Health and Accident Insurance

Question 1

Health Insurance

Answer 1

is a general way of describing insurance against loss through sickness or accidental bodily injury. It is also called accident and health, accident and sickness, sickness and accident, or disability insurance. It is important to remember the general term “health insurance” applies to many different types of insurance, not just the medical insurance that pays for doctor and hospital visits.

Question 2

Disability (income) Insurance

Answer 2

is a form of insurance that insures the beneficiary’s earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. Although disability insurance is designed to protect one’s income, there are typically rules and regulations in place limiting the benefits of a disability policy to one’s income level, and typically only allowing protection for a portion of their income.

Question 3

Medical expense insurance

Answer 3

pays benefits for nonsurgical doctors’ fees commonly rendered in a hospital; sometimes pays for home and office calls.

Question 4

Interim Coverage

Answer 4

is a short-term policy purchased on an interim basis typically when in between jobs or waiting for a new policy to start.

Question 5

Accidental death and dismemberment insurance (AD&D insurance)

Answer 5

is the purest form of accident insurance. It provides the insured with a lump-sum benefit amount in the event of accidental death or dismemberment under accidental circumstances.

Question 6

A Nonparticipating plan

Answer 6

nsurance under which the insured is not entitled to share in the divisible surplus of the company.

Question 7

Participating Plan of insurance

Answer 7

is a plan under which the policy owner receives shares (commonly called dividends) of the divisible surplus of the company.

Question 8

Patient Protection and Affordable Care Act

Answer 8

was designed to increase health insurance quality and affordability, lower the uninsured rate by expanding insurance coverage and reduce the costs of healthcare. It introduced mechanisms including mandates, subsidies and insurance exchanges. The law requires insurers to accept all applicants, cover a specific list of conditions and charge the same rates regardless of pre-existing conditions or sex. The Patient Protection and Affordable Care Act, often shortened to the Affordable Care Act (ACA) and nicknamed Obamacare, only applies to specific medical coverage. It does NOT apply to ALL health insurance policies.

Question 9

Group Health Insurance

Answer 9

is insurance that provides coverage for a group of persons, usually employees of a company, under one master contract. group health plans are available to employers, trade and professional associations, labor unions, credit unions, and other organizations. Insurance is extended to individuals in the group through the master contract. This normally does not require individual underwriting nor evidence of insurability. The employer or the association is the policyowner and is responsible for premium payments. The employer may pay the entire premium or may require some contribution from each member to cover the insurance cost.

Question 10

Renewability Provisions

Answer 10

efine the rights of the insurer to cancel the policy at different points during the life of the policy. There are five principal renewability classifications: cancellable, optionally renewable, conditionally renewable, guaranteed renewable, and noncancellable. Generally speaking, the more advantageous the renewability provisions to the insured, the more expensive the coverage.

Question 11

Cancellable Policies

Answer 11

allows the insurer to cancel or terminate the policy at any time. This type of renewability is prohibited in most states.

Question 12

Optionally Renewable policies

Answer 12

give the insurer the option to terminate the policy on a date specified in the contract. If the insurer decides to renew (not cancel) the policy, they also have the option (and usually choose to) increase the premiums on the anniversary date.

Question 13

Conditionally Renewable

Answer 13

policies give the insurer the option to terminate the policy only in the event of one or more conditions stated in the contract. Typically, these conditions are age related. If the insurer decides to renew (not cancel) the policy, they also have the option (and usually choose to) increase the premiums on the anniversary date.

Question 14

Guaranteed Renewable policies

Answer 14

specify that the policy MUST be renewed (usually until the insured reaches a specified age). However, the insurer still has the option (and usually choose to) increase the premiums on the anniversary date. Medicare supplement policies and long-term care policies are the most common types of guaranteed renewable policies.

Question 15

Noncancellable Policies

Answer 15

state the policy cannot be cancelled nor can its premium rates be increased under any circumstances. Disability policies are the most common noncancellable (noncan) policies.

Question 16

Nonrenewable policies

Answer 16

are for stablished policy lengths of a year or less (typically short-term health insurance) and are considered temporary.

Question 17

Cafeteria Plans

Answer 17

are benefit arrangements in which employees can pick and choose from a menu of benefits, thus tailoring the benefits package to their specific needs. Taxation of cafeteria plans is regulated by Section 125 of the Internal Revenue Code, thus sometimes cafeteria plans are referred to as a Section 125 plan.

Question 18

Business Continuation Plans

Answer 18

provide a way to help a business continue in the event an owner or key employee dies, or in the event of a disabling sickness or injury.

Question 19

Business Overhead Expense Insurance

Answer 19

is a form of disability income coverage designed to pay necessary business overhead expenses, such as rent, should the insured business owner become disabled. Overhead expenses include such things as rent or mortgage payments, utilities, telephones, leased equipment, employees’ salaries, and the like. This includes all the expenses that would continue and must be paid, regardless of the owner’s disability. Business overhead expense policies do not include any compensation for the disabled owner

Question 20

Disability Buy-Sell plans (disability buy-out agreement)

Answer 20

are agreements between business co-owners that provides that sharesowned by any one of them who becomes disabled shall be sold to and purchased by the other co-owners or by the business using funds from disability income insurance. The buy-out plan usually contains a provision allowing for a lump-sum payment of the benefit, thereby facilitating the buyout of the disabled’s interest. The policy is legally binding and proceeds are normally received tax-free.

Question 21

Key Person Disability Insurance

Answer 21

is the protection of a business against financial loss caused by the death or disablement of a vital number of the company, usually individuals possessing special managerial or technical skill or expertise. 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. Benefits are received by the business tax-free because the premium paid is not tax deductible.

Question 22

Noncontributory

Answer 22

is an employee benefit plan under which the employer bears the full cost of the employees’ benefits; in most states, the plan must insure 100% of eligible employees.

Question 23

Contributory

Answer 23

is a group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75% of the eligible employees must be insured in most states.

Question 24

Contributory

Answer 24

is a group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75% of the eligible employees must be insured in most states.

Question 24

Contributory

Answer 24

is a group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75% of the eligible employees must be insured in most states.

Question 24

Contributory

Answer 24

is a group insurance plan issued to an employer under which both the employer and employees contribute to the cost of the plan. Generally, 75% of the eligible employees must be insured in most states.

Question 25

Coordination of benefits

Answer 25

is designed to prevent duplication of group insurance benefits. Limits benefits from multiple group health insurance policies in a particular case to a % of the expenses covered and designates the order in which the multiple carriers are to pay benefits.

Question 26

Enrollment Period

Answer 26

is the limited period of time during which all members may sign up for a group plan. This is period typically happens once a year for a set number of days.

Question 27

n Enrollment Card

Answer 27

must be completed and signed by a new employee during the open enrollment period to enroll in group insurance.

Question 28

Waiting Period

Answer 28

is a period of time (often 12 months) beginning with your effective date during which your health insurance plan does not provide benefits for pre-existing conditions. This period may be reduced or waived based on any prior health care coverage you had before applying for your new health insurance plan.

Question 29

Probationary Period

Answer 29

s a specified number of days after an insurance policy’s issue date during which coverage is not afforded for sickness. Standard practice for group coverages as well as disability coverage. They probationary period typically does NOT apply to accidents. The real goal of this provision is to prohibit people from buying insurance only when they need it and immediately filling a claim, otherwise known as adverse selection.

Question 30

Health Insurance Portability and Accountability Act (HIPAA)

Answer 30

provides the ability to transfer and continue health insurance coverage for millions of American workers and their families when they change or lose their jobs. The HIPAA Privacy Rule provides federal protection for an individual’s health information and gives patients an array of rights with respect to that information. The HIPAA Security Rule provides technical safeguards to assure the confidentiality, integrity, and availability of electronic protected health information.

Question 31

Conversion Privilege

Answer 31

allows a policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue). Conversion is a common privilege for term life insurance and all group insurance. The insured does not have to prove insurability (good health) when converting a policy.

Question 32

Preexisting conditions

Answer 32

is an illness or medical condition that existed before a policy’s effective date; usually excluded from coverage, through the policy’s standard provisions or by waiver. Under HIPAA, are defined as health issues that existed, were treated, or diagnosed within 6 months prior to employment. An enrollee’s pre- existing conditions for a health benefit plan may be excluded for up to 12 months (18 months for late enrollees). A late enrollee is an individual who elects coverage after the initial eligibility period.

Question 33

Creditable Coverage

Answer 33

is previous coverage under another insurance plan when there has not been a break in coverage of 63 days. An individual’s waiting period for pre-existing conditions is reduced or eliminated altogether when he or she has creditable coverage.

Question 34

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA

Answer 34

is federal legislation which extends group health coverage to terminated employees and/or their families at the individual’s expense, for up to 18 months. COBRA coverage may be extended beyond 18 months in certain circumstances. COBRA rules typically apply when an employee loses coverage through loss of employment (except in cases of gross misconduct) or due to a reduction in work hours. COBRA benefits also extend to spouses or other dependents in case of divorce or the death of the employee. Children who are born to, adopted, or placed for adoption with the covered employee while he or she is on COBRA coverage are also entitled to coverage. All companies that have averaged at least 20 full-time employees over the past calendar year must comply with COBRA regulations.

Question 35

Blanket Health Policies

Answer 35

are issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are constantly changing. A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students. No certificates of coverage are issued in a blanket health plan, as compared to group insurance.

Question 36

Franchise Health Plans (wholesale plans)

Answer 36

provide health insurance coverage to members of an association or professional society. Individual policies are issued to individual members and the association or society simply serves as the sponsor for the plan. Premium rates are usually discounted for franchise plans.

Question 37

Credit Policies

Answer 37

are designed to help the insured pay off a loan in the event they are disabled due to an accident or sickness or in the event they die. If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payments due. If the insured dies, the policy will pay a lump sum to the creditor to pay off the loan. Credit policies typically cannot exceed the amount of the loan as that is the only amount the creditor has insurable interest in.

Question 38

Nonoccupational coverage

Answer 38

is coverage provided by a Disability Income policy that does not provide benefits for losses occurring as the result of the insured’s employment.

Question 39

Health Savings Accounts

Answer 39

is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit. Qualified health care expenses include amounts paid for: Doctors’ fees, Prescription and nonprescription medicines, Necessary hospital services not paid for by insurance, Retiree health insurance premiums, Medicare expenses (but not Medigap), Qualified long-term care services, COBRA coverage. Qualified medical expenses are expenses incurred by the HSA owner, the spouse, and dependents. Nonqualified withdrawals are subject to income taxes and a 20% penalty. HSAs are fully portable, and assets can accumulate over the years. Upon death, HSA ownership may be transferred to a spouse tax free.

Question 40

Accidental Means

Answer 40

is the Unforeseen, unexpected, unintended cause of an accident. Requirement of an accident-based policy that the cause of the mishap must be accidental for any claim to be payable.

Question 41

Accidental Results

Answer 41

are policies that use the accidental bodily injury provision (sometimes called the results provision) required that the result of the injury has to be unexpected and accidental. This is far less restrictive than the accidental means provision.

Question 42

The Principal Sum under an AD&D

Answer 42

policy is the amount payable as a death benefit. It is the amount of insurance purchased. The principal sum represents the maximum amount the policy will pay.

Question 43

Capital Sum

Answer 43

is another form of payment payable under an AD&D policy and is the amount payable for the accidental loss of sight or accidental dismemberment, or the capital sum. 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 50% 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.

Question 44

Limited Risk Policies

Answer 44

provides coverage for specific kinds of accidents or illnesses, such as injuries received as a result of travel accidents or medical expenses stemming from a specified disease.

Question 45

Special risk policy

Answer 45

covers unusual hazards normally not covered under ordinary accident and health insurance. An actress who insures her legs for $1 million or a pilot test-flying an experimental airplane who obtains a policy covering his life while flying that particular plane are both purchasing special risk policies.

Question 46

The Beneficiary of an Accidental Death and Dismemberment (AD&D)

Answer 46

insurance policy is the person or entity designated in the policy to receive the death proceeds.

Question 47

Primary Beneficiary

Answer 47

is the first in line to receive death benefit proceeds.

Question 48

Secondary (contingent) Beneficiary

Answer 48

s second in line to receive death benefit proceeds.

Question 49

Tertiary Beneficiary

Answer 49

is the third in line to receive death benefit proceeds. If no one named, death benefit will go to insured’s estate

Question 50

Revocable Beneficiary

Answer 50

is a beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary

Question 51

Irrevocable Beneficiary

Answer 51

may not be changed without the written consent of the beneficiary. The irrevocable beneficiary has a vested interest in the policy, therefore the policyowner may not exercise certain rights without the consent of the beneficiary.

Question 52

Per Stirpes (by the bloodline)

Answer 52

means that in the event that a beneficiary dies before the insured, benefits from that policy will be paid to that beneficiary’s heirs.

Question 53

Per Capita (by the head)

Answer 53

evenly distributes benefits among all named living beneficiaries.

Question 54

Simultaneous Death Act s

Answer 54

states that if the insured and the primary beneficiary die at approximately the same time for a common accident with no clear evidence as to who died first, the Uniform Simultaneous Death Act law will assume that the primary died first, this allows the death benefit proceeds to be paid to the contingent beneficiaries.

Question 55

Common Disaster Provision

Answer 55

ensures a policyowner if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary. It also states that the primary beneficiary must outlive the insured a specified period of time in order to receive the proceeds.

Question 56

Spendthrift Clause

Answer 56

prevents a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time. A spendthrift clause would have no effect if the beneficiary receives the proceeds as one lump sum payment.

Question 57

BUSINESS NEEDS FOR HEALTH INSURANCE

Answer 57

1. Business Continuation Plans to continue the operation of a business in the event of a disabling sickness or injury to a business owner or key employee.
2. Employee Benefit Plans to help an employee in the event of a disabling sickness or injury.

Business Continuation Plans

• Business Overhead Expense Insurance
• Sold on an individual basis to professionals in private practice, self-employed business owners, partners, and occasionally close corporations.
• Business overhead expense insurance 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 for business overhead insurance is a tax-deductible business expense
• The benefits when paid are treated as taxable income
• For example, an attorney may take out a business overhead expense policy to cover the expense of keeping is practice open if we were in an accident and couldn’t work for 3 months. However, this would not provide him any income.

Question 58

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

Answer 58

• A Business Disability Buy-Sell policy 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, the buy-out 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.
• For example, three partners of a law firm may take out a disability buy-sell plan on each other with an agreement if one becomes disability they will sell the business to the other two partners who will use the proceeds from the policy to purchase the business

Question 59

Key Person Disability Insurance

Answer 59

• 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.

Question 60

Employee Benefit Plans

Answer 60

While the term employee benefit plan can encompass a wide variety of benefit offerings (life insurance, pension or profit-sharing plans, vacation pay, deferred compensation arrangements, funeral leave, sick time) it is rare when it does not include some kind of provision for health insurance or health benefits. By providing its employees with a plan for health insurance, an employer derives many benefits:

• 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

Question 61

A master policy

Answer 61

is issued to the employer.

• Insureds (employees or group members) receive certificates of insurance and an outline that describes their benefits.
• The benefits provided under a group health plan are more extensive than those provided under an individual health plan.
• Group health plans typically have higher benefit maximums and lower deductibles.
• Benefits provided to individual insureds are predetermined by the employer in conjunction with the insurer’s benefit schedules and coverage limits. For example, group disability benefits can be tied to a position or earnings schedule

Question 62

Contributory Versus Noncontributory

Answer 62

• If the employer pays the entire premium, the plan is noncontributory. The employee does not contribute in paying the bill.

o Most noncontributory group health plans require 100% participation by eligible members, whereas contributory group health plans often require participation by 75% of eligible members

o The reason for these minimum participation requirements is to protect the insurer against adverse selection and to keep administrative expenses in line with coverage units

• If the employees share a portion of the premium, it is contributory. The employee does contribute in paying the bill.

Other group funding options include:

• Shared funding arrangement: this allows the employer to self-fund health care expenses up to a certain limit.
• Minimum premium arrangement: allows the employer to self-insure the normal and expected claims up to a given amount and the insurer funds only the excess amounts.
• Retrospective premium arrangement: 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.
• Self-funding arrangement: large employers may elect to fully self-fund, or may self-fun a plan, but contract for administrative services only.

Question 63

UNDERWRITING GROUP INSURANCE

Answer 63

The insurer evaluates the group as a whole rather than individuals within the group. The underwriter’s objective is to reduce the risk of adverse selection. In order to achieve this the underwriter reviews a number of factors to determine whether or not the group should be accepted. Rarely is an entire group rejected on the basis of one bad risk, unless the group is very small. Based on the group’s risk profile, the group is either accepted or rejected. In spite of the many differences between types of groups, there are certain general groups of underwriting considerations. General groups of underwriting considerations are applicable to all or most types of groups, such as:

• 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)

Question 64

Creditable coverage

Answer 64

is prior group health insurance that reduces the maximum preexisting condition exclusion period that a new group health plan can apply to that individual

Question 65

The Conversion Privilege

Answer 65

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

• The conversion privilege is available to terminated employees. Termination of employment includes an employee who is laid-off or who leaves a job voluntarily, but not those who are fired “for cause”
• Insurers are permitted to evaluate the individual and charge the appropriate premium, be it a standard rate or substandard rate
• An individual cannot be denied coverage even if he/she has become uninsurable
• The conversion must be exercised within a given period of time (usually 30 or 31 days) depending on the state. (the employee must make application for a converted policy within this timeframe)

Question 66

Other Coverages

Answer 66

The insurer may refuse to renew a converted policy due:

• Benefits resulting in over-insurance
• Fraud or material misrepresentation
• The insured is covered under Medicare

• The HIPAA Privacy Rule provides federal protection for an individual’s health information and gives patients an array of rights with respect to that individually identifiable health information.

o HIPAA considers a person’s health claim information as individually identifiable health information

o HIPAA imposes requirements on health care providers with respect to disclosure of protected health information

o Notice of information practices must be given to a policyholder at least every three years

o The HIPAA Security Rule provides technical safeguards to assure the confidentiality, integrity, and availability of electronic protected health information.

• HIPPA rules apply to most group health plans like HMO’s, PPO’s, and Major medical plans. It excludes coverage such as workers compensation and disability income plans.

o HIPAA requires employers with 20 or more employees to allow former employees to continue benefits under the employer’s group health insurance

o HIPAA states that a group health policy renewal can be denied when participation or contribution rules have been violated

o 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 7.5% of the individual’s adjusted gross income

Question 67

COBRA Continuation of Benefits

Answer 67

COBRA is a federal law that guarantees a continuation of their group coverage if their employment is terminated for reasons other than gross misconduct. It stands for the Consolidated Omnibus Budget Reconciliation Act of 1985.

• Protects employees who are laid-off, but not those who are fired “for cause”
• The law does not protect those are covered by other hospital, surgical or medical coverage for individuals in a group plan
• Requires employers with 20 or more employees to continue group medical expense coverage for terminated workers for up to 18 months following termination
• The law does not require the employer to pay the cost of the continued group coverage
• However, the law requires the employer to provide the employee with a written notification of the continuation privilege
• After expiration of group benefits under COBRA, a fully insured group policy can be converted to an individual health insurance policy
• The terminated employee can be required to pay the premium, which may be up to 102% of the premium that would otherwise be charged
• The benefits under COBRA continuation coverage will end if the employer terminates all group health plans
• The following events would qualify for extended medical expense coverage under COBRA for a terminated employee:

o Employment is terminated (for other than gross misconduct): 18 months of continued coverage (or up to 29 months if disabled)

o Employee’s hours are reduced (resulting in termination from the plan): 18 months of continued coverage (or up to 29 months if disabled)

o Employee dies: 36 months of continued coverage for dependents

o Dependent child no longer qualifies as “dependent child” under the plan: 36 months of continued coverage

o Employee becomes eligible for Medicare: 36 months of continued coverage

o Employee divorces or legally separates: 36 months of continued coverage for former spouse

o Common exclusions to continuation of group coverage includes: dental, vision care, and other prescription drug benefits

Question 68

Pregnancy Discrimination Act

Answer 68

• The Pregnancy Discrimination Act of 1978 is an amendment to the Civil Rights Act of 1964 designed to prohibit sex discrimination on the basis of pregnancy.
• Requires employers to treat pregnancy in the same manner as a disability for any other medical reason
• Requires group plans covering 15 or more people to treat pregnancy related claims no differently than any other allowable medical expense

Question 69

GROUP HEALTH INSURANCE COVERAGES

Answer 69

Health insurance group plans are predetermined by the employer in conjunction with the insurer’s benefit schedules and coverage limits. Group health insurance contracts providing coverage for employees in more than one state are usually controlled by the laws of the state where the master contract is issued. Working people age 65 or over generally must be offered the same accident and health benefits offered to younger employees.

Question 70

Group Basic Medical Expense

Answer 70

• The three standard forms of basic medical expense insurance; hospital, surgical, and physicians’ expenses- are available for group insurance
• A group basic medical expense plan can combine two or more of these coverages or it may consist of only one type of coverage, such as hospital expense only

Question 71

Group Major Medical Plans

Answer 71

• Like individual major medical plans, group major medical plans may be offered as a single, extensive plan (comprehensive major medical) or superimposed over a group basic plan (supplemental major medical)
• Participants are usually required to satisfy an initial deductible with comprehensive plans and either a corridor or an integrated deductible with supplemental plans
• Benefits provided by group major medical plans are usually more extensive than those of individual plans
• For most group health plans the coverage begins on the policy’s effective date. However, some plans may also impose a waiting period which gives an insurance company the right to delay coverage for a covered sickness for a specified number of days after the effective date of the policy
• No health plan coverage will begin until the application is completed and approved, the policy is issued, and the initial premium is paid.

Question 72

Dental care and vision care

Answer 72

• Dental care 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
• Vision care coverage usually pays for reasonable and customary charges incurred during eye exams by ophthalmologists and optometrists.
• A common exclusion with Vision plans is Lasik surgery

Question 73

Cafeteria Plans (Section 125 plan)

Answer 73

• Section 125 is part of the IRS Code that allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Under a Section 125 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 a Section 125 Plan.
• Cafeteria 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

Question 74

Wellness Programs:

Answer 74

• Employers offer at least some wellness programs in an effort to promote employee health and productivity and reduce health related costs.
• Wellness programs focus on drug abuse and stress
• Can also be offered by insurance plans directly to their enrollees

Group Disability Income Plans

• Group disability plans usually specify benefits in terms of a percentage of the individual’s earnings
• Most group disability plans require the employee to have a minimum period of service, such as 30 to 90 days, before being eligible for coverage
• A group Disability Income plan that pays tax-free benefits to covered employees is considered fully contributory
• Group short-term disability plans are characterized by maximum benefit periods of rather short duration, such as 13 or 26 weeks.
• Group long-term disability plans provide for maximum benefit periods of more than two years, occasionally extending to the insured’s retirement age.

Group Health Plan Termination

• 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.

Question 75

• Capital Sum

Answer 75

o 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

Question 76

• Principal Sum

Answer 76

o The principal 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. The principal sum represents the maximum amount the policy will pay.

Question 77

Blanket Health Plans

Answer 77

• Blanket health insurance is issued to cover a group who may be exposed to the same risks, but the composition of the group (the individuals within the group) are constantly changing.
• A blanket health plan may be issued to an airline or a bus company to cover its passengers or to a school to cover its students
• No certificates of coverage are issued in a blanket health plan, as compared to group insurance.

Question 78

Franchise Health Plans (Wholesale Plans)

Answer 78

• Provide health insurance coverage to members of an association or professional society
• Individual policies are issued to individual members and the association or society simply serves as the sponsor for the plan
• Premium rates are usually discounted for franchise plans

Question 79

Renewability Provisions

Answer 79

• Life insurance (particularly whole life insurance) and annuities are characterized by their permanence. These policies cannot be cancelled by the insurer unless the policyowner fails to make a required premium payment.
• Health insurance is not as permanent in nature. Health insurance policies may contain any one of a wide range of renewability provisions, which define the rights of the insurer to cancel the policy at different points during the life of the policy.
• There are five principal renewability classifications: cancellable, optionally renewable, conditionally renewable, guaranteed renewable, and noncancelable.
• Generally speaking, the more advantageous the renewability provisions to the insured, the more expensive the coverage.
• Every individual or blanket family hospitalization policy, except group plans, covering less than 10 persons, shall be renewable at the option of the policyholder unless sufficient notice of nonrenewal, generally,30 days is given to the policyholder in writing by the insurer.

Question 80

• Limited Risk Policies

Answer 80

Set forth specific risk and provide benefits to cover death or dismemberment due to that risk

Question 81

Special Risk Policie

Answer 81

Covers unusual hazards normally not covered under ordinary accident and health insurance.