Unit Viii

UNIT VIII
HEALTH INSURANCE
(6 HOURS)
04/18/2024 Copyright @ by Sangharsh Regmi All rights reserved 1

HEALTH CARE PROBLEM IN THE UNITED
STATES
The United States overall provides high-quality health care to the
population. However, despite major breakthroughs in medicine, experts
believe the present health-care delivery system is broken and must be
reformed. The present system ahs four major problems:
 Rising health care expenditures
 Large number of uninsured in the population
 Uneven quality of medical care
 Considerable waste and inefficiency

RISING HEALTH CARE EXPENDITURES
Increase in consumer demand
Advances in technology
Cost insulation because of third-party payers
Employment-based health insurance
State-mandated benefits
Increased spending on prescription drugs
Higher administrative costs
Rising prices in the health-care sector

LARGE NUMBER OF UNINSURED IN THE
POPULATION
 Many people do not have health insurance coverage
 49.9 million people, or 16.3% of the US population had no health insurance
coverage in 2010
 Many people are uninsured because the coverage is not affordable
 Many low income people who are eligible for Medicaid are not aware they
are eligible
 The uninsured often delay or skip needed medical care because of high costs
 When the uninsured receive medical care, they frequently pay more for that
care
 The uninsured often do not have access to regular screenings and preventive
care
UNEVEN QUALITY OF
MEDICAL CARE
 The quality of care has improved over time
 The quality of medical care varies widely
depending on geographic location, type of
health insurance plan, and disease being
treated

CONSIDERABLE WASTE AND INEFFICIENCY
 Experts estimate that the present system wastes lots of resources
each year on wasteful spending include:
 Duplication of tests
 Medical errors that are largely preventable
 Unnecessary tests
 High administrative costs and excessive and redundant paperwork
 Readmissions into hospitals because of inadequate or ineffective
initial treatment
 Overuse of expensive medical technology

INDIVIDUAL HEALTH INSURANCE COVERAGES
 Some people are not employed and may require individual health
insurance coverage
 Retired workers
 College students
 Housewives
 The following are the individual health insurance coverages:
 Hospital surgical insurance
 Major medical insurance
 Health savings account
 Long term care insurance
 Disability income insurance
HOSPITAL-SURGICAL INSURANCE
 Many older individual medical expense plans still in force are hospital-
surgical insurance plans.
 These plans are also called basic plan because they cover routine medical
expenses and are not designed to cover catastrophic losses
 Most policies coverages are as below:
 Hospital inpatient expenses
 Miscellaneous hospital expenses, e.g., x-rays, laboratory tests
 Surgical expenses, covered two ways:
 A scheduled approach, with a maximum per procedure
 On the basis of reasonable and customary charges
 Outpatient services, e.g., emergency treatment
 Physicians’ visits for nonsurgical treatment
 These plans are not widely used
MAJOR MEDICAL INSURANCE
 Insureds often desire broader coverage than that provided by the basic
coverages.
 Major medical insurance is designed to pay high proportion of covered
expenses of a catastrophic illness or injury.
 Plans are characterized by:
 Broad coverage
 High maximum limits
 Benefit period
 Deductibles
 Coinsurance
 Exclusions
Broad coverage
 Major medical insurance is designed to pay a high
percentage of covered medical expenses incurred by an
insured who has a catastrophic illness or injury
 Most individual expense plans provide a broad range of
benefits, including
 Inpatient hospital benefits
 Outpatient benefits
 Physician benefits
 Preventive services
 Outpatient prescription drugs

High maximum limits
 Major medical policies are written with high lifetime limits
 High limits are necessary to meet the crushing financial
burden of a major catastrophic illness or injury
Benefit period
 The purpose of benefit period is to provide a definite time
period within which eligible medical expenses for specific
illness or injury must be incurred in order to reimbursed under
the policy
 A benefit period, or length of time for which benefits are paid
after a deductible is satisfied

Deductible
 Major medical policies contain a deductible provision
 The purpose of the deductible is to eliminate small claims and the
high administrative cost of processing them
 By eliminating small claims the insurer can provide high policy limits
and still keep the premiums reasonable
 A deductible (typically calendar year)
 A calendar-year deductible is an aggregate deductible that has to be
satisfied only once during the calendar year
 A family deductible specifies that medical expenses for all family
members are accumulated to satisfy the deductible
 Under a common-accident provision, only one deductible has to be
satisfied if two or more family members are injured in a common
accident
Coinsurance
 Major medical policies contain a coinsurance
provision
 It requires the insured to pay a certain percentage of
eligible medical expenses in excess of deductible
 Also called a percentage participation clause
 Purpose is to reduce premiums and prevent
overutilization of plan benefits
 Also the insured is less likely to demand unnecessary
medical services if he or she pays part of the cost

Exclusions
All major medical policies contain exclusions such
as
 War or military conflict
 Elective cosmetic surgery
 Dental care, except as a result of an accident
 Eye checkup
 Pregnancy and child birth
 Expenses covered by workers compensation

HEALTH SAVINGS ACCOUNT
 A health savings account (HSA) is a tax exempt account
established exclusively for the purpose of paying qualified
medical expenses
 The beneficiary must be covered under a high-deductible
health plan to cover catastrophic medical bills
 The account holder can withdraw money from the HSA
tax-free for medical costs
 Contributions and annual out-of-pocket expenses are
subject to maximum limits

LONG-TERM CARE INSURANCE
 Long-term care insurance pays a daily or monthly benefit for medical or
custodial care received in a nursing facility, in a hospital, or at home
 About 44% of people attaining age 65 are expected to enter a nursing home at
least once during their lifetime
 Plans come in three main forms:
 A facility-only policy
 A home health care policy
 A comprehensive policy
 Daily benefits range from $50 - $300 or more
 Most policies are reimbursement policies, which reimburse for actual charges up
to a daily limit
 Many insurers offer policies with pooled benefits, which provide a total dollar
amount that can be used to pay for the deferent types of long-term care services
 An elimination period is a waiting period during which time benefits are not
paid
 In a qualified plan, a benefit trigger must be met to receive benefits. Either,
 The insured is unable to perform a certain number of activities of daily
living (ADLs), or
 The insured needs substantial supervision to be protected against
threats to health and safety because of a severe cognitive impairment
 Since inflation can erode the real purchasing power of the daily benefit, some
plans offer automatic benefit increases
 Policies are guaranteed renewable
 Coverage is expensive
 Long-term insurance that meets certain requirements receives favorable
income tax treatment
 Premiums are deductible under certain conditions
 Per diem benefits are subject to daily limits
DISABILITY-INCOME INSURANCE
 The financial impact of total disability on present savings, assets, and ability
to earn an income can be devastating
 Disability-income insurance provides income payments when the insured is
unable to work because of sickness or injury
 Income payments are typically limited to 60-80% of gross earnings
 The four most common definitions of total disability are:
1. Inability to perform all duties of the insured’s occupation
2. Inability to perform the duties of any occupation for which the insured is
reasonably fitted by education, training, and experience
3. Inability to perform the duties of any gainful occupation
4. Loss-of-income test, i.e., your income is reduced as a result of sickness or
accident
Most insurers use a combination of 1 & 2
 Partial disability is defined as the inability of the insured to perform one or
more important duties of his or her occupation
 Some policies offer partial disability benefits
 Usually, partial disability benefits must follow total disability
 The partial disability benefits are paid at a reduced rate for a shorter period
 Residual disability means a pro rata disability benefit is paid to an insured
whose earned income is reduced because of an accident or sickness
 The typical provision has a time and duties test that considers both income and
occupation
 The benefit period is the length of time that disability payments are payable
after the elimination period is met
 Most disabilities have durations of less than two years
 Individual policies normally contain an elimination period, during which time
benefits are not paid
 The typical elimination period is 30 days
 A waiver-of-premium provision allows for future premiums to be waived as
long as the insured remains disabled
THIRD PARTY ADMINISTRATOR

 A third-party administrator (TPA) is an organization that processes for
insurance
 This can be viewed as "outsourcing“
 Third-party administrators are prominent players in the Health care
industry
 They are normally contracted by a health insurer or self-insuring
companies to administer services
 Claims administration
 Premium collection
 Enrollment
 Other administrative activities.

HEALTH INSURANCE
 Health insurance is an arrangement with an insurance
company that can help protect you from the high costs of
health care.
 Health insurance works by spreading the cost of care among
large groups of people—so insurance paid by one person
helps pay for the care of others.
 In addition to spreading financial risk, health insurance has
another important function: improving access to health care
services.

TYPES OF HEALTH INSURANCE
 Group health insurance
 Employer-based
 Discounted coverage for a large pool of mostly healthy people
 Costs of premiums are split by the employer and employee
 Individual health insurance
 Covers an individual person or family
 Paid entirely by the purchaser
 Premiums typically vary by the age of the purchaser(s)
 Generally have fewer benefits than group insurance
 Government-sponsored health insurance
 Health insurance obtained through a government agency or program
 Usually requires a special condition (elderly, low-income, children, veteran or active
service member, Peace Corps volunteer)
 Costs are split between the government and the insured
INDIVIDUAL AND GROUP HEALTH
INSURANCE
Group Health Insurance:
 Group health coverage is offered in a range of health plans as
an employee benefit, or offered by a union or a professional
association, for groups of eligible people, to provide medical
services to employees and their dependents.
 The employee may pay a monthly premium or other costs out
of pocket as a portion of the health plan’s cost (called cost
sharing).
Example:
Employer-sponsored Group Health Insurance

Individual Health Insurance:
 An insurance or health coverage plan purchased on the
private market for an individual by that individual, that
can also provide coverage for the individual’s family.
 There are monthly premiums, which can be expensive,
in addition to co-payments, coinsurance and
deductibles. The insurer or health plan can refuse to
sell a policy to someone over because of their current
health status or their medical history over the recent or
past.

SHOPPING FOR HEALTH INSURANCE
High quality individual health insurance plans are expensive. We shouldn’t
waste money buying health insurance coverages that do not provide
meaningful protection. Certain guidelines should be followed when we are
purchasing health insurance. They include the following:
 Insure for the catastrophic loss.
 Consider group health insurance first.
 Purchase policy that has a preferred provider network.
 Don’t ignore disability-income insurance.
 Avoid limited policies.
 Watch out for restrictive provisions and exclusions.
 Use deductibles and elimination period to reduce premiums.
Fig. Guidelines for Health Insurance Shoppers
Use deductibles and Insure for the
elimination period to catastrophic loss
reduce premiums
Watch out for restrictive Consider group

provisions and Shopping
for health health insurance first
exclusions
insurance
Purchase policy that
has a preferred
Avoid limited
Don’t ignore provider network
policies
disability-income
insurance
 Insure for catastrophic loss: The most important rule is to purchase
health insurance that provides protection against catastrophic losses that
can destroy you financially.
 The cost of serious illness or injury can prove ruinous.
 Open hearth surgery, kidney or heart transplant, major operations, plastic surgery,
and rehabilitation can cost a lot.
 Thus, you should purchase a high-quality individual major medical policy or be
covered under a group major medical plan.
 Consider group health insurance first: Group health insurance is
preferable to individual coverage for several reasons.
 First, employers frequently make available a number of group health insurance
plans to their employees, ranging form traditional group indemnity plan to
managed care plans such as those involving health maintenance organizations
(HMOs) and preferred provider organizations (PPOs).
 Group indemnity plans have different deductibles amounts,
coinsurance requirements, and stop-loss limit.
 HMOs typically have no deductibles or coinsurance requirements,
or the amount paid out-of-pocket are relatively lower.
 Second, group health insurance is typically broader in coverage than
individual protection and has fewer exclusions. Also, there is usually no
individual underwriting in group health insurance.
 Third, employers usually pays a large part of the monthly premiums,
which makes the plan financially attractive to the employees and their
families. Some employers pay the entire cost.
 Finally, group health insurance plans provide substantial tax advantages
to employees.

 Purchase a policy that has a preferred provider network: Insurer frequently
establish networks of health care providers who agree to provide medical
services to the insureds at discounted fees.
 Preferred providers include physicians, dentists, hospitals, pharmaceutical firms, and
other health care providers who are part of the network. Thus reducing out-of-pocket
expenses.
 Don’t ignore disability-income insurance: A substantial amount of earned
income is lost each year because of sickness and injury, but not replaced by
disability-income and sick-leave benefits.
 You should consider purchasing an individual guaranteed renewable or non cancellable
disability-income policy that will pay at least two-third of your earnings up to age 65 with
an elimination period 30-90 days.
 Avoid limited policies: A limited policy covers only certain diseases or
accidents, pay limited benefits, or place serious restrictions on the rights to
receive benefits such as hospital indemnity policy, a cancer policy, accident-only
policy.
 Watch out for restrictive policy provisions and exclusions:
If you are shopping for an individual policy, you should be
aware of any restrictions on coverage that might apply. Two
major restriction like preexisting-conditions clause and an
exclusionary rider are to be avoided if possible.
 Use deductibles and eliminations period to reduce
premiums:
 High-quality individual health insurance coverages are expensive.
 You can reduce your premium by purchasing a policy with a
substantial deductibles.
 Likewise premiums for a disability-income policy can be
substantially reduced by buying a policy with an elimination period
of 90 days or longer.

HEALTH CARE PROBLEM IN NEPAL
 Nepal's Interim Constitution of 2007 addresses health as a
fundamental right
 Every citizen has the right to basic health services free of cost.
 But the reality is a far cry.
 Only 61.8% of the Nepalese households have access to health
facilities within 30 min.
 Unequal distribution of health care services
 Poor infrastructures
 Inadequate supply of essential drugs
 Poorly regulated private providers
 Inadequate budget allocation for health
 Nepal has only 0.67 doctors and nurses per 1,000 population, which is
significantly less than the World Health Organization's recommendation
of 2.3 doctors and nurses per 1,000 population

Unit Viii

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UNIT VIII

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Watch out for restrictive Consider group

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