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  1. 1. C HAPTER 11 11-1 Personal Finance Health and Disability Insurance Kapoor Dlabay Hughes 7e
  2. 2. Health Care Costs <ul><li>The US has the highest per capita medical expenditures of any industrialized country in the world. </li></ul><ul><ul><li>$5,162 per person in 2001. </li></ul></ul>11-2
  3. 3. Why Does Health Care Cost So Much? <ul><li>High administrative costs. </li></ul><ul><ul><li>26% of health care dollar vs. 1% in Canada. </li></ul></ul><ul><li>Use of sophisticated, expensive technologies. </li></ul><ul><li>Duplication of tests and technologies. </li></ul><ul><li>Increases in the variety and frequency of treatments. </li></ul><ul><li>Increasing number and longevity of elderly people. </li></ul>11-3
  4. 4. Why Does Health Care Cost So Much? <ul><li>Increasing number of accidents and crimes that require emergency medical services. </li></ul><ul><li>Limited competition and restrictive work rules in the health care delivery system. </li></ul><ul><li>Labor intensiveness and rapid earnings growth for health care professionals. </li></ul><ul><li>Using more expensive care than necessary. </li></ul><ul><li>Innovative treatments for AIDS, cancer. </li></ul><ul><li>Built in inflation in health care delivery system. </li></ul><ul><li>Other factors such as malpractice insurance. </li></ul>11-4
  5. 5. What Can You do to Reduce Your Personal Health Care Costs? <ul><li>Stay well - focus on prevention. </li></ul><ul><ul><li>Eat a balanced diet and keep your weight under control. </li></ul></ul><ul><ul><li>Avoid smoking, and don’t drink to excess. </li></ul></ul><ul><ul><li>Get enough rest, relaxation, and exercise. </li></ul></ul><ul><ul><li>Drive carefully and watch out for accident and fire hazards in the home. </li></ul></ul>11-6
  6. 6. Health Insurance and Financial Planning <ul><li>43 million Americans have no health insurance. </li></ul><ul><li>Health insurance alleviates the financial burdens people suffer due to illness or injury. </li></ul><ul><li>It’s part of your overall risk management plan to safeguard your family’s economic security. </li></ul><ul><ul><li>Disability income insurance protects your ability to earn an income. </li></ul></ul>11-7
  7. 7. Health Insurance and Financial Planning <ul><li>Group plans comprise more than 85% of all health insurance issued. </li></ul><ul><li>Most group plans are employer sponsored, and the employer pays part or most of the cost. </li></ul><ul><li>The 1996 Health Insurance Portability and Accountability Act provides federal portability standards, nondiscrimination in health insurance, and guaranteed renewability. </li></ul><ul><ul><li>If you change jobs you need not lose your health insurance. </li></ul></ul><ul><li>Individual insurance is also available. </li></ul>(continued) 11-8
  8. 8. Health Insurance and Financial Planning <ul><li>You can supplement your group policy. </li></ul><ul><ul><li>The coordination of benefits provision in a policy says that benefits received from all sources are limited to 100% of allowable medical expenses. </li></ul></ul>(continued) 11-9
  9. 9. Disability Income Insurance and Financial Planning <ul><li>No matter what your age, you are more likely to become disabled than to die. </li></ul><ul><li>Provides regular cash income lost by employees as the result of an accident, illness or pregnancy. </li></ul><ul><li>If you become disabled your income drops but your expenses go up. </li></ul>11-10
  10. 10. <ul><li>Carefully read a policy’s definition of disability. </li></ul><ul><ul><li>May only pay if you can’t work at any job. </li></ul></ul><ul><ul><li>Look for a policy that pays if you are unable to work at your regular job. </li></ul></ul><ul><li>Aim for a benefit that when added to your other income will equal 60-70% of your gross pay. </li></ul><ul><li>How long do benefits last? To age 65? For life? </li></ul><ul><li>How long is the waiting period? 30 days? 90 days? </li></ul><ul><li>Look for a policy that is both noncancelable and guaranteed renewable. </li></ul>Disability Income Insurance and Financial Planning (continued) 11-11
  11. 11. Four Sources of Disability Income <ul><li>Employer (many, but not all, offer this). </li></ul><ul><ul><li>Group disability policy may be short or long term but is usually not enough by itself. </li></ul></ul><ul><li>Social Security. </li></ul><ul><ul><li>Covers total disability that lasts more than twelve months. </li></ul></ul><ul><li>Workman’s Compensation. </li></ul><ul><ul><li>If you are injured at work or your injury is a result of your type of employment. </li></ul></ul><ul><li>Disability insurance. </li></ul><ul><ul><li>You get it to supplement other income sources to achieve 70-80% of your take home pay. </li></ul></ul>11-12
  12. 12. A Good Health Insurance Plan Should.. <ul><li>Offer basic coverage for hospital and doctor bills. </li></ul><ul><li>Cover at least 120 days hospital room and board. </li></ul><ul><li>Provide at least $1,000,000 lifetime maximum for each family member. </li></ul><ul><li>Pay at least 80% of out-of-hospital expenses after the yearly deductible of $500/person is met . </li></ul><ul><li>Impose no unreasonable exclusions. </li></ul><ul><li>Limit your out-of-pocket expenses to no more than $3,000 to $5,000 in a year, excluding dental, optical, and prescription costs. </li></ul>11-13
  13. 13. Types of Health Care Coverages <ul><li>Three choices: Basic, major medical or both. </li></ul><ul><li>Basic includes… </li></ul><ul><ul><li>Hospital expense insurance. </li></ul></ul><ul><ul><ul><li>Hospital room and board and other charges. </li></ul></ul></ul><ul><ul><li>Surgical expense insurance. </li></ul></ul><ul><ul><ul><li>Surgeon's fee for an operation. </li></ul></ul></ul><ul><ul><li>Physician expense insurance. </li></ul></ul><ul><ul><ul><li>Pays for physician’s care that does not include surgery, such as office visits, lab tests and X-rays. </li></ul></ul></ul>11-14
  14. 14. Types of Health Care Coverages <ul><li>Major medical expense insurance. </li></ul><ul><ul><li>Covers expenses for a serious injury or long-term illness. Has a deductible, coinsurance, and a stop-loss provision. </li></ul></ul><ul><li>Comprehensive major medical insurance. </li></ul><ul><ul><li>Low deductible offered without a separate, basic plan. Covers hospital, surgical, and other bills. </li></ul></ul><ul><li>Dread disease and cancer insurance policies. </li></ul><ul><ul><li>Focus on unrealistic fears, and only pays out for very specific conditions. Often sold by people working on commission. Poor value. </li></ul></ul>(continued) 11-15
  15. 15. Types of Health Care Coverages <ul><li>Hospital indemnity. </li></ul><ul><ul><li>Pays a fixed amount for each day you are in a hospital. Best for people in high-risk groups . </li></ul></ul><ul><li>Dental expense insurance. </li></ul><ul><ul><li>Covers exams, cleaning, x-rays, fillings, root canals, and oral surgery. </li></ul></ul><ul><li>Vision care. </li></ul><ul><ul><li>Exams, contact lenses, and glasses. </li></ul></ul><ul><li>Long term care insurance. </li></ul><ul><ul><li>Virtually unknown 25 years ago, but now is growing faster than any other form of insurance. </li></ul></ul>(continued) 11-16
  16. 16. Health Insurance Policy Provisions <ul><li>Eligibility. </li></ul><ul><ul><li>Varies with age, marital status, and dependency . </li></ul></ul><ul><li>Assigned benefits. </li></ul><ul><ul><li>Insurance pays your doctor or hospital directly. </li></ul></ul><ul><li>Internal limits. </li></ul><ul><ul><li>Fixed amount per day for a hospital room. </li></ul></ul><ul><li>Copayment. </li></ul><ul><ul><li>Cost sharing in the form of a flat dollar amount you pay, such as $15.00 per office visit or $10 per prescription. </li></ul></ul>11-18
  17. 17. Health Insurance Policy Provisions <ul><li>Service benefits - entitlement. </li></ul><ul><li>Benefit limits - maximum dollar amount or maximum number of days in the hospital. </li></ul><ul><li>Exclusions and limitations. </li></ul><ul><li>Coordination of benefits - if you have coverage under more than one policy. </li></ul><ul><li>Guaranteed renewable. </li></ul><ul><li>Cancellation and termination - explains the circumstances. </li></ul>(continued) 11-19
  18. 18. Trade-Offs in Choosing a Policy <ul><li>Reimbursement versus indemnity. </li></ul><ul><li>Inside limits versus aggregate limits. </li></ul><ul><li>Deductibles and coinsurance. </li></ul><ul><li>Out-of-pocket limit, or stop-loss. </li></ul>11-20
  19. 19. Private Sources of Health Insurance and Health Care <ul><li>Private insurance companies. </li></ul><ul><ul><li>Individual policy. </li></ul></ul><ul><ul><li>Group policy sold to an employer. </li></ul></ul><ul><li>Hospital and medical service plans. </li></ul><ul><ul><li>Blue Cross - hospital care benefits. </li></ul></ul><ul><ul><li>Blue Shield - surgical and medical services benefits. </li></ul></ul><ul><ul><li>Managed care. </li></ul></ul><ul><ul><ul><li>Prepaid health plan. </li></ul></ul></ul><ul><ul><ul><li>Primary care physician. </li></ul></ul></ul>11-21
  20. 20. Types of Managed Care <ul><li>Health Maintenance Organization. </li></ul><ul><ul><li>Contracts with selected care providers. </li></ul></ul><ul><ul><li>Fixed pre-paid monthly premium. </li></ul></ul><ul><ul><li>Focus is on prevention and wellness. </li></ul></ul><ul><ul><li>Basic and supplemental services. </li></ul></ul><ul><li>Preferred Provider Organization. </li></ul><ul><ul><li>Several providers to choose from. </li></ul></ul><ul><ul><li>Costs more than a HMO, but you have more choices, and fewer restrictions. </li></ul></ul><ul><ul><li>If you go to a non PPO provider you pay more. </li></ul></ul>11-22
  21. 21. Government Health Care Programs <ul><li>Medicare - federal program for those age 65 and older, and certain disabled persons. </li></ul><ul><ul><li>Part A - compulsory. </li></ul></ul><ul><ul><ul><li>Covers hospital costs including doctor </li></ul></ul></ul><ul><ul><li>Part B - voluntary if have proof of coverage. </li></ul></ul><ul><ul><ul><li>Doctor’s office visits & prescriptions. </li></ul></ul></ul><ul><li>Medigap - may pay what Medicare doesn’t. </li></ul><ul><li>Medicaid. </li></ul><ul><ul><li>Low income people of all ages. </li></ul></ul><ul><ul><li>State administered with federal guidelines. </li></ul></ul>11-23