Transcript Economic Security and the Economics of Life and Health

Health Insurance
Richard MacMinn
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Monday, July 20, 2015
Copyright MacMinn.org
Objectives
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Consider who should provide health insurance
Note the difference between individual and group
health insurance
Describe the important features of comprehensive
medical insurance
Describe long term care insurance
Describe the market for disability income insurance
Note the principal benefits of disability insurance
coverage
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Individual versus group health
insurance
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Individual
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Coverage is provided to
specific individuals under a
policy issued to a specific
individual
Policy ownership is vested
in the insured
Insured provides proof of
insurability
Insurer maintains separate
records on each policy
including premium and
benefit payments
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Group
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Coverage is provided to a
group of individuals under a
single contract
Policy ownership is vested
in an entity not organized
for the sole purpose of
obtaining insurance, e.g.,
employer, trust, union,
association, etc.
No proof of insurability is
generally required
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Individual medical expense insurance
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Need for individual health insurance
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Those not covered by group or government health plans
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Students
early retirees
those with no employer coverage
temporary workers
unemployed persons
children, spouses and other dependents not otherwise covered
Supplemental coverage is also necessary under some
circumstances in the United Kingdom, France, Canada, the
United States (with respect to Medicare)
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Individual medical expense insurance
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Coverage
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Insuring arrangements
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Life insurers
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Blue Cross/Blue Shield insurers
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Blues pay negotiated rates to hospital and care providers
Health maintenance organizations (HMO)
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These insurers typically provide indemnity plans
HMO’s combine finance and health care
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Individual medical expense insurance
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Coverage continued
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Benefit arrangements
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Benefits include
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Major medical expense insurance
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Inpatient and outpatient hospital services
Physician and diagnostic services
Specialty services like physical therapy and radiology
Prescription drugs
Deductible ($5000)
Coinsurance (20%)
Lifetime maximum ($5,000,000)
Out-of-pocket cap
Medical savings accounts (partial solution to moral hazard?)
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Individual medical expense insurance
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Coverage continued
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Special individual coverages
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Hospital confinement indemnity
The wraparound
– Government supplemental policies
provides benefits that
 Medicare wraparound
cover deductibles and
The
supplement
is like the
 Medicare supplement
coinsurance and may
wraparound except it
– Dread disease coverage
be designed to
generally has significantly
continue to pay
 Cancer
higher maximum benefit
benefits for hospital
 Heart disease
limits or is unlimited with
and nursing home
respect to the duration of
confinements after
confinement.
Medicare is exhausted.
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Individual medical expense insurance
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Coverage continued
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Contract provisions
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Renewal option
 This is usually without further proof of insurability and
until a specified age such as 65.
 Premiums are not guaranteed but must be treated on
a class basis and often require regulatory approval
 Closed block durational rating
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Long-term care insurance
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The definition
The need?
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Summary statistics
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Demise of extended family
Demographic changes
Changing wealth distribution
Increased mobility
More statistics
$30,000 for one year stay in
nursing home
Average stay is one to two
years with 25% staying longer
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Long-term care
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Long-term care (LTC) includes the following
elements:
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The need for medical, personal or social services
The need results from an accident, illness or
frailty
Services are provided by other paid or unpaid
persons at home or in a nursing facility
Services are to assist the individual in performing
the essential activities of daily living (ADL)
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Long-term care insurance
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Coverage
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1. Eating
Underwriting depends on the application
and a physician’s
statement
2. Bathing
Nursing home care
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Skilled (continuous)
Intermediate (discontinuous)
Custodial (assistance with ADL)
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Dressing
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Toileting
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Continence
Community care
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Activities of daily living (ADL)
6. Transferring
Home, adult day, respite, hospice, therapeutic
7. Takingcare
medicine
Assisted living facilities (ALFs) and continuing
centers
(CCCs)
The LTC policies require that
the insured not be able to
perform 2 of 5 or 6 ADLs.
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Long-term care insurance
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Benefits
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Elimination period
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Daily benefit
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0-365 days before
benefits become
payable
$40-$250 daily benefit
Benefit periods
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2-5 years is typical
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Lifetime benefit period
is possible
daily benefit days years
$50 365
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Total
$73,000
Long-term care insurance
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Contract
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Premium
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Renewability
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War, self-inflicted injury, chemical and alcohol dependency
There are pre-existing condition clauses
Regulation
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This is the option to cease premium payments and take a reduced paid up policy
that provides benefits for a shorter period or receive a partial refund of premiums
Limitations
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Guaranteed
Rates revised on a class basis
Non-forfeiture
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Issue ages, e.g., 50-84
Lapse rates (higher is better here)
The NAIC wrote the model legislation, i.e., Long-term insurance model act
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Disability
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Definition
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A person is disabled if she cannot fully or partially perform
certain occupational tasks
Disability is defined in two different ways.
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Own occupation
Any gainful occupation
Both notions may be used for different time periods in the
same contract
Only one in four workers has private disability
insurance in the United States
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Probability comparisons
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The chart shows the
probabilities of disability
for 90 days or longer
and the probability of
death all prior to the
age of 65
These probabilities
suggest some optimism
about disability
probabilities.
disability
death
0.6
0.5
0.4
0.3
0.2
0.1
0
25 30 35 40 45 50 55 60
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The chart shows
average duration of
those disabilities lasting
more than 90 days by
age.
years
More probability comparisons
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5
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2
1
0
30 35 40 45 50 55
age at inception
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Disability benefit provisions
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The elimination period
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The benefit period
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The time period for which benefits will be paid, e.g., two years, five years, to age 65 or
for life
98% of disabled recover in less than a year. If disability last more than a year then the
probability of recovery diminishes markedly.
The monthly indemnity
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The time period before the first benefit payment, e.g. 30, 60 , 90, 180, 365 days
The elimination period is like a deductible
The payment is almost always a fixed monthly indemnity.
The payments are limited to no more than 85% of the insured
earned income; this is for low income individuals and is graduated
to 65% for higher income insureds. How does this handle moral
hazard?
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Questions
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Compare and contrast individual and group health
insurance coverage with respect to underwriting
practices, the impact of adverse selection,
administrative costs and the benefits available
How is health insurance a more complicated
contractual agreement than life insurance?
How have changing demographics, social customs,
and medical technology affected the demand for
long-term care insurance?
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