Chapter 1 Review (Health): Health and Accident Insurance

Question 1

Refers to the broad field of insurance plans that provide protection against the financial consequences of illness, accidents, injury, and disability.

Answer 1

Health insurance

Question 2

_____ _____ insurance provides financial protection against the cost of medical care by reimbursing the insured, fully or in part, for these costs, called _____ plans. Examples of this insurance are _____ _____ insurance and _____ _____ _____ insurance.

Answer 2

Medical expense

reimbursement

Medicare supplement

long-term care

Question 3

_____ _____ insurance provide a replacement income when wages are lost due to a disability.

Answer 3

Disability income

Question 4

This provides the insured with a lump-sum benefit amount in the event of accidental death or dismemberment under accidental circumstances.

Answer 4

Accidental Death and Dismemberment Insurance (AD&D)

Question 5

These are short-term policies that can be purchased on an interim basis when in between jobs or waiting for a new policy to start.

Answer 5

Interim Coverage

Question 6

This regular payment in a health insurance policy is calculated based on interest, expense, types of benefits, and morbidity, or the expected incidence of sickness or disability within a given age group during a given period of time.

Answer 6

Health insurance premium

Question 7

Business uses of health insurance two broad categories:

Answer 7

1. Business Continuation Plans
2. Employee Benefit Plans

Question 8

A health insurance business plan used to continue the operation of a business in the event of a disabling sickness or injury to a business owner or key employee.

Answer 8

Business Continuation Plans

Question 9

A health insurance business plan used to help an employee in the event of a disabling sickness or injury.

Answer 9

Employee Benefit Plans

Question 10

Sold on an individual basis to professionals in private practice, self-employed business owners, partners, and occasionally close corporations.

• is designed to reimburse a business for overhead expenses in the event a business owner becomes disabled
• Designed to help the day to day operation of businesses to continue during the period of disability.
• Overhead expenses include such things as rent or mortgage payments, utilities, telephones, leased equipment, employees’ salaries etc.
• Does not include any compensation for the disabled owner
• The premium is a tax-deductible business expense
• The benefits when paid are treated as taxable income

Answer 10

Business Overhead Expense Insurance

Question 11

This is designed to assist in the sale of a business in the event of the disability of a business owner.

• The plan sets forth the terms for selling and buying a partner’s or stock owner’s share of a business in the event she becomes disabled and is no longer able to participate in the business.
• It is a legal, binding arrangement funded with a disability income policy.
• Unlike typical disability income insurance plans that pay benefits in the form of periodic payments, this plan usually contains a provision allowing for a lump-sum payment of the benefit.
• Benefits are received tax-free because the premiums paid are not tax deductible.
• Characterized by lengthy elimination periods, often as long as two years.

Answer 11

Disability Buy-Sell Plan also known as Disability Buy-Outs

Question 12

This type of coverage pays a monthly benefit to a business to cover expenses for additional help or outside services when an essential person is disabled.

• The key person’s economic value to the business is determined in terms of the potential loss of business income that could occur, as well as the expense of hiring and training a replacement for the key person.
• The business is the owner and premium payor of the policy.
• Benefits are received by the business tax-free because the premium paid is not tax deductible.
• These policies are typically reserved for “hard-to-replace” employees like executives or key sales members and would not be used on lower-level employees like secretaries or assistants.

Answer 12

Key Person Disability Insurance

Question 13

• The plan contributes to employee morale and productivity
• The plan enables the employer to provide a needed benefit that employees would otherwise have to pay for with personal after-tax dollars (this helps hold down demands for wage increases)
• The plan places the employer in a competitive position for hiring and retaining employees
• The employer can obtain a tax deduction for the cost of contributing to the plan
• The plan enhances the employer’s image in both public and employee relations

Answer 13

Benefits of including Health Insurance in employee benefit plans.

Question 14

In group health insurance plans, a _____ _____ is issues to the employer, and insureds receive _____ _____ _____ and an _____ that describes their benefits.

Answer 14

Master Policy
Certificates of Insurance
Outline

Question 15

The benefits provided under a group health plan are _____ _____ than those provided under an individual health plan.

Answer 15

more extensive

Question 16

Group health plans typically have higher _____ _____ and lower _____.

Answer 16

benefit maximums

deductibles

Question 17

The period of time during which a new employee is ineligible for group health insurance coverage. Think the _____ _____ when you start a new job.

Answer 17

Probationary period

Question 18

The limited period of time during which all members may sign up for a group plan.

Answer 18

Enrollment period

Question 19

The purpose of this provision, found only in group health plans, is to avoid duplication of benefit payments and over insurance when an individual is covered under more than one group health plan.

Answer 19

Coordination of benefits (COB)

Question 20

The COB provision limits the total amount of claims paid from all insurers covering the patient to no more than the

Answer 20

total allowable medical expenses

Question 21

Can someone actually make money off their claims when they are covered under more than one health insurance plan?

Answer 21

NO.

(This is why the COB provision specifies which plan is your primary carrier, secondary carrier, etc.)

(Once the primary plan has paid its full promised benefit, the insured may submit the claim to the secondary carrier(provider) for any additional benefits payable)

Question 22

_____ of a plan occurs when health benefits are too high.

Answer 22

Overutilization

Question 23

Other Group Health Insurance funding optoins:

this allows the employer to self-fund health care expenses up to a certain limit.

Answer 23

Shared funding arrangement

Question 24

Other Group Health Insurance funding optoins:

allows the employer to self-insure the normal and expected claims up to a given amount and the insurer funds only the excess amounts.

Answer 24

Minimum premium arrangement

Question 25

Other Group Health Insurance funding optoins:

the insurer agrees to collect a provisional premium but may collect additional premium or make refund at the end of the year based on the actual incurred losses.

Answer 25

Retrospective premium arrangement

Question 26

Other Group Health Insurance funding optoins:

large employers may elect to fully self-fund, or may self-fund a plan, but contract for administrative services only.

Answer 26

Self-funding arrangement.

Question 27

• Reason for the group’s existence (purchasing group insurance must be incidental to the group’s formation, not the reason for it)
• Stability of the group (underwriters want to see a group of stable workers without an excessive amount of “turnover”)
• Persistency of the group (groups that change insurers every year do not represent a good risk)
• Method of determining benefits (it must be by a schedule or method that prevents individual selection of benefits)
• How eligibility is determined (insurers want to see a sickness-related probationary period, for example, to reduce adverse selection)
• Source of premium payments, whether contributory or noncontributory (noncontributory plans are preferred because they usually require 100% participation, which helps spread the risk and reduces adverse selection)
• Prior claims experience of the group
• Size and composition of the group
• Industry or business with which the group is associated (hazardous industries are typified by higher-than- standard mortality and morbidity rates)

Answer 27

Factors to affecting Group Underwriting for group health insurance plans.

Question 28

The exclusion for preexisting conditions is now limited to conditions for which medical advice or treatment was recommended or received within the _____ _____ period ending on the enrollment date and the exclusion can extend for no more than _____ _____

Answer 28

six-month

12 months

Question 29

When determining whether preexisting conditions apply, new employees enrolling in a new group health plan cannot have a gap of more than _____ _____ without health insurance for preexisting conditions

Answer 29

63 days

Question 30

This privilege allows an insured to convert their group certificate to an individual medical expense policy with the same insurer, if and when they leave their employment, or the group plan is being eliminated

Answer 30

The Conversion Privilege

Question 31

HIPPA rules apply to most group health plans like _____, ______ and _____ It excludes coverage such as _____ and _____ plans.

Answer 31

HMO’s, PPO’s, and Major medical plans.

workers compensation

disability income

Question 32

HIPAA provides that the 10% excise tax for early withdrawal from IRAs will not apply to the extent a withdrawal is used for medical expenses that exceed _____ of the individual’s adjusted gross income (AGI)

Answer 32

7.5%

Question 33

The COBRA law requires employers with _____ or more employees to continue group medical expense coverage for terminated workers for up to _____ months following termination

Answer 33

20

18

Question 34

Under COBRA, the terminated employee can be required to pay the premium, which may be up to _____ of the premium that would otherwise be charged

Answer 34

102%

Question 35

If applicable to COBRA laws, when an employee dies, their dependents will continue to receive coverage for

Answer 35

36 months.

Question 36

Dependent child no longer qualifies as “dependent child” under the plan:

Answer 36

36 months of continued coverage

Question 37

Employee becomes eligible for Medicare, or divorces or legally separates:

Answer 37

36 months of continued coverage for employee
36 months of continued coverage for former spouse

Question 38

Common exclusions to continuation of group coverage includes:

Answer 38

dental, vision care, and other prescription drug benefits

Question 39

an amendment to the Civil Rights Act of 1964 designed to prohibit sex discrimination on the basis of pregnancy

Answer 39

The Pregnancy Discrimination Act of 1978

Question 40

The Pregnancy Discrimination Act of 1978 requires group plans covering _____ or more people to treat pregnancy related claims no differently than any other allowable medical expense.

Answer 40

15

Question 41

The three standard forms of basic medical expense insurance are _____, _____, and _____. A basic medical expense plan can combine two or more of these coverages or perhaps only one type of coverage.

Answer 41

hospital, surgical, and physicians’ expenses

Question 42

Group major medical plans may be offered as a single, extensive plan (_____ _____ _____) or superimposed over a group basic plan (_____ _____ _____).

Answer 42

comprehensive major medical

supplemental major medical

Question 43

Participants are usually required to satisfy a(n) _____ deductible with comprehensive plans and either a _____ or an _____ deductible with supplemental plans.

Answer 43

initial

corridor

integrated

Question 44

• This coverage is designed to cover the costs associated with normal dental maintenance as well as oral surgery, root canal therapy, and orthodontia
• The coverage may be on a “reasonable and customary charge” basis or on a dollar-per-service schedule approach
• Deductible and coinsurance features are typical as are maximum yearly benefit amounts

Answer 44

Dental Care

Question 45

This coverage usually pays for reasonable and customary charges incurred during eye exams by ophthalmologists and optometrists.

• A common exclusion is Lasik surgery

Answer 45

Vision Care

Question 46

• This is part of the IRS Code that allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Under this program you may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks. An S-Corp Owner with a greater than 2% share is ineligible to participate in this Plan.
• These plans are benefit arrangements in which employees can pick and choose from a menu of benefits, thus tailoring their benefits package to their specific needs
• Employees can select the benefits they value or need and forgo those of lesser importance to them
• The employer allocates a certain amount of money to each employee to “buy” the benefits he/she desires
• If the cost of the benefits exceeds the allocation, the employee may contribute the balance
• Without a Section 125 Plan in place an employee’s payroll contribution would not be allowed to an HAS
• Church employee welfare plans are specifically exempt from regulation under ERISA

Answer 46

Cafeteria Plans (Section 125 Plan)

Question 47

These plans promote employee health and productivity and reduce health related costs while focusing on drug abuse and stress.

Answer 47

Wellness Programs.

Question 48

Group short-term disability plans are characterized by maximum benefit periods of rather short duration, such as:

Answer 48

13 or 26 weeks.

Question 49

Group long-term disability plans provide for maximum benefit periods of more than _____ _____, occasionally extending to the _____ _____ _____.

Answer 49

two years, insured’s retirement age.

Question 50

• No employer or fiduciary managing a group life or health plan may willfully refuse to pay premiums in order to cause the cancellation or nonrenewal of the plan.
• The employer or fiduciary must provide 45 days’ notice of termination of the plan to all those covered and receiving benefits.
• Any person violating this regulation shall be guilty of a Class H felony.

Answer 50

Group Health Plan Termination, do’s and don’ts

Question 51

There are five principal renewability classifications:

Answer 51

cancellable, optionally renewable, conditionally renewable, guaranteed renewable, and noncancelable.

Question 52

These benefits are generally coordinated with or decreased by disability income received from government plans, pensions or other forms of social insurance such as Social Security disability or Workers’ Compensation.

Answer 52

Group disability benefits

Question 53

These policies generally pay the monthly income benefit in addition to any income derived from other sources.

Answer 53

Individual disability income

Question 54

AD&D may be provided as a separate policy, such as employee-pay-all plans, which are called

Answer 54

voluntary group AD&D

Question 55

Individuals under _____ _____ are eligible to establish and contribute to HSAs if they have a _____ _____ _____ _____.

Answer 55

age 65
qualified high-deductible health plan

Question 56

A(n) _____ is a tax-favored vehicle for accumulating funds to cover medical expenses

Earnings in _____ grow tax-free, and account beneficiaries can make tax-free withdrawals to cover current and future qualified health care costs.

Answer 56

Health Savings Account (HSA)

Question 57

o Doctors’ fees

o Prescription and nonprescription medicines

o Necessary hospital services not paid for by insurance

o Retiree health insurance premiums

o Medicare expenses (but not Medigap)

o Qualified long-term care services

o COBRA coverage

Answer 57

These are all qualified health care expenses.

Question 58

Employers are entitled to take a tax deduction for premium contributions they make to a group health plan, as long as the contributions represent an

Answer 58

“ordinary and necessary business expense.”

Question 59

Disability benefit payments that are attributed to _____ contributions are NOT taxable, but benefit payments that are attributed to _____ contributions ARE taxable.

Answer 59

employee

employer

Question 60

Sole proprietors are permitted tax deductions for health costs paid from their earnings in the amount of _____ of costs

Answer 60

100%

Question 61

This sum under an AD&D policy is the amount payable as a death benefit. It is the amount of insurance purchased- $10,000, $25,000, $50,000, $100,000, or more, and it represents the maximum amount the policy will pay.

Answer 61

Principal Sum

Question 62

Another form of payment payable under an AD&D policy is the amount payable for the accidental loss of sight or accidental dismemberment. It is a specified amount, usually expressed as a percentage of the principal sum, which varies according to the severity of the injury. For example, the benefit for the loss of one foot or one hand is typically of the principal sum. The benefit for the loss of one arm or one leg is usually two-thirds of the principal sum. The most extreme losses (such as both feet or sight in both eyes) generally qualify for payment of the full benefit, which is 100% of the principal sum. This is known as the:

Answer 62

Capital Sum

Question 63

Policies that base their benefit payments on _____ _____ require that both the cause and the result of an accident must be unintentional.

Answer 63

accidental means

Question 64

This form of AD&D policies set forth specific risk and provide benefits to cover death or dismemberment due to that risk.

Answer 64

Limited Risk Policies

Question 65

This form of policy covers unusual hazards normally not covered under ordinary accident and health insurance.

Answer 65

Special Risk Policies

Question 66

The benefits under a Disability Buy-Out policy are:

Answer 66

payable to the company or another shareholder.

Question 67

K is the insured and P is the sole beneficiary on an Accidental Death and dismemberment (AD&D) insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common disaster provision, which of these statements is true?

Answer 67

Proceeds will be paid to P’s estate.

Question 68

The reason for a business having a Business Overhead Expense Disability Plan is to cover:

Answer 68

fixed business expenses.

Question 69

Under the Uniform Simultaneous Death Act, if both insured and primary beneficiary are killed in the same accident and there is insufficient evidence to show who died first, policy proceeds will be paid as if the insured died _____. In other words, the proceeds will be paid to the _____ or _____ beneficiary.

Answer 69

last

secondary

contingent

Question 70

The provision in a Group Health policy that allows the insurer to postpone coverage for a covered illness 30 days after the policy’s effective date is referred to as the:

Answer 70

Waiting Period

(The waiting period in a Group Health policy gives an insurance company the rights to delay coverage for a covered sickness for a specified number of days after the effective date of the policy.)