Chapter 15 Health-Care Reform; Individual Health Insurance Coverages

1. Chapter 15 Health-Care Reform; Individual Health Insurance Coverages

2. Agenda • Health-Care Problems in the US • Health-Care Reform • Basic Provisions of the Affordable Care Act • Individual Medical Expense Insurance • Individual Medical Expense Insurance and Managed Care Plans • Health Savings Accounts • Long-term Care Insurance • Disability-Income Insurance • Individual Health Insurance Contractual Provisions

3. Health-Care Problems in the US • The US Health-care delivery system has four major problems: • Rising health-care expenditures • Large number of uninsured in the population • Uneven quality of medical care • Considerable waste and inefficiency • Defects in financing health care • Abusive insurer practices

4. Health-Care Problems in the US • Problem 1: Rising Health-Care Expenditures • Health-care expenditures in the US have increased substantially over time and are growing faster than the national economy • Estimated national health expenditures totaled just over $2.8 trillion in 2012, or 17.6 percent of the nation’s GDP. More than one in six dollars of the nation’s income is spent on health care.

5. Insight 15.1 How Does U.S. Health Spending Compare with Other Countries?

6. Health-Care Problems in the US • Reasons for the increase in spending include: • Increase in consumer demand • Advances in technology • Cost insulation because of third-party payers • Employment-based health insurance • State-mandated benefits • Increased spending on prescription drugs • Cost shifting by Medicare and Medicaid • Higher administrative costs • Rising prices in the health-care sector • Defensive medicine • Aging of the population is not a major factor

7. Health-Care Problems in the US • Problem 2: Many people do not have health insurance coverage • 49.9 million people, or 16.3% of the US population had no health insurance coverage in 2010 • Groups with large number of uninsured include: • Foreign born • Hispanics, Blacks, and Asians • Young adults • Low income households • Many people are uninsured because the coverage is not affordable • Many low income people who are eligible for Medicaid are not aware they are eligible

8. Health-Care Problems in the US • The consequences of being uninsured are severe: • The uninsured often delay or skip needed medical care because of high costs • When the uninsured receive medical care, they frequently pay more for that care • Uninsured adults are less likely to have a regular source of medical care • The uninsured often do not have access to regular screenings and preventive care • The uninsured are sicker an die earlier than people with insurance

9. Insight 15.2 More Than Seventy Percent of the Uninsured Have Gone Without Health Coverage for More Than a Year

10. Health-Care Problems in the US • Problem 3: Uneven Quality of Medical Care • The quality of care has improved over time • The quality of medical care varies widely depending on geographic location, type of health insurance plan, and disease being treated

11. Health-Care Problems in the US • Problem 4: Waste and Inefficiency • Experts estimate that the present system wastes more than $800 billion each year • Sources of wasteful spending include: • Duplication of tests • Medical errors that are largely preventable • Unnecessary tests due to fear of lawsuits • High administrative costs and excessive and redundant paperwork • Readmissions into hospitals because of inadequate or ineffective initial treatment • Hospitalizations for preventable conditions • Overuse of expensive medical technology

12. Health-Care Problems in the US • Problem 5: Defects in Financing Health Care • Critics argue that the financing of the present system aggravates many of the problems • Defects of the current system include: • It is based on the ability to pay, not health needs • The fee-for-service method encourages unnecessary tests and treatments • Distortions in medical care which result from a limited supply of physicians in general practice and in rural areas

13. Health-Care Problems in the US • Problem 6: Abusive Insurer Practices • Some insurer practices are harmful to both policyholders and applicants for insurance • Examples include: • Exclusions for preexisting conditions • Rescission of insurance contracts to limit benefits • Lifetime or annual limits on benefits

14. Health-Care Reform • Health care reform has been proposed for many years, but most proposals have failed • On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act. • The Act was challenged on the basis that it was unconstitutional. • The Supreme Court ruled that the Affordable Care Act is constitutional.

15. Health-Care Reform • The Affordable Care Act: • Extends health-care coverage to 30 million uninsured Americans • Provides substantial subsidies to uninsured individuals and small businesses to make insurance more affordable • Contains provisions to lower health-care costs in the long run • Prohibits insurers from engaging in certain abusive practices

16. Health-Care Reform • The full law does not become effective until January 1, 2014 • Some provisions are now in effect • Many provisions affect individuals and families, employers, insurers, and health-care providers

17. Health-Care Reform • Individual mandate • Beginning in 2014, most citizens and legal residents must have qualifying health insurance or pay a financial penalty. • The new law also provides premium tax credits so that eligible individuals can purchase affordable health insurance and comply with the law • Certain groups are exempted

18. Basic Provisions of the Affordable Care Act • Provisions that apply to health insurers include: • Retention of coverage until age 26 • Lifetime limits and annual limits prohibited. • Preexisting conditions prohibited • Rescission of insurance policies prohibited • Guaranteed access to health insurance • Grandfathered plans • Minimum medical loss ratio • Limited waiting periods

19. Basic Provisions of the Affordable Care Act • The Act requires insurers to cover essential health benefits: • Ambulatory patient services • Emergency services • Hospitalization • Maternity and newborn care • Mental health and substance use disorder services • Prescription drugs • Rehabilitative services and devices • Laboratory services • Preventive and wellness services and chronic disease management • Pediatric services, including oral and vision care

20. Basic Provisions of the Affordable Care Act • Each plan provides essential benefits • Applicants will have a choice of four benefit categories: • The bronze plan covers 60 percent of the benefit costs • The silver plan covers 70 percent of the benefit costs • The gold plan covers 80 percent of the benefit costs • The platinum plan covers 90 percent of the benefit costs • Each plan has annual out-of-pocket limits that limit the amount insureds must pay in the form of deductibles, coinsurance, copayments, etc.

21. Basic Provisions of the Affordable Care Act • The new law creates an Affordable Insurance Exchange in each state • The exchange is a new transparent and competitive insurance marketplace where individuals and small firms can purchase affordable and qualified health insurance plans

22. Basic Provisions of the Affordable Care Act • The new law provides premium credits to eligible individuals to make coverage more affordable • Eligibility is limited to U.S. citizens and legal immigrants who meet the income limits • Employees who have access to health insurance through an employer’s plan are not eligible • Premium tax credits and cost-sharing subsidies are available to certain eligible low-income individuals and families • Larger employers must pay a fine for each employee that obtains subsidized insurance through an exchange

23. Basic Provisions of the Affordable Care Act • Eligible small employers can receive significant tax credits under the new law • For 2010-2013, a tax credit of up to 35 percent of the employer’s contribution is available if the employer contributes at least 50 percent of total premiums • Beginning in 2014, the tax credit for eligible small employers that purchase health insurance through a state exchange will be increased up to 50 percent of the employer’s contribution if the employee contributes at least 50 percent of the total premium costs

24. Basic Provisions of the Affordable Care Act • The new law creates a temporary reinsurance program to help employers provide health insurance to early retirees over age 55 who are ineligible for Medicare • This provision applies until January 2014, when the state exchanges become fully operational • Funds for this provision ran out after 14 months; new applications are not being accepted

25. Basic Provisions of the Affordable Care Act • Beginning in 2014, the Act expands Medicaid to include adults with incomes up to 138 percent of the federal poverty level • Millions of uninsured persons will be eligible for Medicaid coverage • The Supreme Court ruled that a state cannot be coerced into expanding its Medicaid program under the Act • Many state governors have indicated they will not expand their Medicaid programs because of funding concerns

26. Basic Provisions of the Affordable Care Act • The new law created a temporary high-risk program, the Preexisting Condition Insurance Plan (PCIP), which provides affordable health insurance to individuals with preexisting conditions until the Affordable Insurance Exchanges begin operating in 2014 • Most states had high-risk pools before the new law was enacted • Participation by states is optional

27. Basic Provisions of the Affordable Care Act • The new law contains many provisions that will improve the quality of health care and lower costs, including: • New incentives to rebuild the primary care workforce • A Prevention and Public Health Fund that will invest in programs designed to keep Americans healthy • Establishing a patient-centered outcomes research institute

28. Basic Provisions of the Affordable Care Act • Strengthening community health centers • Enhanced screening procedures for health-care providers to eliminate fraud and abuse • Incentives for physicians to join together to form “accountable care organizations” • Standardization of billing and rules for secure electronic exchange of data • Increasing Medicaid payments for primary care physicians • Paying physicians based on value and not volume

29. Basic Provisions of the Affordable Care Act • In 2012, the CBO projected the Affordable Care Act will cost more than $1.7 trillion over the period 2012-2022 • The amount will be partly offset by penalties and tax increases related to coverage • Funding for the new law comes from: • Savings in the Medicare and Medicaid programs • Reduced payments to Medicare Advantage plans • New fees on pharmaceutical firms and health insurers • Other taxes and penalties

30. Individual Health Insurance Coverages • Individual medical expense insurance protects an individual or family for covered medical expenses because of sickness or injury • Plans are purchased by people who are not employed, retired workers, and students • Most policies sold today have: • Major medical benefits • A broad range of benefits • A calendar-year deductible, coinsurance, copayments, and annual out-of-pocket limits • Exclusions

31. Individual Health Insurance Coverages • Major medical insurance is designed to pay a high percentage of covered medical expenses incurred by an insured who has a catastrophic illness or injury • Most individual expense plans provide a broad range of benefits, including • Inpatient hospital benefits • Outpatient benefits • Physician benefits • Preventive services • Outpatient prescription drugs

32. Individual Health Insurance Coverages • Medical expense policies contain a deductible provision • The purpose of the deductible is to eliminate small claims and the high administrative cost of processing them • A calendar-year deductible is an aggregate deductible that has to be satisfied only once during the calendar year

33. Individual Health Insurance Coverages • A coinsurance provision states a percentage of the bill in excess of the deductible, which the insured must pay out-of-pocket up to some maximum annual dollar limit • Purpose is to reduce premiums and prevent overutilization of plan benefits • A copayment is a flat amount the insured must pay for certain benefits, such as an office visit or generic drug

34. Individual Health Insurance Coverages • The insured’s total out-of-pocket spending is limited by an annual out-of-pocket limit (also called a stop-loss limit), after which the insurer pays 100% of eligible expenses • Common exclusions to a major medical policy include cosmetic surgery and expenses covered by workers compensation

35. Individual Medical Expense Insurance and Managed Care Plans • Most individual medical expense plans sold today are managed care plans • A managed care plan provides covered medical services to the members in a cost effective manner, with heavy emphasis on cost control • The most popular plan today is a preferred provider organization (PPO) • A PPO contracts with physicians, hospitals, and other health-care providers to provide covered medical services to policyholders at discounted fees

36. Health Savings Accounts • A health savings account (HSA) is a tax exempt account established exclusively for the purpose of paying qualified medical expenses • The beneficiary must be covered under a high-deductible health plan to cover catastrophic medical bills • Contributions can be made by individuals, their employers, and family members • Contributions and annual out-of-pocket expenses are subject to maximum limits

37. Health Savings Accounts • The account holder can withdraw money from the HSA tax-free for medical costs • An HSA investment account in a qualified plan receives favorable tax treatment • Proponents argue that HSAs can help keep health care costs down because consumers will be more sensitive to costs, will avoid unnecessary services, and will shop around • Critics argue that HSAs will encourage insureds to forego preventative care

38. Long-Term Care Insurance • Long-term care insurance pays a daily or monthly benefit for medical or custodial care received in a nursing facility, in a hospital, or at home • People who reach age 65 will likely have a 40% chance of entering a nursing home, and about 10% of them will stay there five years or more • LTC Plans come in three main forms: • A facility-only policy • A home health care policy • A comprehensive policy

39. Long-Term Care Insurance • Common features of LTC policies include: • Daily benefits range from $50 - $300 or more • Most policies are reimbursement policies, which reimburse for actual charges up to a daily limit • Some policies reimburse on a per diem basis • Many insurers offer policies with pooled benefits, which provide a total dollar amount that can be used to pay for the deferent types of long-term care services • An elimination period is a waiting period during which time benefits are not paid

40. Long-Term Care Insurance • In a qualified LTC plan, a benefit trigger must be met to receive benefits. Either, • The insured is unable to perform a certain number of activities of daily living (ADLs), or • The insured needs substantial supervision to be protected against threats to health and safety because of a severe cognitive impairment • Nontax-qualified policies often have more liberal eligibility requirements and make benefits available if a medical necessity trigger is met

41. Long-Term Care Insurance • Some plans offer automatic benefit increases to keep up with inflation • Policies are guaranteed renewable • Coverage is expensive, especially at older ages • Most insurers offer optional nonforfeiture benefits, which provide benefits if the insured lapses the policy • Long-term care insurance that meets certain requirements receives favorable income tax treatment

42. Long Term Care Insurance • Some states have long-term care partnership programs designed to reduce Medicaid expenditures by eliminating or reducing incentives of some people to rely on Medicaid to pay for long-term care • To encourage people to purchase private partnership policies, part or all of their assets are protected from the Medicaid spend-down requirements

43. Disability-Income Insurance • The financial impact of total disability on present savings, assets, and ability to earn an income can be devastating • Disability-income insurance provides income payments when the insured is unable to work because of sickness or injury • Income payments are typically limited to 60-80% of gross earnings

44. Disability-Income Insurance • The most common definitions of total disability are: • Inability to perform the material and substantial duties of your regular occupation • Inability to perform the material and substantial duties of your occupation, and are not engaged in any other occupation • Inability to perform the duties of any occupation for which you are reasonably fitted by education, training, and experience • Inability to perform the duties of any gainful occupation • Loss-of-income test, i.e., your income is reduced as a result of sickness or accident

45. Disability-Income Insurance • Partial disability means that you can perform some but not all of the duties of your occupation • Some policies offer partial disability benefits • Usually, partial disability benefits must follow total disability • The partial disability benefits are paid at a reduced rate for a shorter period

46. Disability-Income Insurance • Residual disability applies when you are gainfully employed and not totally disabled but, solely because of sickness or injury, our loss of income is at least 15 percent of your prior income • a pro rata disability benefit is paid to an insured whose earned income is reduced because of an accident or sickness

47. Disability-Income Insurance • The benefit period is the length of time that disability payments are payable after the elimination period is met • Individual policies normally contain an elimination period (waiting period), during which time benefits are not paid • Most policies automatically include a waiver-of-premium provision • If the insured is totally disabled for 90 days, future premiums will be waived as long as the insured remains disabled • Policies typically include a rehabilitation provision

48. Disability-Income Insurance • Some policies pay accidental death, dismemberment and loss-of-sight benefits • Optional benefits include: • Under a cost-of-living rider, the insurer periodically adjust benefits for increases in the cost of living • Some insurers provide an option to purchase additional insurance in the future • A Social Security rider pays an additional amount if the policyholder is turned down for SS disability benefits • A return of premiums rider refunds part or all of the premiums if the policyholder’s claim experience is favorable

49. Individual Health Insurance Contractual Provisions • A guaranteed renewable policy is one in which the insurer guarantees to renew the policy at each anniversary date • Premiums can be increased for the underwriting class • Under a noncancellable policy, the insurer cannot change, cancel, or refuse to renew the policy as long as premiums are paid on time • The insurer cannot change the premiums or the rate structure specified in the policy

50. Individual Health Insurance Contractual Provisions • Under a conditionally renewable policy, the policyholder can renew the policy until a specified age • The insurer has the right to decline renewal under conditions specified in the contract • Some policies are nonrenewable and expire at the end of the protection period • The policyholder does not have the contractual right to renew the policy • Beginning in 2014, applicants for medical expense insurance have guaranteed issue of coverage and renewal