Principles of risk management and insurance 12th by rejde mcnamara chapter 15

 

Chapter 15
Health-Care
Reform; Individual
Health Insurance
Coverages


Agenda
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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

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Health-Care Problems in the US
• The US Health-care delivery system has four
major problems:
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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

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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.

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

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Health-Care Problems in the US
• Reasons for the increase in spending include:
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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
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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:
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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
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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

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Insight 15.2 More Than Seventy Percent of the Uninsured 

Have Gone Without Health Coverage for More Than a Year

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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

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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:
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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
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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

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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

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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.

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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

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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 healthcare providers

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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

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Basic Provisions of the Affordable
Care Act
• Provisions that apply to health insurers
include:
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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

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Basic Provisions of the Affordable
Care Act
• The Act requires insurers to cover essential health

benefits:
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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
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Basic Provisions of the Affordable
Care Act
• Each plan provides essential benefits

• Applicants will have a choice of four benefit
categories:
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The
The
The
The

bronze plan covers 60 percent of the benefit costs
silver plan covers 70 percent of the benefit costs
gold plan covers 80 percent of the benefit costs
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.

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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

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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

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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
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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

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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
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