FIN 3610 General InsuranceChapter 15 – Health-Care Reform; I.docx

FIN 3610 General Insurance
Chapter 15 – Health-Care Reform; Individual Health Insurance
Coverages
Healthcare Problems and Reform!
Before I go any further, I would like everyone to pull out their
health insurance card and see which health insurance you have.
I find that most students have no idea whether they have an
HMO or a PPO or whatever else is out there. You may not have
any health insurance, that's unfortunate. Turn to the example on
the top of page 296 to see what happened to a self-employed
carpenter when he had serious surgery and was left with medical
bills totaling more than $125,000. There are a myriad of ways to
purchase health insurance, even here in Tennessee. You will
want to look at problems that have occurred that have led to
some crises as well as reasons that health insurance is so
expensive.
This chapter covers anything that you read in the news every
day! Often uninsured individuals have a small business and
cannot afford to provide health insurance for all of their
employees. Generally, people do not choose to purchase health
insurance on their own unless forced to in some way.
Carefully look at the basic provisions of the Affordable Care
Act, starting on page 303. Also look at the essential and
multiple benefits of having health insurance. Central health
insurance benefits include coverage for things such as
ambulatory patient services, emergency services,
hospitalization, maternity and newborn care, mental health and
rehab services, prescription drugs, laboratory services, as well
as preventive and wellness services. Many of these were not
traditionally covered on a major medical health insurance
policy.

While many conditions and provisions are discussed here in this
chapter, pay careful attention to the pre-existing condition plans
discussed on page 307. I referred to this briefly in an earlier
chapter when someone may want to join our pool of homes
whose house is already on fire. Obviously there are reasons to
insert such exclusion that have nothing to do with really
penalizing the insured. Having a pre-existing condition
alleviates a lot of adverse selection.
This chapter also reviews another overlooked type of coverage,
long-term care insurance. There’s a well-known fact that you
will become disabled while you're working at a much higher
rate than you will die during your working years. That, in my
mind, is an excellent idea to consider the purchase of long-term
care insurance. The features and provisions of this policy are
covered at length in this chapter. Disability income is also
covered in this chapter, and you will note that there are many
different definitions of disability that really set the ground rules
for disability income policies.
Copyright © 2017 Pearson Education, Inc. All rights reserved.
Chapter 18
Social Insurance
*
18-*

AgendaSocial Insurance Old-Age, Survivors, and Disability
InsuranceMedicareProblems and IssuesUnemployment
InsuranceWorkers Compensation
*
18-*
Reasons for Social InsuranceSocial insurance programs are
necessary for several reasons:To help solve complex social
problemsTo provide coverage for risks that are difficult to
insure privatelyTo provide a base of economic security to the
population
*
Transparency Master 1.2
18-*
Basic Characteristics of Social InsuranceSocial insurance
programs have certain characteristics that distinguish them from
other government insurance programs:Most programs are
compulsoryPrograms are designed to provide a floor of
incomePrograms pay benefits based on social adequacy rather
than individual equity

*
Transparency Master 1.2
18-*
Basic Characteristics of Social Insurance (Continued)Benefits
are loosely related to earnings Programs, benefits, and benefit
formulas are prescribed by lawA formal means test is not
requiredFull funding of benefits is unnecessaryPrograms are
designed to be financially self-supporting
*
18-*
Old-Age, Survivors, and Disability Insurance
(OASDI)Commonly known as Social Security, OASDI is the
most important social insurance program in the United
StatesEnacted in 1935, it covers more than 9 out of 10
workersVirtually all private-sector employees, and a majority of
state and local government employees are covered under the
Social Security Program
*

18-*
Old-Age, Survivors, and Disability Insurance (OASDI)
(Continued)A worker becomes eligible for benefits by attaining
an insured status:To attain a fully insured status and be eligible
for retirement and survivor benefits, you must have 40
creditsYou are currently insured, and eligible for survivor
benefits, if you have earned at least 6 credits in the past 13
calendar quartersThe number of credits required to receive
disability benefits depends on your age when you become
disabledA duration of work test must be satisfied before
receiving disability benefits
*
18-*
OASDI: Retirement BenefitsSocial security retirement benefits
are an important source of income for most retired workersFor
persons born in 1937 or earlier, full retirement age for
unreduced benefits is age 65For persons born in 1960 or later,
the full retirement age is 67Workers and their spouses can retire
at age 62 with actuarially reduced benefits
*
18-*

OASDI: Retirement Benefits (Continued)Monthly retirement
benefits can be paid to the following eligible persons:Retired
workerSpouse of a retired workerUnmarried children younger
than age 18Unmarried disabled childrenSpouse with dependent
children younger than age 16
18-*
Exhibit 18.1 Social Security Full Retirement Age and
Reduction in Benefits by Age
*
18-*
OASDI: Retirement Benefits (Continued)The monthly
retirement benefit is based on the worker’s primary insurance
amount (PIA)The PIA is based on the worker’s average indexed
monthly earnings (AIME)The AIME is based on a weighted
benefit formula which weights the benefits heavily in favor of
low-income groupsSocial Security actuaries calculate each year
the indexing factors that are used to determine the worker’s
average indexed monthly earnings
*

18-*
Exhibit 18.2 Monthly Benefit Amounts Differ Based on the
Age You Decide to Start Receiving Benefits
*
18-*
OASDI: Retirement Benefits (Continued)Each additional year of
work adds another year of earnings to your Social Security
earnings recordA delayed retirement credit is available if you
work beyond the full retirement age or delay receiving
retirement benefits beyond the full retirement ageCash benefits
are automatically adjusted each year for changes in the cost of
livingThe program has an earnings test that can result in a
reduction or loss of monthly benefits for workers with earned
incomes above certain annual limits
*
18-*
OASDI: Survivor BenefitsSurvivor benefits can be paid to
dependents of a deceased worker who is either fully or currently
insuredSurvivors include:Unmarried children younger than age

18Unmarried disabled childrenSurviving spouse with children
younger than age 16Surviving spouse age 60 or olderDisabled
widow or widower, ages 50-59Dependent parentsThe benefits
provide a substantial amount of financial protection to families
*
18-*
OASDI: Disability BenefitsDisability income benefits can be
paid to disabled workers who meet certain eligibility
requirementsThe benefits provide protection against the loss of
income during a long-term disabilityThe worker must meet a 5
month waiting period, and satisfy the definition of disabilityThe
worker must have a physical or mental condition that prevents
him or her from doing any substantial gainful activity and is
expected to last at least 12 months or is expected to result in
death
*
18-*
OASDI: Disability Benefits (Continued)Major groups eligible to
receive OASDI disability income benefits include:A disabled
worker under the full retirement ageThe spouse of a disabled
workerUnmarried children of the disabled worker, if under age
18Unmarried children age 18 or older who become severely

disabled before age 22
*
18-*
Taxation and Financing of OASDI BenefitsSome beneficiaries
who receive monthly cash benefits must pay an income tax on
part of the benefitsThe amount depends on the level of your
combined incomeOASDI and Medicare benefits are financed by
a payroll tax paid by employees, employers, and the self-
employedIn 2015, the Social Security portion is 6.2 percent on
covered earnings up to a maximum of $118,500The Medicare
portion is 1.45 percent on all earned income
*
18-*
MedicareMedicare covers the medical expenses of most persons
age 65 and olderBeneficiaries can select among an array of
plans including prescription drug plans and health care plans of
private insurersUnder the Original Medicare plan, Beneficiaries
can elect any provider that accepts Medicare patientsMedicare
pays its share of the bill, and the beneficiary pays the balance

*
18-*
Medicare (Continued)Hospital Insurance (Part A) provides
coverage for inpatient hospital stays and other services
Inpatient care is covered for up to 90 days for each benefit
periodInpatient care in a skilled nursing facility is covered up to
a maximum of 100 days in a benefit periodSome healthcare
services provided in the patient’s home are coveredHospice care
is available for beneficiaries with a terminal illnessBlood
transfusions are covered during a covered stay in a hospital or
skilled nursing facility
18-*
Medicare (Continued)Hospitals are reimbursed for inpatient
services under a prospective payment system A flat amount is
paid for each service based on its diagnosis-related group
(DRG)The DRG system was designed to encourage hospitals to
operate more efficiently
18-*
Medicare (Continued)Medical Insurance (Part B) is a voluntary
program that covers physicians’ fees and related medical
servicesCovered services include physician services, outpatient
care, home health services, and durable medical
equipmentBeneficiaries must pay a monthly premium for the
benefitsThe beneficiary must meet an annual deductibleThe

program pays 80 percent of the Medicare-approved amount for
most services
*
18-*
Medicare (Continued)Medicare hospital insurance (Part A) is
financed by a payroll tax paid by covered employees,
employers, and the self-employedPayroll tax is 1.45 percent on
all covered earningsThe program is subsidized by a small
amount of general revenues
Medical insurance (Part B) is financed by monthly premiums
and the general revenues of the federal government
*
18-*
Medicare Advantage PlansMedicare Advantage Plans (Part C)
are private health plans that are part of the Medicare
programMedicare pays a set monthly amount to the planMost
plans provide extra benefits and have lower copayments than
the original Medicare planMost plans include Medicare
prescription drug coverage

*
18-*
Medicare Advantage Plans (Continued)A Medicare Health
Maintenance Organization (HMO) is a managed care plan
operated by a private insurerThe plan may require members to
choose a primary care physician and get a referral to see a
specialistIf the plan covers prescription drugs, members must
pay a copayment or coinsurance charge for each covered
prescriptionBeneficiaries in a Medicare Preferred Provider
Organization (PPO) can generally see any doctor or provider
that accepts Medicare patients
*
18-*
Medicare Advantage Plans (Continued)Under a Medicare
Private Fee-for-Service Plan, the private company, rather than
Medicare, decides how much it will pay and the amounts
members must pay for the services provided A Medicare Special
Needs Plan provides more focused care for specific groups of
people, such as those with chronic illnessesUnder a Medicare
Medical Savings Account Plan, Medicare deposits money that
the beneficiary can use to pay healthcare costs
18-*

Medicare (Continued) Medicare beneficiaries have other choices
for coverage besides the Advantage PlansThese plans are still
part of the overall Medicare programSome plans provide
coverage for both Part A and Part B, while most others provide
only for Part B, and include:Medicare Cost PlansMedicare
Innovation ProjectsPACE programs
*
18-*
Medicare Prescription Drug PlansMedicare prescription drug
coverage (Part D) is available to all beneficiariesBeneficiaries
in the original Medicare plan can add prescription drug
coverage by joining a stand-alone planMonthly premiums
depend on the plan chosen, and vary in the cost and types of
drugs coveredBeneficiaries pay part of the cost of prescription
drugs, and Medicare pays part of the costPlans must provide at
least standard coverage
*
18-*
Medicare Prescription Drug Plans (Continued)The cost-sharing
provisions are complexBeneficiaries must meet an annual

deductible that cannot exceed $320 in any planAfter the
deductible is met, beneficiaries must meet a copayment or
coinsurance chargeMost plans have a coverage gap, or “donut
hole”, which refers to drug costs that must be paid completely
out-of-pocket, after an initial amount has been covered by the
plan, and until the annual out-of-pocket limitIn 2015,once a
beneficiary spends $4700 out-of-pocket for the year, the
coverage gap ends, and catastrophic coverage, with a lower
deductible, applies
18-*
Exhibit 18.3 Example of Cost-Sharing Provisions under
Medicare Prescription Drug Coverage, 2015
Ms. Smith joins the ABC Prescription Drug Plan. Her coverage
begins on January 1, 2015. She doesn’t get Extra Help and uses
her Medicare drug plan membership card when she buys
prescriptions.
*
18-*
Medigap Insurance Medicare beneficiaries can purchase a
Medigap policy to cover part or all of medical expenses not paid
by MedicareThe policies are sold by private insurers, and are
strictly regulated by federal lawThere are 10 standard policies
(A-N) which offer different sets of benefits; some policies are
not longer available

*
18-*
Problems and IssuesSocial Security and Medicare are faced with
serious financial problemsThe combined OASDI trust funds will
be exhausted in 2034In 2034, noninterest income will be
sufficient to pay only about 79 percent of scheduled benefitsThe
Disability Income trust fund is projected to be exhausted in
2016Tax income is projected to cover only 81 percent of
scheduled benefits
*
18-*
Problems and Issues (Continued)The deficit can be reduced or
eliminated by:Increasing payroll taxesDecreasing benefitsUsing
general revenues to pay benefitsSome combination of these
Recent proposed changes include:Using “progressive indexing”
to determine benefitsIncreasing the Social Security payroll tax
for both employers and employeesMoving up scheduled
increases in the full retirement ageReducing benefits for future
retirees
18-*

Problems and Issues (Continued)Increasing the OASDI taxable
wage earnings baseSubjecting all OASDI benefits to the federal
income taxExtending OASDI coverage on a compulsory basis to
all new state and local government employeesIncreasing the
number of years used in calculating retirement benefits from 35
to 38Investing part of the trust fund assets in private
investments
18-*
Problems and Issues (Continued)The shortfall in the Disability
Income trust fund is due to the substantial increase in the
number of DI beneficiaries caused byGrowth in the labor
forceAging of the population and baby boomersIncreased
number of women in the labor forceHigher recipency rates for
womenHigher full retirement ageThe 2007-2009 business cycle
downswing may also be a factor
18-*
Medicare Financial CrisisMedicare Part A also has financial
problemsThe fund is projected to be exhausted by 2030 The
projected 75-year deficit in the Hospital Insurance Trust Fund is
18 percent of taxable payrollThe poor financial condition is
affected by:Higher prices for medical servicesIncreased volume
and complexity of medical servicesAging of the population and
increased enrollmentsOverpayments to private insurers
Increased expenditures from prescription drugs

*
18-*
Medicare Financial Crisis (Continued)Efforts to hold down
costs include:Reducing payments to hospitals and
physiciansLimiting spending on specified servicesImplementing
a diagnosis-related group method for reimbursing hospitalsNew
provisions of the Affordable Care Act
18-*
Unemployment InsuranceUnemployment insurance programs are
federal-state programs that pay weekly cash benefits to workers
who are involuntarily unemployedCash benefits are paid during
periods of short-term involuntary unemploymentApplicants are
encouraged through local employment offices to find
jobsUnemployment benefits help stabilize the economy during
recessionary periods
*
18-*
Unemployment Insurance (Continued)Most jobs in private
firms, state and local governments, and nonprofit organizations

are covered for unemployment benefitsPrivate firms are subject
to the federal unemployment taxTo be eligible, an unemployed
worker must meet the following monetary eligibility
requirements:Have qualifying wages and employment during the
base yearBe able and available for workBe actively seeking
workMeet a 1 week waiting period
*
18-*
Unemployment Insurance (Continued)Regular state benefits
depend on the worker’s past wages, within certain limitsMost
states use a formula that pays weekly benefits based on a
fraction of the worker’s high quarter wagesThe maximum
duration of regular benefits is limited to 26 weeks in most
statesUnder the extended-benefits program, an additional 13
weeks of benefits is paid during periods of high
unemploymentExtended benefits are also available to workers to
exhaust their regular benefits in states with high unemployment
*
18-*
Unemployment Insurance (Continued)Emergency unemployment
compensation programs provide additional weeks of benefits to
eligible claimants who have exhausted their regular state

benefits during recessionsThe Emergency Unemployment
Compensation program was enacted by Congress in 2008 and
extended several times
18-*
Unemployment Insurance (Continued)Programs are financed
largely by payroll taxes paid by employers on the covered
wages of employeesFor 2015, covered employers paid a federal
payroll tax of 6.0 percent on the first $7000 of annual wagesTo
strengthen reserves and maintain fund solvency, most states
have a taxable wage base that exceeds $7000Experience rating
is also used, by which firms with favorable employment records
pay reduced tax rates
18-*
Unemployment Insurance (Continued)Problems with state
unemployment compensation programs include:Programs do not
cover all unemployed personsState fund balances are
inadequateA high percentage of claimants are exhausting their
regular state unemployment benefits
*
18-*
Workers CompensationWorkers compensation is a social

insurance program that provides medical care, cash benefits,
and rehabilitation services to workers who are injured or sick
from job-related accidents or diseaseThe benefits are important
in reducing the economic uncertainty that may result from a
job-related disability
*
18-*
Workers Compensation (Continued)Under the common law of
industrial accidents (1837), workers injured on the job had to
sue their employers and prove negligence before they could
collect damagesUnder the contributory negligence doctrine,
injured workers could not collect damages if they contributed in
any way to the injuryUnder the fellow-servant doctrine, the
injured worker could not collect damages if the injury resulted
from the negligence of a fellow workerUnder the assumption-of-
risk doctrine, the injured worker could not collect if he or she
had advanced knowledge of the dangers of the occupation
18-*
Workers Compensation (Continued)Employer liability laws
passed between 1885 and 1910 improved the legal position of
injured workersBut, workers still had to sue their employers to
collect for their injuriesMost states passed workers
compensation laws by 1920Coverage is based on the
fundamental principle of liability without faultEmployees do
not have to sue their employers

*
18-*
Workers Compensation (Continued)Objectives of state workers
compensation laws include:Provide broad coverage of
employees for job-related accidents and diseaseProvide
substantial protection against the loss of incomeProvide
sufficient medical care and rehabilitation services Encourage
firms to reduce job-related accidents and develop effective
safety programsReduce litigation
*
18-*
Workers Compensation (Continued)Employers can comply with
state law by:Purchasing a workers compensation policySelf-
insuring, or Obtaining insurance from a monopoly or
competitive state fundMost occupations are covered by workers
compensation lawsMost states exclude or provide incomplete
coverage for farm workers, domestic servants, and casual
employeesSome states exempt firms with few employees
18-*

Workers Compensation (Continued)Two eligibility requirements
must be met to receive benefits:The disabled person must work
in a covered occupationThe injury or disease must arise out of
and in the course of employment
18-*
Workers Compensation (Continued)Workers compensation laws
provide four benefits:Medical care generally is covered in full
with no limitationsDisability-income benefits can be paid after
the disabled worker satisfies a waiting periodDeath benefits can
be paid to eligible survivors if the worker dies as a result of a
job-related accident or diseaseAll states provide rehabilitation
services to restore disabled workers to productive employment
*
18-*
Workers Compensation (Continued)The increasing use of
medical marijuana and its impact on workers compensation is a
growing problem to employersIt is unclear whether a work-
related injury is compensable for an injured claimant who has
been prescribed medical marijuana and tests positive on a drug
screenIt is also unclear as to whether workers compensation
payers must pay for medical marijuana prescribed for claimants
A lack of standard billing practices complicates drug utilization
review

*
18-*
Workers Compensation (Continued)Another problem is the
overuse of opiate prescription drugs, such as Percocet,
Oxycontin, and MorphineOpioid usage by injured workers has
increased over time Many physicians prescribe opioids for back
painLong-term use of opioids can lead to addictionMost states
have prescription drug monitoring laws or statewide electronic
databases to deal with the problem of opiate overuse
18-*
Workers Compensation and the ACAThe Affordable Care Act
could have both positive and negative effectsPositive effects
include:Accelerate growth of physician assistants and other
practitionersReduce workers compensation fraudPromote
regular checkupsReduce obesity and other diseases through
early interventionPromote best practices in medical care
18-*
Workers Compensation and the ACA (Continued)Possible
negative effects include:Increase in waiting timesReduction in
profits to workers compensation insurers due to bottlenecks and
delaysHigher healthcare provider prices

FIN 3610 Assignment 8
Name_______________________
Chapter 18
Please remember that you must do your own work. Any
plagiarism will result in a grade of zero for all students
involved. Please use your own words even if you are using the
textbook for answers. Always provide a citation when a
reference is used.
This assignment is different from the prior assignments as you
will need to refer to the Social Security website for information
needed to complete this assignment. Please refer to the SSA.gov
website for tax rates and limits for 2016. Assume you earn
$150,000 in 2016. Remember to provide all of your citations.
Please answer the following questions:
1. How much will you pay in total into the OASDI system,
including Medicare?
2. How much will you pay for Medicare only?
3. How much will your employer pay on your behalf for all
Social Security and Medicare?
4. Is the Social Security tax progressive, regressive, or
proportional? Please explain your reasoning.

FIN 3610 General InsuranceChapter 15 – Health-Care Reform; I.docx

Recommended

Recommended

More Related Content

Similar to FIN 3610 General InsuranceChapter 15 – Health-Care Reform; I.docx

Similar to FIN 3610 General InsuranceChapter 15 – Health-Care Reform; I.docx (20)

More from ssuser454af01

More from ssuser454af01 (20)

Recently uploaded

Recently uploaded (20)

FIN 3610 General InsuranceChapter 15 – Health-Care Reform; I.docx