copyright ©2004 pearson education, inc. all rights reserved. chapter 11 health and disability...

Copyright ©2004 Pearson Education, Inc. All rights reserved.

Chapter 11

Health and Disability Insurance

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


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


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


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



• 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



• 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



– 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



• 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



• 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



• 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


Financial Planning Online: Should You Enroll in an HMO or a PPO?

• Go to: 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.

http://insurance.yahoo.com/lh/health.html




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


Financial Planning Online:Medicare Coverage

• Go to: 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.

http://www.medicare.gov/Basics/overview.asp






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


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



• 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



• 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



• Determining the amount of coverage– Consider your family’s health history

– Consider your financial situation


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


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



• 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



• 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



– 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


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?


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

copyright ©2004 pearson education, inc. all rights reserved. chapter 11 health and disability...

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