1. Copyright ©2004 Pearson Education, Inc. All rights reserved. Chapter 11 Health and Disability Insurance

2. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-2 Chapter Objectives Identify and compare the types of private health care plans Explain the use of government health care plans Describe long-term care insurance Explain the benefits of disability insurance

3. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-3 Health Insurance Health insurance: a type of 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

4. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-4 Health Insurance Cost of providing health care is rising 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

5. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-5 Private Health Insurance 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 –Hospital insurance, physician insurance, and surgical insurance

6. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-6 Private Health Insurance Options for purchasing private health insurance –Many employers offer health insurance as part of benefit package Cost usually shared between employee and employer –Self-employed individuals must pay entire cost of their health insurance

7. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-7 Private Health Insurance Private health care plans –Indemnity plan: health insurance that reimburses individuals for part or all of the expenses they incur from health care providers; individuals are free to decide whether to seek care from a primary care physician or a specialist

8. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-8 Private Health Insurance –Managed health care plan: a health insurance policy under which individuals receive services from specific doctors or hospitals that are part of the plan Health maintenance organization (HMO): a health insurance plan that covers health care services approved by doctors; a primary care physician provided general health services and refers patients to a specialist as necessary

9. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-9 Private Health Insurance 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 –Discount on charge arrangement: an arrangement in which the preferred provider organization agrees to pay a specific percentage of the health care provider’s charges –Per diem rate arrangement: an arrangement in which the preferred provider organization pays the provider a specific sum per day a patient is hospitalized

10. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-10 Private Health Insurance

11. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-11 Private Health Insurance Maintaining private health care insurance coverage –COBRA allows continuation of coverage provided through an employer’s plan for 18 months –HIPPA prohibits insurance companies from denying health insurance coverage based on applicant’s health status, medical history, previous claims, or disability

12. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-12 Private Health Insurance Expenses not covered by private insurance plans should be included in your budget –Flexible spending account: account established by the employer for the employee to use pretax income to pay for medical expenses Funds cannot roll over into the next year

13. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-13 Financial Planning Online: Should You Enroll in an HMO or a PPO? Go to: http://insurance.yahoo.com/lh/health.html http://insurance.yahoo.com/lh/health.html Click on: Individual and Family Quotes This Web site provides an opinion on whether an HMO or a PPO would be better for you, based on your situation.

14. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-14 Government Health Care Plans 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 –Medigap insurance: insurance provided by private insurance companies to cover medical expenses that are not covered by Medicare

15. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-15 Financial Planning Online: Medicare Coverage Go to: http://www.medicare.gov/Basics/overview.asp http://www.medicare.gov/Basics/overview.asp This Web site provides an overview of services offered by Medicare, including the specific benefits that are available.

16. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-16 Government Health Care Plans Medicaid: a federal program that provides health care to the aged, blind, disabled, and need families with dependent children Recipients must meet federal guidelines Administered on a state-by-state basis

17. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-17 Long-Term Care Insurance Long-term care insurance: 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

18. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-18 Long-Term Care Insurance 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

19. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-19 Long-Term Care Insurance Other factors that affect long-term care insurance premiums –Age –Health condition Reduce your cost of long-term care insurance by shopping around and comparing premiums

20. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-20 Long-Term Care Insurance Determining the amount of coverage –Consider your family’s health history –Consider your financial situation

21. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-21 Additional Types of Health Care Plans Dental insurance: covers part or all of the fees imposed for dental services, including annual checkups, orthodontics and oral surgery Vision insurance: covers part or all of the fees imposed for optician and optometrist services, including annual checkups, glasses, contact lenses and surgery

22. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-22 Disability Insurance 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

23. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-23 Disability Insurance 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

24. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-24 Disability Insurance 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

25. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-25 Disability Insurance –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

26. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-26 How Health and Disability Insurance Fit Within Your Financial Plan Key decisions about health and disability insurance that should be included within your financial plan are: –Do you have adequate insurance to protect your wealth? –How much insurance should you plan to have in the future?

27. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-27 Disability Insurance

28. Copyright ©2004 Pearson Education, Inc. All rights reserved.11-28 Integrating Key Concepts Part 1: Financial Planning Tools Part 2: Liquidity Management Part 3: Financing Part 4: Protecting Your Wealth –In Chapter 10 we learned about auto and homeowner’s insurance –In Chapter 11 we learned about health and disability insurance –In Chapter 12 we will learn about life insurance Part 5: Investing Part 6: Retirement and Estate Planning