1. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Personal Finance SIXTH EDITION Chapter 12 Health and Disability Insurance

2. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Chapter Objectives (1 of 2) 12.1 Provide a background on health insurance 12.2 Compare the types of private health care plans 12.3 Describe the contents of health care plans 12.4 Describe government health care plans

3. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Chapter Objectives (2 of 2) 12.5 Describe federal regulations in health care 12.6 Describe long-term care insurance 12.7 Explain the benefits of disability insurance 12.8 Explain how health and disability insurance fit within your financial plan

4. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Background on Health Insurance (1 of 2) Health insurance: insurance offered by private insurance companies or the government that covers health care expenses incurred by policyholders for necessary medical care Critical component of financial planning

5. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Background on Health Insurance (2 of 2) Cost of health insurance About 1 in 5 workers is uninsured Your health insurance decision is not whether to obtain it, but which health plan to purchase and how much coverage to purchase Many options available

6. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Private Health Insurance (1 of 7) Private health insurance: health insurance that can be purchased from private insurance companies to provide coverage for health care expenses Types of private health insurance coverage –Most common are fee for service (indemnity) plans or managed care plans

7. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Private Health Insurance (2 of 7) –Most common are fee for service (indemnity) plans or managed care plans –Fee for service plan: health insurance that reimburses individuals for part or all of the expenses they incur from health care providers; individuals are free to seek care from a primary care physician or a specialist –Managed health care plan: a health insurance policy under which individuals receive services from specific doctors or hospitals that are part of the plan

8. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Private Health Insurance (3 of 7) –Most common are fee for service (indemnity) plans or managed care plans –Health maintenance organization (HMO): a health insurance plan that covers health care services approved by doctors; a primary care physician provides general health services and refers patients to a specialist as necessary –Preferred provider organization (PPO): a health insurance plan that allows individuals to select a health care provider and covers most of the fees for services; a referral from a doctor is not required to visit a specialist

9. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Private Health Insurance (4 of 7)  Discount on charge arrangement: an arrangement in which the preferred provider organization (PPO) pays a specific percentage of the health care providers’ charges  Per diem rate arrangement: an arrangement in which the preferred provider organization (PPO) pays the provider a specific sum for each day a patient is hospitalized

10. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Private Health Insurance (5 of 7) Premiums for private health care insurance –Higher for family coverage –Self-employed, unemployed or those whose employer doesn’t offer health care may purchase private coverage –Quotes and applications available online

11. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Private Health Insurance (6 of 7) Comparison of private health insurance plans –Trade-offs between flexibility in selecting physician and premium –HMOs and PPOs offer brochures with comparative information

12. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Private Health Insurance (7 of 7) EXHIBIT 12.1 Comparison of Private Health Insurance Plans Type of Private Health PlanPremiumSelection of Physician Indemnity PlanHigh Flexibility to select physician or specialist Managed Care: HMOsRelatively low Primary care physician refers patients to specialist Managed Care: PPOsLow, but usually higher than HMOs There is a greater number of physicians to choose from in PPOs than HMOs

13. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Exhibit 12.2 Questions to Ask When Considering a Particular HMO or PPO EXHIBIT 12.2 Questions to Ask When Considering a Particular HMO or PPO Questions Regarding Your Cost 1. Monthly premium? 2. Deductible? 3. Coinsurance/Co-pay amounts? 4. Limits on coverage? 5. Maximum out-of-pocket expenses per year? Questions Regarding the Doctors/Health Care Providers 1. How many doctors are in the plan? 2. Who are the doctors in the plan? 3. Which doctors are accepting new patients? 4. How long in advance must you schedule a routine visit to the doctor? 5. Where are the doctors located? 6. What health care services do the doctors provide? 7. What hospitals/labs/diagnostic centers are in the plan? General Questions 1. Is access to specialists only allowed with a referral from a primary care physician? 2. What coverage is provided if the patient receives services out of the primary network (for example, a visit to an emergency room while out of town)? 3. If a physician is accessed outside of the plan, are there out-of-network benefits?

14. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Financial Planning Online (1 of 5) Go to www.individual-health-plans.comwww.individual-health-plans.com This Web site provides information on different types of plans including PPOs and HMOs.

15. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Contents of Health Care Insurance Policies (1 of 4) Identification of insured persons Location Preexisting conditions Cancellation and renewability options Other coverage –Rehabilitation –Mental health

16. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Contents of Health Care Insurance Policies (2 of 4) –Pregnancy –Dental insurance: insurance that covers part or all of the fees imposed for dental services, including annual checkups, orthodontics, and oral surgery –Vision insurance: insurance that covers part or all of the fees imposed for optician and optometrist services, including annual checkups, glasses, contact lenses, and surgery

17. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Contents of Health Care Insurance Policies (3 of 4) Determinants of unreimbursed medical expenses –Deductible –Coinsurance –Stop-Loss provision –Coverage limits –Coordination of benefits

18. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Contents of Health Care Insurance Policies (4 of 4) Expenses not covered by private insurance plans –These should be included in your budget –Flexible spending account: an account established by the employer for the employee to use pretax income to pay for medical expenses  Funds cannot be carried over to the next year

19. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Government Health Care Plans (1 of 4) Medicare –Provides health insurance to people over age 65 –Part A covers inpatient care in hospitals or nursing facilities and some home health –Part B is optional coverage –Part C is a combination of Part A and Part B provided through private insurance companies –Part D provides coverage for prescription drugs

20. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Financial Planning Online (2 of 5) Go to http://www.medicare.govhttp://www.medicare.gov This Web site provides an overview of services offered by Medicare, including the specific benefits that are available.

21. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Government Health Care Plans (2 of 4) Medigap insurance: insurance provided by private insurance companies to cover medical expenses that are not covered by Medicare

22. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Financial Planning Online (3 of 5) Go to http://www.medigapchoice.comwww.medigapchoice.com This website gives an overview of services offered by Medigap.

23. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Government Health Care Plans (3 of 4) –Medicare Prescription Act  Passed in 2003  Allows coverage for senior citizens and persons with disabilities  Covers some prescription drugs  Allows seniors to purchase various forms of coverage for prescription drugs  Health savings account: an account that shelters income from taxes and that can be used to pay health care expenses

24. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Financial Planning Online (4 of 5) Go to http://www.treasury.gov and insert the search term “health savings account”http://www.treasury.gov This site gives more details about health savings accounts.

25. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Government Health Care Plans (4 of 4) Medicaid: a federal program that provides health care to the aged, blind, disabled, and needy families with dependent children Recipients must meet federal guidelines Administered on a state-by-state basis

26. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Legislation Affecting Health Care Insurance (1 of 2) Consolidated Omnibus Budget Reconciliation Act (COBRA) –COBRA allows continuation of coverage provided through an employer’s plan for 18 months Health Insurance Portability and Accounting Act (HIPAA) –HIPAA prohibits insurance companies from denying health insurance coverage based on applicant’s health status, medical history, previous claims, or disability

27. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Legislation Affecting Health Care Insurance (1 of 2) Affordable Care Act –Patient Protection and Affordable Care Act (PPACA) passed in 2010 –Allows young adults to continue on their parent’s plan until age 26 –Health insurers cannot deny applicants based on preexisting conditions –Remains a contentious political issue

28. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Financial Planning Online (5 of 5) Go to http://www.hhs.gov and insert the search term “Affordable Care Act”http://www.hhs.gov This website gives detailed information about the Affordable Care Act

29. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Long-Term Care Insurance (1 of 4) Long-term care insurance: insurance that covers expenses associated with long-term health conditions that cause individuals to need help with everyday tasks –Provided by private insurance companies –Covers care in a nursing home, assisted living facility, or at home –Premiums quite expensive

30. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Long-Term Care Insurance (2 of 4) Long-term care insurance provisions –Eligibility to receive benefits –Types of services –Amount of coverage –Elimination period to receive benefits –Maximum period to receive benefits –Continued coverage –Inflation adjustment –Stop-loss provision

31. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Long-Term Care Insurance (3 of 4) Factors that affect long-term care insurance premiums –Provisions of policy –Age –Health condition Reduce your cost of long-term care insurance –Shop around and compare premiums

32. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Long-Term Care Insurance (4 of 4) Determining the amount of coverage –Consider your family’s health history –Consider your financial situation

33. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Disability Insurance (1 of 5) Disability income insurance: insurance that provides income to policyholders in the event that they become disabled Definition of disability –Most liberal is “own occupation” definition –Most restrictive is “any occupation” definition

34. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Disability Insurance (2 of 5) Sources of disability income insurance –Individual disability insurance –Employer disability insurance –Insurance from Social Security  Income determined by amount of Social Security contributions you have made –Insurance from Workers’ Compensation

35. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Disability Insurance (3 of 5) Disability insurance provisions –Amount of coverage  May be a dollar amount or a percentage of your income –Probationary period: the period extending from the time your disability income application is approved until your coverage goes into effect

36. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Disability Insurance (4 of 5) –Waiting period: the period from the time you are disabled until you begin to receive disability income benefits –Length of time for disability benefits –Non-cancelable provision –Renewable provision Deciding on disability insurance –Contact private companies or employer

37. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved Disability Insurance (5 of 5) EXHIBIT 12.3 Determining Stephanie Spratt’s Disability Insurance Needs Panel A: Total Coverage Needed Typical monthly expenses $2,100 – Expenses related to work –100 = Typical monthly expenses after excluding work expenses $2,000 Panel B: Coverage That You Expect to Receive from: Employer Disability Insurance $800 Social Security $0 Worker’s Compensation $0 Total $800 Amount Needed from Individual Disability Insurance $1,200

38. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved How Health and Disability Insurance Fit Within Your Financial Plan (1 of 3) EXHIBIT 12.4 How Health and Disability Insurance Fit Within Stephanie Spratt’s Financial Plan GOALS FOR HEALTH AND DISABILITY INSURANCE PLANNING 1. Ensure that my exposure to health problems or a disability is covered by insurance. 2. Determine whether I should increase my health and disability insurance in the future. ANALYSIS Type of InsuranceProtectionStatus HealthProtects my assets and wealth.I have a good health insurance plan through work. DisabilityProtects my income if I become disabled. My employer-provided disability policy offers some coverage, but I am buying a policy that offers additional coverage.

39. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved How Health and Disability Insurance Fit Within Your Financial Plan (2 of 3) EXHIBIT 12.4 How Health and Disability Insurance Fit Within Stephanie Spratt’s Financial Plan DECISIONS Decision on Whether My Present Health and Disability Insurance Coverage Is Adequate: I presently rely on the HMO offered through my employer. This plan offers adequate insurance at an affordable premium. Because I am in my twenties and in good health, I do not need long-term care insurance at this time. I presently have $800 of disability insurance coverage per month that is provided by my employer. I have decided to purchase a policy specifying an additional $1,200 of coverage per month to cover my monthly expenses of $2,000 if I’m disabled. The premium charged to me for disability insurance is only $10 per month. The insurance will provide adequate coverage for me if I become disabled.

40. Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved How Health and Disability Insurance Fit Within Your Financial Plan (3 of 3) EXHIBIT 12.4 How Health and Disability Insurance Fit Within Stephanie Spratt’s Financial Plan Decision on Health and Disability Insurance Coverage for the Future: I may switch to a PPO someday if I want more flexibility to select specialists. I will consider long-term care insurance in the future. I will also increase my disability insurance if my income or expenses increase over time.