Ch. 7* - Health Insurance Underwriting

Question 1

Application

Answer 1

is a form supplied by the insurance company, usually filled in by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued. It gives information to the home office underwriting department, so it may consider whether an insurance policy will be issued, and, if so, in what classification and at what premium rate.

Question 2

General (Part 1) of the application

Answer 2

asks general questions about the proposed insured, including name, age, address, birth date, sex, income, marital status, and occupation. Details about the requested insurance coverage are also included in Part 1 such as:

• type of policy
• amount of insurance
• name and relationship of the beneficiary
• other insurance the proposed insured owns
• additional insurance applications the insured has pending
• other information sought may indicate possible exposure to hazardous hobby, foreign travel, aviation activity, or military service.
• tobacco use

Question 3

Medical Part 2 of the application

Answer 3

focuses on the proposed insured’s health and asks a number of questions about the health history, not only of the proposed insured, but of the proposed insured’s family, too. This medical section must be completed in its entirety for every application. Depending on the proposed policy face amount, this section may or may not be all that is required in the way of medical information. The individual to be insured may be required to take a medical exam and/or provide a blood test or urine specimen. Physical exams, if requested by the insurer, are performed at the expense of the insurer.

Question 4

Agent’s Report (Part 3) of the application

Answer 4

is where the agent reports personal observations about the proposed insured. Because the agent represents the interests of the insurance company, the agent is expected to complete this part of the application fully and truthfully. In Part 3, the agent provides additional information about the applicant’s financial condition and character, the background and purpose of the sale, and how long the agent has known the applicant. The agent’s report also usually asks if the proposed insurance will replace an existing policy. If the answer is yes most states demand that certain procedures be followed to protect the rights of consumers when policy replacement is involved.

Question 5

Attending Physician Statement (APS)

Answer 5

is a report ordered by the insurance company and completed by a physician, hospital or medical facility who has treated, or who is currently treating, a person seeking insurance. An APS is one of the most frequently ordered additional sources of medical background information and can be for a specific ailment (diabetes, broken leg, etc.) or for a general family doctor.

Question 6

Binding receipts

Answer 6

are given by a company upon an applicant’s first premium payment. The policy, if approved, becomes effective from the date of the receipt.

Question 7

Buyer’s Guide

Answer 7

is an informational consumer guide books that explain insurance policies and insurance concepts; in many states, they are required to be given to the applicants when certain types of coverages are being considered. Buyer’s Guides are often used with life insurance, long-term care insurance, and annuities.

Question 8

Conditional Receipt

Answer 8

is given to the policy owners when they pay a premium at time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions states on the receipt.

Question 9

Credit report

Answer 9

is a summary of an insurance applicant’s credit history, made by an independent organization that has investigated the applicant’s credit standing.

Question 10

Constructive delivery

Answer 10

is accomplished technically if the insurance company intentionally relinquishes all control over the policy and turns it over to someone acting for the policyowner, including the company’s own agent. Mailing the policy to the agent for unconditional delivery to the policyowner also constitutes constructive delivery, even if the agent never personally delivers.

Question 11

Fair Credit Reporting Act

Answer 11

is a federal law requiring an individual to be informed if she is being investigated by an inspection company. The law also outlines the sharing and impact of such information and requires individuals to be notified prior to being investigated.

Question 12

Inspection reports

Answer 12

are reports of an investigator providing facts required for a proper underwriting decision on applications for new insurance and reinstatements.

Question 13

Medical information bureau

Answer 13

is a service organization that collects medical data on life and health insurance applicants for member insurance companies.

Question 14

Policy summary

Answer 14

is a summary of the terms of an insurance policy, including the conditions, coverage limitations, and premiums. Policy summaries are often used with life insurance, long-term care insurance, and annuities. PREFERRED is a risk whose physical condition, occupation, mode of living, and other characteristics indicate a prospect for longevity for unimpaired lives of the same age.

Question 15

Representations

Answer 15

are statements an applicant makes as being substantially true to the best of the applicant’s knowledge and belief, but which are not warranted to be exact in every detail. Representations must be true only to the extent that they are material to the risk.

Question 16

Risk classification

Answer 16

is the grouping of different risks according to their estimated cost or likely impact, likelihood of occurrence, countermeasures required, etc.

Question 17

Standard

Answer 17

is a person who, according to a company’s underwriting standards, is entitled to insurance protection without extra rating or special restrictions

Question 18

Substandard

Answer 18

is a person who is considered an under average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy, climate, or dangerous habits.

Question 19

Underwriting

Answer 19

is the process of an individual applying for insurance, the insurer evaluating the risk, assigning a risk classification, and approving the application (via issuing the policy) or declining to issue a policy. The steps involved in the underwriting process are outlined on pages 3 and 4

Question 20

USA patriot act

Answer 20

was enacted in 2001 and requires insurance companies to establish formal anti-money laundering programs. The purpose of the USA Patriot act is to detect and deter terrorism

Question 21

warranties

Answer 21

are statements that are guaranteed to be correct. A warranty that is not literally true in every detail, even if made in error, is sufficient to render a policy void.

Question 22

Morbidity

Answer 22

whereas mortality rates show the average number of persons within a large group of people who can be expected to die within a given year at a given age, morbidity rates indicate the average number of people at various ages who can be expected to become disabled each year to due to accident or sickness. Morbidity statistics also reveal the average duration of disability, so insurers can approximate how many people within a large group will become disabled, and the duration for which disabilities can be expected to last.
Morbidity statistics, which are available to companies offering health insurance, have been collected over many, many year and reflect the disabilities of hundreds of thousands of people. They are compiled into morbidity rates.

Question 23

Medical Cost Management

Answer 23

is being widely recognized and applauded as the most promising means of controlling claims expenses. It is the process of controlling in the way in which policyowners utilize their policies. There are four general approaches insurers use for cost management: mandatory second opinions, precertification review, ambulatory surgery, and case management.

Question 24

Mandatory Second opinions

Answer 24

in an effort to reduce unnecessary surgical operation, many health policies today contain a provision requiring the insured to obtain a second opinion before receiving non-life-threatening surgery. Under the mandatory second surgical opinion provision, an insured typically will pay more out-of-pocket expenses for surgeries for which only one opinion was obtained. The mandatory second surgical option provision can help contain the cost of a group medical plan. Benefits are often reduced if a second opinion is not obtained.

Question 25

Precertification Review

Answer 25

to control hospital claims and prevent unnecessary medical costs, many policies today require policy owners to obtain approval from the insurer before entering a hospital for elective surgeries. A pre-hospitalization authorization program (pre-certification) determines whether the requested treatment is medically necessary. In an emergency situation, hospital pre-admission certification typically requires notification be given after the patient is admitted to the hospital. Pre-admission, pre-hospitilization, and pre-certification are all common names used for this particular type of managed care. Pre-admission testing usually involves evaluating an individuals overall health prior to being hospitalized for surgery.
Pre-admission testing helps control health care costs primarily by reducing the length of hospitalization. Failure to obtain a preadmission certification is non-emergency situations reduces or eliminates the health care provider’s obligation to pay for services rendered.

Question 26

Concurrent Review

Answer 26

sometimes called “utilization review” is part of a managed care program in which health care is reviewed as it is being provided. It involves monitoring the appropriateness of the care, the setting, and the length of time spent in the hospital. This ongoing review is directed at keeping costs as low as possible and maintaining effectiveness of care

Question 27

Ambulatory surgery

Answer 27

advances in medicine enable many surgical procedures to be performed on an outpatient basis instead of an overnight hospital stay. To encourage insureds to utilize less expensive outpatient care, many policies offer some sort of financial inducement. For example, a policy may waive the deductible or coinsurance if the policyowner elects to be treated on an outpatient basis rather than as an admitted patient.

Question 28

Case management

Answer 28

involves a specialist within the insurance company, such as a registered nurse, who reviews a potentially large claim as it develops to discuss treatment alternatives with the insured. For example, the insured’s policy might state that treatment for a kidney ailment can only be performed in a hospital or registered hemodialysis center. However, if it makes economic sense to the insurer and practical sense to the insured to receive treatment in the insured’s home, the case manager may negotiate with the insured to allow treatment to be performed at home as long as certain conditions are met. The purpose of case management is to let the insurer take an active role in the management of a potentially expensive claim.

Question 29

Point-of-service plans

Answer 29

POS health plan is best defined as a plan that combines indemnity plan features with those of HMO’s. It allows the insured to choose either a network or an out-of-network provider at the time care is needed.