Personal finance 6th madura chapter 12 health and disability insurance

Personal Finance
SIXTH EDITION

Chapter 12
Health and Disability
Insurance

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Chapter Objectives (1 of 2)
12.1 Provide a background on health insurance
12.2 Compare the types of private health care plans
12.3 Describe the contents of health care plans
12.4 Describe government health care plans

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Chapter Objectives (2 of 2)
12.5 Describe federal regulations in health care
12.6 Describe long-term care insurance
12.7 Explain the benefits of disability insurance
12.8 Explain how health and disability insurance fit
within your financial plan

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Background on Health Insurance (1 of 2)
• Health insurance: 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

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Background on Health Insurance (2 of 2)
• Cost of health insurance
• About 1 in 5 workers is uninsured
• 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

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Private Health Insurance (1 of 7)
• 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
– Most common are fee for service (indemnity) plans or
managed care plans

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Private Health Insurance (2 of 7)
– Most common are fee for service (indemnity) plans or
managed care plans
– Fee for service plan: health insurance that reimburses
individuals for part or all of the expenses they incur
from health care providers; individuals are free 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

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Private Health Insurance (3 of 7)
– Most common are fee for service (indemnity) plans or
managed care plans
– Health maintenance organization (HMO): a health
insurance plan that covers health care services
approved by doctors; a primary care physician provides
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;
a referral from a doctor is not required to visit a
specialist
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Private Health Insurance (4 of 7)
 Discount on charge arrangement: an arrangement in which the
preferred provider organization (PPO) pays a specific
percentage of the health care providers’ charges
 Per diem rate arrangement: an arrangement in which the
preferred provider organization (PPO) pays the provider a
specific sum for each day a patient is hospitalized

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Private Health Insurance (5 of 7)
• Premiums for private health care insurance
– Higher for family coverage
– Self-employed, unemployed or those whose employer
doesn’t offer health care may purchase private
coverage
– Quotes and applications available online

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Private Health Insurance (6 of 7)
• Comparison of private health insurance plans
– Trade-offs between flexibility in selecting physician and
premium
– HMOs and PPOs offer brochures with comparative
information

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Private Health Insurance (7 of 7)

EXHIBIT 12.1 Comparison of Private Health Insurance Plans
Type of Private Health Plan

Premium

Selection of Physician

Indemnity Plan

High

Flexibility to select physician or
specialist

Managed Care: HMOs

Relatively low

Primary care physician refers
patients to specialist

Managed Care: PPOs

Low, but usually
higher than HMOs

There is a greater number of
physicians to choose from in PPOs
than HMOs

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Exhibit 12.2 Questions to Ask When
Considering a Particular HMO or PPO
EXHIBIT 12.2 Questions to Ask When Considering a Particular HMO or PPO
Questions Regarding Your Cost
1. Monthly premium?
2. Deductible?
3. Coinsurance/Co-pay amounts?
4. Limits on coverage?
5. Maximum out-of-pocket expenses per year?

Questions Regarding the Doctors/Health Care Providers
1. How many doctors are in the plan?
2. Who are the doctors in the plan?
3. Which doctors are accepting new patients?
4. How long in advance must you schedule a routine visit to the doctor?
5. Where are the doctors located?
6. What health care services do the doctors provide?
7. What hospitals/labs/diagnostic centers are in the plan?

General Questions
1. Is access to specialists only allowed with a referral from a primary care physician?
2. What coverage is provided if the patient receives services out of the primary network (for example, a visit to an emergency room while out of town)?

3. If a physician is accessed outside of the plan, are there out-of-network benefits?

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Financial Planning Online (1 of 5)
• Go to www.individual-health-plans.com
• This Web site provides information on different
types of plans including PPOs and HMOs.

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Contents of Health Care Insurance
Policies (1 of 4)
• Identification of insured persons
• Location
• Preexisting conditions
• Cancellation and renewability options
• Other coverage
– Rehabilitation
– Mental health

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Contents of Health Care Insurance
Policies (2 of 4)
– Pregnancy
– Dental insurance: insurance that covers part or all of

the fees imposed for dental services, including annual
checkups, orthodontics, and oral surgery
– Vision insurance: insurance that covers part or all of
the fees imposed for optician and optometrist services,
including annual checkups, glasses, contact lenses,
and surgery

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Contents of Health Care Insurance
Policies (3 of 4)
• Determinants of unreimbursed medical expenses
–
–
–
–
–

Deductible
Coinsurance
Stop-Loss provision
Coverage limits
Coordination of benefits

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Contents of Health Care Insurance
Policies (4 of 4)

• Expenses not covered by private insurance plans
– These should be included in your budget
– Flexible spending account: an account established by
the employer for the employee to use pretax income to
pay for medical expenses
 Funds cannot be carried over to the next year

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Government Health Care Plans (1 of 4)
• 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
– Part C is a combination of Part A and Part B provided
through private insurance companies
– Part D provides coverage for prescription drugs

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Financial Planning Online (2 of 5)
• Go to
• This Web site provides an overview of services
offered by Medicare, including the specific benefits
that are available.

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Government Health Care Plans (2 of 4)
• Medigap insurance: insurance provided by private
insurance companies to cover medical expenses
that are not covered by Medicare

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Financial Planning Online (3 of 5)
• Go to
• This website gives an overview of services offered
by Medigap.

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Government Health Care Plans (3 of 4)
– Medicare Prescription Act
 Passed in 2003
 Allows coverage for senior citizens and persons with
disabilities
 Covers some prescription drugs
 Allows seniors to purchase various forms of coverage for
prescription drugs
 Health savings account: an account that shelters income from
taxes and that can be used to pay health care expenses

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Financial Planning Online (4 of 5)
• Go to and insert the
search term “health savings account”
• This site gives more details about health savings
accounts.

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Government Health Care Plans (4 of 4)
• Medicaid: a federal program that provides health
care to the aged, blind, disabled, and needy
families with dependent children
• Recipients must meet federal guidelines
• Administered on a state-by-state basis

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