HEALTH INSURANCEChapter 4

History of Health InsuranceRe: As healthcare cost increased, there

was a market for health ins. Primarily via group plans.

Until 1970s- insurance was an indemnity plan i.e. set fees for service e.g. visit $60.

HMO act of 1973 changed that- managed care now determines which services will be covered, not the doctor.

As of 2010, 56% get health ins. through their employers, majority of the rest via group plans, e.g. AARP, AAA, etc. Non- group plans, i.e. individual plans are cost prohibitive.

Health Reform 2010 “Obamacare” Health Insurance Exchanges

If unaffordable: Subsidies available for those earning up to 400% of the federal poverty level, i.e. Family of 5 = $110,280 (poverty level for a family of 5 = 27,5700

Everyone must buy/have insurance or pay a fine enforced by the I.R.S.

Small businesses – get tax credits to offer ins.

Past Problems addressed by “Obamacare”

Refusal of coverage

Higher prices charged for pre-existing conditions

Children coverage under adult extended to 26

Can’t drop people for getting ill

Lifetime caps prohibited

Annual limits restricted

55-64 insurance assistance (Medicare starts at 65)

Obamacare Incentives to specialize in family medicine (i.e.

primary care)

Tougher fraud laws

Requires certain providers to serve at least 40% non-Medicare clients

Increase Gov’t ability to require surety bonds to do business with Medicare

Impose stronger civil and monetary penalties for fraud

Increased power to investigate and audit insurance coverage and exchanges.

Fingerprint and background checks required for some providers and suppliers.

Checks on primary suppliers and providers

Tougher to increase insurance premiums

Types of Health Insurance Indemnity or Fee-for-service

Pay monthly premium

Pay Doctor (no referrals)

Submit a claim to get reimbursed

You are paid a fixed amount before the insurance company pays (like an auto deductible). Deductible is typically yearly.

There is a fixed amount charged for each service.

e.g. –coinsurance = 80/20 so

you pay the deductible, then 20%, then the insurance pays the rest (80%).

There is a cap over which the insurance co. pays 100%

So if the cap is $5000, then the individual would pay a maximum of $5000 per year. This includes the deductible and the co-insurance.

There are usually lifetime caps for the insurance co. as well (will only pay $ 1 mil. per life).

Individual must pay the difference between “usual, reasonable, and customary” charges as determined by the insurance company.

These plans may or may not cover preventative services.

MAJOR MEDICAL/CATASTROPHIC Insurance plans (18-28)

Very high deductible

20% after deductible

Designed to cover only Major Medical Issues

(Surgeries, emergency situations, life-threatening illness)

Catastrophic Insurance Designed for tragic event coverage

Extremely high deductible

Two Types: Comprehensive & Supplemental

Comprehensive- more like traditional plans but usually no preventative services, high deductibles

Supplemental to existing plans. May cover psychiatric care, nursing care, medical appliances, etc. Covers what it deems necessary.

Managed CareHealth Maintenance Organizations

Network of Providers, Service subject to approval by the HMO admin.

Out-of-network not covered or covered to a lesser degree (in: 80/20 out: 70/30)

Chart on page 79

C.O.B.R.A.(1986) Provides former employees,

retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates when coverage is lost due to certain events such as job loss, lay-offs, etc.

It is generally more expensive as an employee is paying 100% of the premium. When employed, they usually paid a percentage of the premium.

It is less expensive than individual insurance. Can carry it for 18 mos. (up to 36 in some situations). Costs 100% of premium plus 2% admin fee.

Private sector employers with 20 or more employees are subject to the COBRA law

Medicare 1965 as an amendment to the Social Security Act for people

older than 65. (Cost $468 billion in 2008)

Funded by payroll deductions

Part A- Hospital Insurance, skilled nursing facility, hospice care for the aged/disabled

-No premiums (payroll tax deduction while working)

-At 65 auto-enrolled in part A, option to enroll in supplemental plans B & D

Part B- Physician, outpatient hospital, some home health care

You are not auto-enrolled in this but must choose it. Covers additional services like physical and occupational therapy

Part C- Combines A & B but is provided by Private Ins. Cos. (i.e. HMOs, PPOs, etc.) rather than through the gov’t program. Also have option of adding D if not included in your “C” plan.

Part D- Prescription Drug Plan – offers a variety of P.D. insurance plans.

Donut Hole- must pay full cost when cost of use is between $2380 and $4550. After $4550 ins. Pays all of the cost. (Fixed under Obamacare, ACA)

Medicare Medi-Gap Policies=private ins that pays for any

“gaps” in costs that are not paid by Medicare (e.g. deductibles, co-pays, etc.)

Medicaid- 1965 amendment to the Social Security Act

Eligibility based on income and level of disability

Federal and State Programs- states set eligibility guidelines

ACA (Obamacare) requires states to include low income childless adults

Medicaid – No. enrolled estimated to be 59 million in 2014 or 15.7% of the population

Funded through Fed and State $$$$

Feds match state $$$

Feds pay 100% of costs of newly eligible individuals.

MedicaidFeds require minimum Medicaid package

Physician services

Hospital

Family planning

Health center services

Nursing facility services

Children must receive early diagnostic tests

C.H.I.P. State Children Health Insurance Program

Younger than 19

Income levels exceed Medicaid but not enough to buy private health insurance.

(e.g. Florida – less than $2k per month or $24k per year

Usually must be below the 200% poverty level

NJ family of 3 making $37,000= poverty level

So Chip eligibility would be family of 3 making less than

$74,000

Have to pay a small premium or co-pay depending on income. Covers immunization & care for healthy babies at no cost

2008 4.7 million children eligible for Medicaid and CHIP were not enrolled by their parents.

Supplemental Plans

Insurance for special situation:s

Vision,

Dental,

Disability,

Hospital indemnity insurance (Aflac)- pays a fixed amount per day in the hospital

Long term care insurance- elimination period (6 mos.)

Travel, Accident Insurance, etc.

Tax Advantaged Options Health Savings Accounts

Contribute with pretax dollars

$$$ used for medical expenses-e.g. deductibles, co-pays, LTC ins.

It must be paired with a high deductible qualified Health Ins. Plan.

Funds invested carry over from year to year.

After 65 if withdrawn, they are taxed. There is a penalty if they are withdrawn before age 65.

Flexible Spending Accounts- Funds deducted pre-tax so there is a tax advantage. They do not rollover. If you don’t use them, you lose them.

Can be used to cover dental, vision, prescriptions, orthodontics, etc.