariana’s policy includes an $800 deductible and a

coinsurance provision requiring her to pay 20 percent of
all bills. If her total is $3,800, for instance, the company
will first exclude $800 from coverage, which is Ariana’s
deductible. It will then pay 80 percent of the remaining
$3,000, or $2,400. Therefore, Ariana’s total costs are
$1,400 ($800 for the deductible and $600 for the
coinsurance).
11-20
Long-Term Care Insurance
• Virtually unknown 50 years ago
• Growing faster than any other form of insurance
• A recent study by Americans for Long-Term Care Security
(ALTCS) found that one out of five Americans over age 50 is at
risk of needing some form of long-term care within the next 12
months.
- More than half of the population will need LTC at some point.
• Can be very expensive
• National average of 1 year in nursing home can cost over $97,000
• Annual Premiums from under $2,000 to $16,000
11-21
Major Provisions in a Health Insurance
Policy (1 of 3)
• Eligibility
- Varies with age, marital status, and dependency
• Assigned Benefits
- Insurance pays your doctor or hospital directly
• Internal Limits
- Fixed amount paid per day for a hospital room
11-22
Policy (2 of 3)
• Copayment
- Cost sharing in the form of a flat dollar amount you
pay, such as $20 to $30 per doctor visit
• Service Benefits
- Entitlement to specific care rather than a fixed dollar
amount per procedure
• Benefit Limits
- Maximum dollar amount or maximum number of
days in the hospital
11-23
Policy (3 of 3)
• Exclusions and Limitations
• Coordination of Benefits
- Coverage under more than one policy
• Guaranteed Renewable
• Cancellation and Termination

- Explains the circumstances
11-24
Health Insurance Trade-Offs
• Reimbursement versus indemnity
• Internal limits versus aggregate limits
• Deductibles and coinsurance
• Out-of-pocket limit
• Benefits based on reasonable and customary charges
11-25
Which Coverage Should You Choose?
• For medical insurance, you have three choices:

– Basic
– Major medical
– Both basic and major medical
11-26
Private Sources of Health
Insurance and Health Care
LO11-4:
Evaluate private sources of health insurance 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
11-27
Health Maintenance Organizations
(HMO)
• Managed Care
– Prepaid health plan for comprehensive health care to
members
– Best known are HMOs and PPOs
– Primary care physician
• Health Maintenance Organization
– Contracts with selected care providers
– Fixed pre-paid monthly premium
– Focus is on preventive care
– Basic and supplemental services
11-28
Preferred Provider Organizations (PPO)
• Preferred Provider Organization

– Several providers to choose from
– Costs more than a HMO
– Specified services at predetermined fees to PPO
members
– If you go to a non PPO provider, you pay more
– Includes EPO and POS plans
11-29
Other Options
• Home Health Care Agencies
– Home health care aide and hospices
• Employer Self-Funded Health Plans
– Company collects premiums and pays medical
benefits; may not have the assets to cover medical
costs that exceed premiums
• New Health Care Accounts
– Health Savings Accounts
– Health Reimbursement Accounts
– Flex Spending Accounts
11-30
Government Health Care Programs (1 of
2)
LO11-5:
Appraise the sources of government health care
programs.
• Medicare is a federal program for those age 65 or older, and
certain disabled persons.
– Part A: Hospital Insurance
• Inpatient hospital care, inpatient skilled nursing
facility care, home health care, hospice care
– Part B: Medical Insurance
• Voluntary
• Doctor’s services not covered by Part A
11-31
Government Health Care Programs (2 of
2)
• Medicare (continued)
– Part C: Medicare Advantage Plan
– Part D: Medicare Prescription Drug benefit
• Medigap or MedSup insurance
– May pay what Medicare doesn’t
• Medicaid
– Low-income individuals and families
– State administered with federal guidelines
11-32
The Patient Protection and Affordable Care
Act of 2010 (1 of 2)
• Offers tax credits for small businesses to make coverage
more affordable
• Prohibits denying coverage to children with pre-existing
conditions
• Bans insurance companies from dropping sick people
• Eliminates copayment for preventive services
• Allows children up to age 26 to remain on parent’s plan
• Prohibits lifetime caps on coverage; restricts use of annual
limits
• Provides consumers with access to appeal process
11-33
The Patient Protection and Affordable Care
Act of 2010 (2 of 2)
• Increases funds for Community Health Centers
• Provides path to increase number of heath care providers
• Premium increases must be justified
• Requires most Americans to purchase health care
• Creates insurance exchanges to purchase coverage
• Expands Medicaid program
• Employers with 20 or more employees must provide
insurance
11-34
Individual Shared Responsibility
Provision (1 of 2)
• Requires you and each member of your family to:
– Have minimum essential health coverage every
month, or
– Have an exemption from the responsibility to have
minimum essential coverage, or
– Make a shared responsibility payment when you file
your federal income tax return.
11-35
Individual Shared Responsibility
Provision (2 of 2)
• Starting in 2019, the Tax Cuts and Jobs Act repeals the
ACA individual mandate that required all Americans
under 65 to have health insurance or pay an annual
penalty, $695 per person or 2.5 percent of income,
whichever was higher.
• The Health Insurance Marketplace
– Compare plans and enroll in a health plan
11-36
Medicare/Medicaid
Fraud and Abuse
• In 1997 President Clinton introduced the
Medicare/Medicaid Anti-Waste, Fraud and Abuse Act.
– Established tough new requirements for health care
providers that wish to participate in the
Medicare/Medicaid program.
11-37
Government and Private Consumer
Health Information Websites
• Healthfinder
• MedlinePlus
• NIH Health Information Page
• Food and Drug Administration
11-38
Disability Income Insurance
LO11-6:
Recognize the need for disability income insurance.
• Disability income insurance protects your most

valuable asset: your ability to earn income.
• Disability is more likely than death at any age.
• Provides regular cash income lost as the result of an
accident or illness.
• If you become disabled, your income drops but your
medical expenses go up.
11-39
Definition of Disability
• Some policies define it simply as the inability to do
your regular work.
• Good disability plans pay when you are unable to

work at your regular job.
• Poor disability plans pay only when you are unable

to work at any job.
11-40
Disability Insurance Trade-Offs
• Waiting or elimination period
• Duration of benefits
• Amount of benefits
• Accident and sickness coverage
• Guaranteed renewability
11-41
Sources of Disability Income
• Employer
- Group disability plan may be short or long term.
- Most insurers limit benefits from all sources to no more
than 70 to 80% of your take-home pay.
• Social Security
- Covers total disability that lasts more than twelve months
and you must be unable to do any work.
• Worker’s Compensation
- Applies if your accident or illness occurred at your place
of work or resulted from your type of employment.
11-42

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Chapter 11

Health, Disability, and

• The United States has the highest per capita medical

• Duplication of tests and technologies

• Increases in the variety and frequency of treatments

• Increasing number and longevity of elderly people

• Regulations that result in cost shifting rather than cost

• Malpractice insurance and fraud

• Built-in inflation in health care delivery system

• Aging baby boomers

• HEALTH INSURANCE reduces the financial burdens people

• Group plans comprise about 90% of all health insurance.

• Most group plans are employer sponsored; employer pays

• The Health Insurance Portability and Accountability Act of

• INDIVIDUAL HEALTH INSURANCE

• SUPPLEMENTING YOUR GROUP INSURANCE

• A Good Health Insurance Plan should:

• Hospital Expense Insurance

• Surgical Expense Insurance

• Physician Expense Insurance

• Major Medical Expense Insurance

• Comprehensive Major Medical Insurance

Ariana’s policy includes an $800 deductible and a

• Cancellation and Termination

• For medical insurance, you have three choices:

• Private Insurance Companies

• Hospital And Medical Service Plans

• Preferred Provider Organization

• NIH Health Information Page

• Food and Drug Administration

• Disability income insurance protects your most

• Good disability plans pay when you are unable to

• Poor disability plans pay only when you are unable

• Accident and sickness coverage

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