Health Insurance and

disability income insurance

Individual Medical Expense Insurance

• Individual medical expense insurance protects an individual or family

for covered medical expenses because of sickness or injury
• Most individual medical expense policies sold today typically have the
following characteristics
Major medical benefits :
■ Broad range of benefits
■ Calendar-year deductible
■ Coinsurance and copayments
■ Annual out-of-pocket limits
■ Exclusions
Broad ranges of Benefits
• A plan that pays a high percentage of covered medical expenses
incurred by an insured who has a catastrophic illness or injury.
 Inpatient hospital benefits
Outpatient benefits
Physician benefits
 Preventive services
Outpatient prescription drugs
Calendar-year deductible
• a calendar-year deductible is an aggregate deductible that has to be
satisfied only once during the calendar year.
• Purpose is to eliminate small claims and the high administrative cost
of processing them
Co-insurance

• Coinsurance is the percentage of the bill in excess of the deductible,

which the insured must pay out-of-pocket up to some maximum
annual dollar limit. (20%-30%)
• Example
An insured person has covered medical expenses of $10,000,
the calendar-year deductible is $1000
the coinsurance percentage is 20%
Calculate the payment provision of both insured and insurer
Co-payments
• Copayment is a flat amount that the insured must pay for certain
benefits,
• Ex. - $40 for a visit to a primary care physician, or a $10 copayment
for a generic drug

• Coinsurance vs Copayment
Copayment is a small nominal amount paid by the insured for certain
services. Coinsurance is a percentage of covered medical expenses in
excess of the deductible that the insured must pay up to specified
annual limits.
Annual Out-of-Pocket Limits
• Maximum is the most you'll have to pay for covered health care
services in a year if you have health insurance.
• Deductibles, copayments, and coinsurance count toward your out-of-
pocket maximum;
• Monthly premiums are not included
• 100 percent of the covered medical expenses in excess of the
deductible are paid after the insured pays a certain annual amount of
out-of-pocket expenses
• The insured is usually given a choice of several annual out-of-pocket
limits when the policy is purchased, such as $3000, $4000, or some
higher amount.
• As an example, let's say you have a health insurance plan with a
$2,000 deductible, a 30% coinsurance for all care after meeting the
deductible, and a $5,000 out-of-pocket limit. The day after you sign up
for this plan, you get into a car accident. The total cost of your
medical care is $15,000.
Exclusions
■ Services determined not to be medically necessary
■ Expenses caused by war
■ Elective cosmetic surgery
■ Eyeglasses and hearing aids
■ Dental care, except as a result of an accident
■ Expenses covered by workers’ compensation and similar laws
■ Investigative or experimental medical treatment
■ Services furnished by governmental agencies unless the patient has an obligation to pay
■ Expenses covered by Medicare or other government medical expense programs
■ Expenses resulting from suicide or self-inflicted injury
■ Pregnancy and childbirth except complications of pregnancy (maternity expenses can be
covered as an optional benefit with higher premiums)
Managed care plan

• Managed care is a generic term for medical expense plans that

provide covered medical services to the members in a cost effective
manner.
• There are different types of managed care plans
• The most popular plan is a preferred provider organization (PPO).
• A PPO is a plan that contracts with physicians, hospitals, and other
health-care providers to provide covered medical services to
policyholders at discounted fees.
 Solve

• Mark, age 28, is insured under an individual medical expense policy that is part of a preferred provider organization (PPO) network.
• The policy has a calendar-year deductible of $1000,
• 75/25 percent coinsurance,
• an annual out-of-pocket limit of $2000.
• Mark recently had outpatient
• The surgery was performed in an outpatient surgical center.
• Mark incurred the following medical expenses.
• (Assume that the charges shown are the charges approved by Mark’s insurer and that all providers are in the PPO network.)
Items Charges
Outpatient X-rays and diagnostic test $800
Covered charges in the surgical centre $12000
Surgeon’s fee $3000
Prescription drug $400
Physical therapy expenses $1200

• How much of the expenses will be paid by the insurance company?

• How much of the expenses will Mark have to pay
Health Savings Account
• A health savings account (HSA) is a tax-exempt or custodial account
established exclusively for the purpose of paying qualified medical
expenses of the account beneficiary who is covered under a high-
deductible health insurance plan
• Has two components
• A high deductible health insurance policy
• An investment account to withdraw money tax free for medical expenses
Disability- income insurance
• What is it?
• Why Disability- income insurance is needed even if one has a health
insurance?
• https://www.youtube.com/watch?v=SryRvI-Go7Q
• https://www.youtube.com/watch?v=669qsOnerUg
Defining Total disability….
• 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
• For example, assume that Karen earns $5,000 monthly and has a
disability-income contract with a maximum monthly benefit of
$3,000. If Karen’s work earnings are reduced to $2,500 monthly
because of the disability (50 percent), the policy pays
Partial disability…
• Partial disability means that you can perform some but not all of the
duties of your occupation.
• Partial disability benefits are paid at a reduced rate for a limited
period, such as 50 percent for 3, 6, or 12 months
Residual Disability
• In one policy, residual disability means that you are gainfully
employed and not totally disabled but, solely because of sickness or
injury, your loss of income is at least 15 percent of your prior income
• Earned income is compared before and after the disability, and the
residual disability benefit paid is a specified percentage of the lost
income.
• For example, if there is a 50 percent loss of earned income because of
sickness or injury, a 50 percent disability benefit is paid.
Elimination period vs benefit period
• Individual policies normally contain an elimination period (waiting
period), during which time benefits are not paid.
• Insurers offer a range of elimination periods, such as 30, 60, 90, 180,
or 360 days
• The benefit period is the length of time that disability benefits are
payable after the elimination period is met. The insured has a choice
of benefit periods, such as 2, 5, or 10 years, or up to age 65 or 70
Waiver of premium
• If the insured is totally disabled for 90 days, future premiums will be
waived as long as the insured remains disabled.
• In addition, there may be a refund of the premiums paid during the
initial 90-day period
• If the insured recovers from the disability, premium payments must
be resumed.
Options for disability-income benefits (additional features that can be purchased)

• Cost-of-living rider
• Option to purchase additional insurance
• Social security rider
• Return of premiums
 Solve

Jeff currently earns $3000 per month. He has an individual disability-

income policy that will pay $2000 monthly if he is totally disabled.
Disability is defined in terms of the worker’s own occupation. The policy
has a 30-day elimination period and also provides residual disability
benefits. Benefits are payable until age 65.
• If Jeff is severely injured in an auto accident and cannot work for four
months, how much will he collect under his policy?
• Assume Jeff returns to work but can only work part-time until he
recovers completely. If he earns $1500 monthly, what is the amount,
if any, that Jeff can collect under his policy? Explain your answer.