Learning Objective 1 - Plan Provisions

Question 1

Learning Objective 1 - Plan Provisions
Medical Benefits in the US

1. Key dimensions of medical benefit plans

Answer 1

1. Definition of covered services and conditions under which those services will be covered
2. Degree to which the individual participates in the cost of the service
3. The breadth of the network and the degree to which the provider participates in the risk related to the cost of the service

Question 2

Learning Objective 1 - Plan Provisions
Medical Benefits in the US

2. Services covered by medical policies

Answer 2

1. Facility services - includes acute care hospitals, emergency rooms, outpatient facilities, psychiatric facilities, alcohol and drug treatment programs, skilled nursing facilities, and home health care
2. Professional services - includes surgeries, office visits, home visits, hospital visits, emergency room visits, and preventive care
3. Diagnostic services
4. X-ray and lab services
5. Prescription drugs
6. Durable medical equipment
7. Ambulance
8. Private duty nursing
9. Wellness benefits
10. Nurse help lines
11. Disease management benefits

Question 3

Learning Objective 1 - Plan Provisions
Medical Benefits in the US

3. Purposes for having the insured share in the cost of the medical plan

Answer 3

1. Control utilization - studies have shown drastic reductions in utilization when a plan is subject to deductibles, copays, or coinsurance
2. Control costs - requiring cost sharing lowers the premium and therefore leads to more affordable coverage
3. Control risk to the insurer - requiring cost sharing results in a benefit program that more truly represents an insurable risk

Question 4

Learning Objective 1 - Plan Provisions
Medical Benefits in the US

4. Types of provider reimbursement

Answer 4

1. Discount from billed charges
2. Fee schedules and maximums
3. Per diem reimbursements - a negotiated amount per day of hospital stay. Varies by level of care.
4. Hospital diagnosis related groups (DRGs) - a set payment based on patient’s diagnosis, regardless of the length of stay or level of services
5. Ambulatory payment classifications - similar to DRGs. Used for outpatient charges.
6. Case rate or global payments - a single reimbursement is negotiated to cover all services associated with a given condition. Commonly used for maternity and transplant cases.
7. Bonus pools - pays the provider a bonus if utilization is below target or quality-of-care criteria are met. Funded through withholds.
8. Capitation - the provider performs a defined range of services in return for a monthly payment per enrollee. Variations include global and specialty capitation.
9. Integrated delivery system - the insurer employs the providers of care (common in staff model HMOs)

Question 5

Learning Objective 1 - Plan Provisions
Medical Benefits in the US

5. Provisions included in medical plans

Answer 5

Provisions included in medical plans in addition to provisions related to the key dimensions of medical plans (see separate list):

1. Overall exclusions (see separate list)
2. Mandated benefits (due to regulations)
3. Coordination of benefits - to determine the payment when a service is covered under multiple plans
4. Subrogation - assigns the carrier the right to recovery from any injuring party (commonly used for workers’ comp claims)
5. COBRA (Consolidated Omnibus Budget Reconciliation Act) continuation - employers with at least 20 employees must offer continued coverage for 18 to 36 months beyond a person’s normal termination date

Question 6

Learning Objective 1 - Plan Provisions
Medical Benefits in the US

6. Common exclusions for medical plans

Answer 6

1. Services deemed not to be medically necessary
2. Services deemed to be experimental
3. Services related to cosmetic surgery
4. Other specified services, such as hearing and vision services
5. Transplants
6. Services for which payment is not otherwise required
7. Services required due to an act of war
8. Services provided as a result of a work-related injury
9. Services provided by a provider related to the patient

Question 7

Learning Objective 1 - Plan Provisions
Dental Benefits in the US

7. Organizations that sell dental insurance

Answer 7

1. Insurance companies
2. Dental service corporations, such as Delta Dental
3. Blue Cross and Blue Shield plans
4. Dental HMOs
5. Dental referral plans (discount dental plans)
6. Third party administrators

Question 8

Learning Objective 1 - Plan Provisions
Dental Benefits in the US

8. Typical design for dental insurance

Answer 8

1. Benefits are divided into the following classes
   a) Preventive and diagnostic (Class I) - oral exams, cleanings, fluoride, sealants, x-rays
   b) Basic (Class II) - fillings, extractions, endodontics (root canals), periodontics (treatment of gum disease), and oral surgery
   c) Major (Class III) - inlays, onlays, crowns, bridges, and dentures
   d) Orthodontics (Class IV) - sometimes added to dental plans, with a lifetime maximum
2. Reimbursement varies by class, such as 100% for Class I, 80% for Class II, and 50% for Class III. Less cost sharing is required on preventive services to encourage their use.
3. Calendar year deductible - such as $50 or $100, often waived for Class I services
4. Annual plan benefit maximum - ranges from $1,000 to $2,500 per person
5. No annual out-of-pocket maximum. An exception is that ACA-compliant pediatric dental coverage must have an out-of-pocket maximum.

Question 9

Learning Objective 1 - Plan Provisions
Dental Benefits in the US

9. Dental plan cost containment provisions

Answer 9

Dental plan cost containment provisions. These are used to limit the antiselection risk resulting from the elective nature of benefits

1. Frequency limitations - such as two cleanings per year and one set of x-rays per year
2. Pre-existing condition limitations - prevent the plan from paying for charges incurred prior to the insurance effective date, such as replacement of a missing tooth
3. Least expensive alternative treatment - the insurer reimurses based on the least expensive clinically acceptable treatment plan
4. Waiting periods - must be satisfied before coverage begins. Are generally applied to Class III and Class IV services, and typically range from 3-12 months.
5. Exclusions - such as cosmetic services, experimental treatments, and services that are typically covered by a medical plan
6. Benefits after insurance ends - coverage for work started before termination only continues for 31 days

Question 10

Learning Objective 1 - Plan Provisions
Dental Benefits in the US

10. Underwriting and rating parameters for dental

Answer 10

1. Group size - minimum group size of 5 is usually enforced to avoid antiselection
2. Eligible individuals and groups - plans usually cover active employees and dependents. Some insurers don’t cover groups from certain industries.
3. Participation - many plans allow for participation as low as 25% of eligible employees
4. Employer contributions - most non-voluntary plans require a minimum employer contribution of 50% of the single employee premium
5. Other coverages - if dental is packaged with other insurance options it helps to prevent antiselection
6. New business - plans may charge higher rates to groups who are offering dental coverage for the first time, due to pent up demand for dental services by employees in those groups
7. Geographic location - area factors vary by state, service area, or zip code
8. Demographics - claim costs are higher for females and older ages. Common family structures are 2-tier, 3-tier, and 4-tier.
9. Waiting and deferral periods - may have a waiting period before a new employee can join the plan
10. Incentive coinsurance - may be used on plans with no prior coverage. Start with low coinsurance for classes II and III and raise the level each year as the individual utilizes preventive services.
11. Transferred business - if a plan is a replacement, then it may pay for claims incurred in the prior year

Question 11

Learning Objective 1 - Plan Provisions
Dental Benefits in the US

11. Dental reimbursement models and delivery systems

Answer 11

1. Indemnity - traditional FFS reimbursement. Plan members may use any dentist, but the dentist will bill the patient for the balance remaining after the plan makes its maximum payment.
   a) Scheduled indemnity plans
   b) UCR (usual, customary and reasonable) plans
2. PPO - a contracted network of dentists agree to discounted FFS reimbursement arrangements. Discounts are only available in network, and in-network providers may not balance bill the patient.
   a) Managed indemnity plans (passive PPOs)
   b) Exclusive provider organization (EPO) plans
3. Dental HMO - uses prepaid or capitated arrangements. Members must use the network.
   a) Independent Provider Association (IPA) plans
   b) Staff model dental HMO plans
4. Point of service - hybrid of the indemnity, PPO, and dental HMO concepts
5. Discount dental plans - members receive discounts from preferred providers (this is not insurance)

Question 12

Learning Objective 1 - Plan Provisions
Dental Benefits in the US

12. Comparison of dental reimbursement models

Answer 12

1. Premium - HMOs are the least expensive and indemnity plans are the most expensive
2. Patient access - any dentist can be used for indemnity plans and PPO plans, but members must use the network in an HMO
3. Benefit richness - HMOs typically cover the same benefits as PPOs and indemnity plans but with less out-of-pocket expense
4. Cost management - indemnity plans use some cost controls. PPOs use those controls and a credentialing process to find cost-effective providers. HMOs add a gatekeeper approach.
5. Utilization - indemnity plans and PPOs may overutilize due to FFS. HMOs may underutilize due to capitation.
6. Quality assurance - unlike indemnity plans, PPOs and HMOs have credentialing processes to help assure quality care
7. Fraud potential - detecting fraud will be based on the insurer’s efforts, rather than the particular plan type
8. Provider contracting - PPOs and HMOs have contracts with dentists, who agree to accept discounted charges

Question 13

Learning Objective 1 - Plan Provisions
Dental Benefits in the US

13. Claim administration procedures used by dental plans

Answer 13

1. Predetermination of benefits - the plan wants members to submit expensive treatment plans for review before service
2. Least expensive alternative treatment (described in earlier list)
3. Coordination of benefits - done to avoid paying beenfits in excess of charges
4. Dental review - difficult claims should be reviewed by a dental consultant
5. Maximum allowable charge (aka UCR) - expenses are limited to the lesser of:
   a) The dentist’s usual fee for the procedure
   b) The fee level set by the plan administrator based on charges submitted in the same geographical area
   c) The reasonable fee charged for a service when unusual circumstances or complications exist

Question 14

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

14. Factors that influence prescription drug costs

Answer 14

1. Prescription drug pipeline - manufacturers want to recover their investments in research and development of new drugs
2. Brand patent protection - patents protect a drug’s original manufacturer from competition for a period of time
3. Specialty drugs - have relatively higher cost than other brand name drugs
4. Biologics - these are very expensive ($2,000 to $500,000 per patient per month) and are not easily replicated, so generics will not be produced for most of them
5. Direct to consumer advertising - marketing of high-cost drugs has been effective, resulting in many patients requesting the new drugs
6. Member cost sharing offsets - many manufacturers offer to cover member out-of-pocket costs for expensive drugs. This removes the member’s incentive to use preferred products and generics.
7. Faster approval process by the FDA - this has increased the number of high-cost drugs coming to the market
8. Aging population - leads to more demand for drug therapies
9. Increase in awareness of testing for disease - often results in drug therapies to avoid acute illnesses
10. Personalized medicine - generic testing sometimes leads to unnecessary medication use

Question 15

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

15. Entities in the pharmacy benefit system in the US

Answer 15

1. Pharmaceutical manufacturers - they research, obtain approval for, produce, and distribute prescription drugs. They sell drugs to wholesalers and also directly to pharmacies. They also negotiate with PBMs (pharmacy benefit managers), offering rebates in exchange for favorable formulary placement.
2. Pharmaceutical wholesalers - they purchase prescription drugs from manufacturers and distribute drugs to pharmacies
3. Pharmacies - they dispense prescription drugs directly to beneficiaries, and purchase drugs from either wholesalers or directly from manufacturers
4. Pharmacy benefit managers (PBMs) (see separate list of functions of PBMs)
5. Third-party payers (insurance companies, employers, or government programs) - they fund the prescription drug benefit and in some instances assume claims risk
6. Beneficiaries - they are the consumers of prescription drugs
7. Prescribing health care providers - they diagnose beneficiaries and prescribe drugs for them

Question 16

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

16. Function performed by PBMs

Answer 16

1. Administrator prescription drug benefit programs
2. Negotiate rebates with manufacturers
3. Negotiate discounts with pharmacies
4. Manage relationships with third-party payers
5. Performing utilization management
6. Run drug adherence programs
7. Integrate drug benefits with medical
8. Establish a formulary of drugs
9. Build a network of pharmacies

Question 17

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

17. Types of drugs

Answer 17

1. Generic - typically the lowest cost and most commonly dispensed. A generic equivalent drug is a generic version of a brand drug, created once a brand drug’s patent expires.
2. Brand name - multi-source brand drugs have a generic equivalent while single-source brand drugs do not
3. Specialty - high-cost drugs, many of which require special treatment and delivery (e.g., temperature controlled and administered by a health care provider)
4. Biologic - derived from living organisms and are usually very expensive. Generally considered to be specialty drugs.
5. Biosimilars, or follow-on biologics - subsequent versions of biologic drugs developed by different manufacturers. May not be therapeutically equivalent to biologics.
6. Compound - drugs mixed by a pharmacist. Can deliver a customized strength and dosage to meet a beneficiary’s specific needs.
7. Over-the-counter - do not require a prescription to purchase
8. Supplies - such as diabetic test strips and alcohol pads

Question 18

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

18. Stages of prescription drug lifecycle

Answer 18

1. Research and development by manufacturers - includes initial drug discovery, pre-clinical testing, clinical trials, and review by the FDA. Typically lasts 15 years.
2. Brand patent protection period - the manufacturer is awarded the exclusive right to produce the drug. Typically lasts 12 years.
3. Generic exclusivity period - immediately follows the patent protection period. Only the brand name manufacturer and one additional manufacturer are allowed to sell the generic equivalent. Typically lasts 6 months.
4. Generic drug lifespan - after the generic exclusivity period, all manufacturers may produce and sell the drug

Question 19

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

19. Methods of prescription drug distribution

Answer 19

1. Retail pharmacies - physical locations where beneficiaries can visit to pick up prescription drugs.
2. Mail order pharmacies - they send prescriptions through the mail, typically for a three-month supply of maintenance medications for treating chronic conditions.
3. Specialty pharmacies - they focus on delivering specialty drugs, which often require special storage and administration
4. Health care providers
5. LTC facilities
6. Hospice facilities
7. Home health professionals

Question 20

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

20. Types of cost sharing plans for pharmacy benefits

Answer 20

1. Copay plans - often seen with managed care plans. Copays typically vary by tier.
2. Coinsurance plans - coinsurance will increase by tier. Will typically include a deductible, either integrated with a medical plan or a separate deductible if the plan is not integrated.
3. Combination of copay and coinsurance - options include:
   a) Cost sharing equal to the larger of a copay or a percentage coinsurance
   b) A coinsurance percentage with a dollar maximum

Question 21

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

21. Types of formulary designs

Answer 21

Types of formulary designs. Formularies are lists of preferred drugs.

1. Closed - only formulary drugs are covered. But plans must have a process to cover non-formulary drugs for individual patients based on medical necessity.
2. Open - all eligible drugs are covered, but cost sharing may vary by tier.
3. Tiered (incentive) - separate formulary tiers are established, with copays or coinsurance varying by tier

Question 22

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

22. Most common pharmacy benefit tier designs

Answer 22

1. Two tier - generic and brand name drugs
2. Three tier - generics, preferred brands, and non-preferred drugs
3. Four tier - most common is to add specialty drugs to a three-tier design
4. Five tier - start with a four-tier design with specialty as tier 4, and then split one of those tiers:
   a) Split the generic tier into preferred and non-preferred (a common design for Part D)
   b) Or split the specialty tier into preferred and non-preferred
5. Six tier - options include:
   a) Generic, preferred brand, non-preferred brand, biosimilars, preferred specialty, and non-preferred specialty
   b) Preferred and non-preferred tiers for each of generic, brand, and specialty

Question 23

Learning Objective 1 - Plan Provisions
Pharmacy Benefits in the US

23. Factors that determine leverage when negotiating rebates from drug manufacturers

Answer 23

Factors that determine leverage when negotiating rebates from drug manufacturers. Rebates are payments from manufacturers in exchange for preferred status of their drugs on a formulary

1. Number of lives represented - successful contracting requires at least 500,000 lives over which the plan can exert formulary control
2. Control of market share - ability to move market share to preferred products
3. Consistency of behavior - the predictability of the plan’s response to a manufacturer’s actions

Question 24

Learning Objective 1 - Plan Provisions
Health Benefits in Canada

24. Criteria for provincial Medicare plans to qualify for federal contributions

Answer 24

Criteria for provincial Medicare plans to quantify for federal contributions. (These are principles from the Canada Health Act)

1. Comprehensiveness - all medically-required hospital and physician services must be covered under the plan
2. Universality - all legal residents of a province must be entitled to the plan’s services on uniform terms and conditions
3. Accessibility - reasonable access by residents to hospital and physician services must not be impeded by charges made to those residents
4. Portability - the plan may not impose a waiting period in excess of 3 months for new residents, and coverage must be maintained when a resident moves or travels within Canada or is temporarily out of the country
5. Public administration - the plan must be administered on a non-profit basis by a public authority (Extra-billing and user charges are not prohibited. But they will result in reductions in the federal grants to the province.)

Question 25

Learning Objective 1 - Plan Provisions
Health Benefits in Canada

25. Benefits covered by most Canadian provincial Medicare plans

Answer 25

1. Hospital services - room and board in a public ward, physicians’ services, laboratory and diagnostics, operating room and anesthetic facilities, nursing, drugs, supplies, outpatient services for emergencies, and radiotherapy and physiotherapy
2. Physician services - includes services of a general practitioner, specialist, psychiatrist, and others
3. Services of other professionals, such as optometrists, chiropractors, osteopaths, and podiatrists
4. Services of a physiotherapist if in a hospital facility
5. Prescription drugs for social assistance recipients and residents over age 65 in most provinces
6. Prostheses and therapeutic equipment
7. Other diagnostic services, such as laboratory tests and x-rays performed outside a hospital
8. Dental care - medically-required oral and dental surgery performed in a hospital and basic dental services for children
9. Out-of-province coverage - includes expenses incurred in other provinces and outside Canada
10. Vision care - an annual eye exam for children and seniors

(some information from Morneau Shepell chapter 15 was included in this list)

Question 26

Learning Objective 1 - Plan Provisions
Health Benefits in Canada

26. Concerns about the Canadian Medicare system, from recent reports

Answer 26

1. Waiting for months to see a specialist is common
2. Shortages of equipment, specialists, and technicians cause waiting for diagnostic procedures
3. Waiting for elective and non-emergency surgery is common, due to a lack of operating room time and a shortage of hospital beds
4. Emergency rooms are overcrowded, due in part to the unavailability of after-hours clinics
5. People who need LTC tend to wait in hospitals because of a shortage of beds in LTC facilities
6. Technology-intensive services are not available everywhere
7. The demand for services exceed the supply, resulting in rationing
8. Some essential services (such as prescription drugs for chronic illnesses) are not covered by Medicare

Question 27

Learning Objective 1 - Plan Provisions
Health Benefits in Canada

27. Categories of expenses commonly covered by private (supplemental) medical plans in Canada

Answer 27

1. Hospital charges - plans usually pay charges for room and board, up to the amount needed to upgrade to a semi-private or private room
2. Prescription drugs - these represents approximately 70-75% of the cost of private medical plans. Various plan designs exist, but they generally cover all drugs prescribed by a physician.
3. Health professional practitioners - eligible expenses are usually subject to inside limits (such as one treatment per day and a maximum number of treatments per year)
4. Miscellaneous expenses - these are usually eligible only if prescribed by a physician and included almost any insurable expense not otherwise covered, such as ambulance, x-rays, and prostheses
5. Vision care - eye examinations by an optometrist are usually included in the medical plan, while glasses or contact lenses may be included in either the medical plan or on a stand-alone basis
6. Out-of-country coverage - the most common coverage is for emergency care for short trips outside Canada

Question 28

Learning Objective 1 - Plan Provisions
Group Life Insurance Benefits

28. Types of group life insurance benefits

Answer 28

1. Basic group term life (most common) - provides employees a common level of basic insurance protection (see separate lists of plan designs and disability provisions)
2. Group supplemental (or optional) life - provides additional insurance beyond basic group term life. Typically employee-pay-all with unisex rates in 5-year age brackets.
3. Group accidental death and dismemberment (AD&D) - typically offered as a companion to group term life and with the same face amount. 100% of the face amount is paid upon death or loss of more than one member (hand, foot, sight of an eye). 50% is paid upon loss of one member.
4. Dependent group life - multiple coverage options are usually provided, offering coverage of up to $100,000 on the spouse and $10,000 on each child.
5. Survivor income benefits - provides a monthly payment in lieu of a lump sum death benefit. Benefit is typically a percentage of monthly earnings, such as 25% for a spouse and 15% for a child.
6. Group permanent life - plan types are single-premium group paid-up life, group ordinary life, and group term and paid-up
7. Group universal life (GUL) - consists of a term life component and a side fund that accumulates with interest to provide tax-favored savings and long-term insurance protection
8. Group variable universal life - same as GUL except several investment options (including equities) are available
9. Living benefits (described in separate list in Skwire Chapter 24)

Question 29

Learning Objective 1 - Plan Provisions
Group Life Insurance Benefits

29. Typical basic group term plan designs

Answer 29

Typical basic group term plan designs. To minimize adverse selection, none of these designs allow individual selection of insured amounts.

1. Flat dollar plans - such as $10,000 for all employees
2. Multiple of earnings plan (most common design) - such as 1 or 2 times earnings
3. Salary bracket plans - salary ranges are established and benefits vary by range
4. Position plans - benefits vary based on the employee’s position in the company (e.g. hourly vs. non-officer management vs. officers)

Question 30

Learning Objective 1 - Plan Provisions
Group Life Insurance Benefits

30. Group term life disability provisions

Answer 30

Group term life disability provisions. Most plans contain one of the following:

1. Waiver of premium - coverage continues without premium payment when an employee becomes totally disabled, as long as he or she is less than a certain age, typically 60 or 65.
2. Total and permanent disability - a monthly benefit is paid when an insured becomes totally and permanently disabled. On death, the original death benefit is reduced by any disability payments made.
3. Extended death benefit - pays the death benefit if the insured’s coverage terminates upon total disability prior to age 60 and the insured remains disabled and dies within one year

Question 31

Learning Objective 1 - Plan Provisions
Group Life Insurance Benefits

31. Formula for group term life imputed income

Answer 31

Employees are taxed on the value of the employer-provided group term life insurance in excess of $50,000. This value is determined from Table I (rates vary by age)

Monthly imputed income = [Table I rate * (coverage amount - $50,000) / $1,000] - employee contributions

Question 32

Learning Objective 1 - Plan Provisions
Group Disability Income Benefits

32. Benefit provisions for group disability income

Answer 32

1. Definition of disability (see separate list)
2. Elimination period - the period of time the employee must be disabled before collecting disability benefits. Commonly 3 months or 6 months for LTD. For STD, commonly 8 days and may be shorter for accident than for sicknesses.
3. Benefit period - commonly 2 years, 5 years, or to age 65 for LTD. For STD, typically 13 or 26 weeks to coordinate with the LTD eliminate period.
4. Benefit amounts - benefits paid monthly for LTD and weekly for STD. Replaces a percentage of pre-disability earnings (such as 60% for LTD and less for STD). A maximum benefit amount may further limit payments.
5. Benefit offsets - benefits are reduced by income from other sources, such as Social Security, retirement benefits workers’ compensation, and part-time work.
6. Limitation and exclusions - benefits for mental illness or substance abuse are usually limited to the first 2 years of disability. Disabilities resulting from an act of war or intentionally self-inflicted injury are usually excluded.
7. Optional benefits (see separate list)

Question 33

Learning Objective 1 - Plan Provisions
Group Disability Income Benefits

33. Typical definitions of disability for group disability income

Answer 33

1. LTD - as a result of sickness or accidental injury, the employee is unable to perform some or all of the material and substantial duties of an occupation, and has a loss of a percentage of pre-disability earnings
   a) During the first 24 months after the elimination period, the occupational duties are based on the employee’s own occupation, and the loss of income percentage is 20%
   b) After the first 24 months, the occupational duties are based on any gainful occupation for which the employee is reasonably suited by education, training, and experience, and the loss of income percentage is 40%
2. STD - the employee is unable to perform all the duties of his or her own occupation. Coverage is typically for only non-occupational (occurring outside of the workplace) accidents or sicknesses to avoid overlap with workers’ compensation.

Question 34

Learning Objective 1 - Plan Provisions
Group Disability Income Benefits

34. Methods for reducing benefits for income earned during disability

Answer 34

1. Proportionate loss formula - calculates the percentage of lost earnings due to disability and applies it to the benefit otherwise payable
2. 50% offset - reduces the benefit by $1 for every $2 of work earnings
3. Work incentive benefit - ignores all earnings during an initial period (such as 12 months), except benefits are capped so that work earnings plus benefits do not exceed pre-disability earnings. After the initial period, either the proportionate loss formula or 50% offset is used.

Question 35

Learning Objective 1 - Plan Provisions
Group Disability Income Benefits

35. Optional benefits that may be added to group disability contracts

Answer 35

Optional benefits that may be added to group disability contracts.

For LTD:

1. COLA - cost-of-living adjustment to provide inflation protection for benefits
2. Survivor benefit - a lump sum benefit payable to the insured’s survivors upon the death of the insured
3. Expense reimbursement for day care expenses
4. Pension benefit - an additional benefit payment to replace lost contributions to retirement plans
5. Portability - allows an insured who leaves the group to continue group coverage
6. Conversion option - insureds who lose coverage can convert to either group or individual disability coverage
7. Spousal benefits - disability protection for spouses of employees
8. Catastrophic benefits - additional amounts for more serious disabilities, such as those resulting in total paralysis

For STD:

1. 24-hour coverage - to cover both on-job and off-job disabilities
2. First day hospital coverage - elimination period is waived if the insured is confined in the hospital due to a disability
3. Survivor benefit (same as LTD)

Question 36

Learning Objective 1 - Plan Provisions
Group Long-term Care Insurance

36. Types of LTC insurance plans

Answer 36

These are the different approaches for paying benefits

1. Service reimbursement model - pays the cost of the LTC services, subject to fixed limits that vary by type of service (e.g. $150 per day for nursing home care and $90 per day for assisted living facility care)
2. Service indemnity model - a fixed benefit is paid for any day or week that formal LTC services are received, regardless of the actual charges incurred
3. Disability or cash model - a fixed benefit is paid for each day an insured is eligible for benefits, whether or not services are actually received

Question 37

Learning Objective 1 - Plan Provisions
Group Long-term Care Insurance

37. Plan provisions on LTC insurance policies

Answer 37

1. Benefit triggers (see separate list in Leida chapter 2)
2. Elimination or waiting period - a time period during which the insured must remain disabled and benefit eligible before benefits are paid (commonly 90 days)
3. Covered services (see separate list of benefits covered in Leida chapter 2)
4. Alternate plan of care - allows the insurer to pay benefits (at its discretion) for services not explicitly covered by the contract
5. Benefit limits - enrollees select a daily benefit maximum for institutional care. Other benefits are tied to this daily benefit. Lifetime maximum is administered as a pot of dollars = daily amount * 365 days * years of benefit purchased.
6. Inflation protection - increases the benefit limits as LTC costs increase over time (see separate list of methods of providing inflation protection in Leida chapter 2)
7. Nonforfeiture benefits - sold as an optional benefit. Provides a reduced, paid-up benefit to insureds who lapse coverage. (see separate list of types of nonforfeiture benefits)
8. Spousal riders and discounts - some plans offer a premium discount for individuals who are married
9. Restoration of benefits - many plans restore the lifetime maximum benefit if an insured recovers before exhausting the plan’s benefit
10. International coverage - some plans provide limited benefits for care received abroad
11. Shared lifetime maximum benefit pools - some plans allow an insured who uses all of his or her benefits to tap into any remaining benefits of a spouse’s policy
12. Policy exclusions - examples include pre-existing conditions or diseases, alcoholism and drug addiction, and treatment covered by other policies or Medicare

Question 38

Learning Objective 1 - Plan Provisions
Group Long-term Care Insurance

38. Types of nonforfeiture benefits on LTC insurance policies

Answer 38

1. Shortened benefit period - the minimum standard for tax-qualified plans. Pays the benefit amount and frequency in effect at the time of lapse. But lifetime maximum is reduced to the sum of premiums paid minus benefits paid.
2. Reduced paid-up - daily and lifetime maximums are reduced and coverage is extended for the life of the insured
3. Extended term - benefit maximums do not change, but only disabilities that commence within a limited time period are covered
4. Contingent nonforfeiture benefit - often provided to those who lapse due to a substantial premium increase and had not purchased a nonforfeiture benefit. Uses the shortened benefit period approach.

Question 39

Learning Objective 1 - Plan Provisions
Types of Health Insurers, Managed Health Care Organizations, & Integrated Delivery Systems

39. Types of health insurers and MCOs

Answer 39

Types of health insurers and MCOs (these plans make up the managed care continuum)

1. Indemnity - indemnifies the beneficiary from the financial cost of health care. There are few controls for managing cost.
2. Service plans - similar to indemnity, but adds contracting with providers as a way to manage costs
3. Managed indemnity - overlays some manage care features onto indemnity plans (see separate list)
4. PPOs - contract with a network of participating providers who agree to accept the PPO’s payment structure and levels. Members who see PPO providers have higher levels of coverage (lower cost sharing)
5. Exclusive provider organizations - similar to PPOs, but care received by nonparticipating providers is not covered (except for urgent or emergency care)
6. POS (point of service) plans - combine an HMO with indemnity-type coverage for care received outside the HMO. Members decide at the point of service whether to use the HMO or go out of the network
7. HMO’s - provide basic and supplemental health services in the manner prescribed by the HMO Act (see separate list of types of HMOs)
8. CDHPs - combine a high-deductible plan with some form of individual pretax savings account (HRA or HSA)

9 Third-party administrators - administer benefits for self-funded employer groups, but do not assume risk

10. Consumer operated and oriented plans (CO-OPs) - member-run health insurers created to offer coverage to small groups and individuals through the ACA exchanges

Question 40

Learning Objective 1 - Plan Provisions
Types of Health Insurers, Managed Health Care Organizations, & Integrated Delivery Systems

40. Common types of managed care overlays

Answer 40

1. General utilization management (UM) - offering a menu of UM activities that can be selected by employers or insurers
2. Large case management - includes identifying catastrophic cases, notifying reinsurers, monitoring the treatment, and negotiating payments for high-cost cases
3. Specialty UM - focuses on utilization review for specialty services, such as behavioral health care
4. Disease management (DM) - focuses on common chronic diseases, such as diabetes
5. Rental networks - networks of contracted providers within individual markets
6. Workers’ compensation UM - addresses standard UM and some unique aspects involved with workers’ compensation benefits

Question 41

Learning Objective 1 - Plan Provisions
Types of Health Insurers, Managed Health Care Organizations, & Integrated Delivery Systems

41. Features that differentiate HMOs from health insurers

Answer 41

1. Licensed under different laws than health insurers
2. Must provide adequate access to providers within their service areas
3. Must require “no balance billing” clauses in all provider contracts that are stronger than those found in non-HMOs

Question 42

Learning Objective 1 - Plan Provisions
Types of Health Insurers, Managed Health Care Organizations, & Integrated Delivery Systems

42. Types of HMOs

Answer 42

1. Open-panel - the HMO contracts with private physicians who agree to its terms and conditions and who meet its credentialing criteria
   a) Independent practice association (IPA) model - the HMO contracts with an IPA. Physicians are not employees of the HMO or the IPA, and they continue to see their non-HMO patients.
   b) Direct contract model - the HMO contracts directly with independent physicians or medical groups
2. Closed-panel - most of the care is provided through either a single medical group associated with the HMO or through physicians employed by the HMO. Closed to private physicians.
   a) Group model - the HMO contracts with a multi-specialty medical group practice to provide all physician services to the HMO’s members. The physicians are employed by the group practice.
   b) Staff model - physicians are employed by the HMO and are paid by salary plus bonus or incentives
3. True network model - the HMO contracts with more than one large medical group or physician organization
4. Mixed model HMOs - most commonly occurs when a closed-panel HMO adds open panel components
5. Open-access HMOs - the member selects a PCP (primary care physician) and gets the most benefits by using the HMO system. Can bypass the PCP to get in-network specialty care directly, but with less coverage. Only services in network are covered.

Question 43

Learning Objective 1 - Plan Provisions
Types of Health Insurers, Managed Health Care Organizations, & Integrated Delivery Systems

43. Advantages and disadvantages of open-panel HMOs

Answer 43

Advantages

1. More easily marketed and sold due to the large panel of private physicians
2. Easier for members to find a participating physician that is conveniently located
3. In IPA models, routine medical management functions may be delegated to the IPA
4. Easier and less costly to set up and maintain

Disadvantages

1. Because the HMO is not providing medical care itself, it has little ability to manage care
2. Premiums are often higher than those of closed panels

Question 44

Learning Objective 1 - Plan Provisions
Types of Health Insurers, Managed Health Care Organizations, & Integrated Delivery Systems

44. Advantages and disadvantages of closed-panel HMOs

Answer 44

Advantages

1. Ability to more closely manage care
2. Delegation of many routine medical management functions to the group, which reduces administrative costs
3. Convenience for members of having lots of services available in one location

Disadvantages

1. Not easily marketed to new members who would have to change doctors
2. Locations of medical offices may not be convenient for all members
3. Only feasible in medium to large cities
4. More complex and costly to set up and maintain

Question 45

Learning Objective 1 - Plan Provisions
Types of Health Insurers, Managed Health Care Organizations, & Integrated Delivery Systems

45. Types of integrated health care delivery systems (IDSs)

Answer 45

Types of integrated health care delivery systems (IDSs). In IDSs, providers unite to manage health care and contract with health plans.

1. IPAs
2. Physician practice management companies - these companies purchase physician practices. Most failed because once physicians sold their practices there was no longer sufficient incentive for them to be productive.
3. Group practice without walls - formed as a vehicle for physicians to organize without being dependent on a hospital for services or support
4. Physician-hospital organizations - an entity through which a hospital and its physicians negotiate with payers
5. Management services organizations - provide a vehicle for negotiating with payers and also provides services (such as billing and administrative support) to support physicians’ practices
6. Foundation model - a hospital creates a not-for-profit foundation which purchases physicians’ practices. Usually done when there is a legal barrier to a hospital employing physicians directly.
7. Provider-sponsored organizations - groups of providers who contract with Medicare on an at-risk basis for all medical services. They failed because they did not properly spread risk, they attracted too many bad risks, and they did not typically conduct utilization management and disease management.
8. Hospitals with employed physicians - the hospital employers PCPs and specialists. This substantially increases the hospital’s negotiating leverage.

Question 46

Learning Objective 1 - Plan Provisions
Types of Health Insurers, Managed Health Care Organizations, & Integrated Delivery Systems

46. Structural requirements of accountable care organizations

Answer 46

Structural requirements of accountable care organizations. The ACA created ACOs for use in the Medicare program. They help achieve more integrated and efficient care by fostering local organizational accountability for quality and costs.

1. Those eligible to form an ACO include group practices, networks of individual practices, hospitals, rural health clinics, and federally-qualified health centers
2. Must be a legal entity that is authorized to conduct business in each state in which it operates
3. Must be formed for the purpose of:
   a) Receiving and distributing shared savings
   b) Repaying shared losses or other monies owed to CMS
   c) Establishing, reporting, and ensuring provider compliance with health care quality criteria
4. At least 75% of the ACO’s board seats must be held by ACO participants
5. Management structure must be similar to what is found in a nonprofit health plan
6. Participants must have a sufficient investment such that ACO losses would be a significant motivator

Question 47

Learning Objective 1 - Plan Provisions
Types of Health Insurers, Managed Health Care Organizations, & Integrated Delivery Systems

47. Key characteristics of patient-centered medical homes

Answer 47

1. Patients have an ongoing relationship with a personal physician
2. Patients receive care from a team of individuals led by the personal physician
3. Personal physicians take responsibility for providing or arranging all of the care for the patient
4. The patient’s care is coordinated or integrated across all elements of the health care continuum
5. Quality and safety are key parts, enhanced by evidence-based medicine
6. Patients have enhanced access to care through open scheduling and expanded hours
7. Payment should appropriately recognize the added value provided to patients

Question 48

Learning Objective 1 - Plan Provisions
The Products

48. Types of individual health insurance

Answer 48

1. Major medical
2. Limited benefit medical - don’t cover enough services to meet the definition of major medical (see list of types of limited benefit plans)
3. Group conversions - policies offered (on a guaranteed issue basis) to individuals leaving group coverage. State laws typically require this coverage to be offered.
4. Medicare Supplement and Medicare Select - supplement Medicare coverage by filling in the gaps in that coverage
5. Medicare Advantage and Part D - private managed care plan plans that provide benefits to Medicare beneficiaries
6. Disability income - covers income lost due to an illness or injury
7. Business protection coverage - disability coverage that protects a business against the impact of an employee becoming disabled
8. LTC - covers services for individuals who need assistance performing basic ADL’s (defined in a separate list) or who are cognitively impaired
9. Dental - not usually sold in the individual market due to antiselection

Question 49

Learning Objective 1 - Plan Provisions
The Products

49. Types of limited benefit medical insurance

Answer 49

1. Hospital indemnity - pays a flat amount per day of inpatient hospitalization. Often limited to a certain number of days, and may have an elimination period.
2. Other scheduled benefits - limited coverage for one or more indemnity-type benefits (e.g. $250 per ICU day or $20 per x-ray)
3. Dread disease - provides coverage only for a specified list of medical conditions (such as cancer)
4. Critical illness - provides lump sum benefit in case of a heart attack, stroke, heart surgery, cancer (except skin cancer), or a diagnosis of specified conditions

Question 50

Learning Objective 1 - Plan Provisions
The Products

50. Enrollment requirements for Medicare Advantage and Part D plans

Answer 50

MA plans are guaranteed issued for any beneficiary who meets the following requirements:

1. Is enrolled in Medicare Parts A and B
2. Does not have any stage renal disease (ESRD)
3. Applies during a valid enrollment period, such as:
   a) Initial enrollment period - when beneficiaries first become eligible for Medicare
   b) Annual open enrollment period - between October 15 and December 7 of each year, beneficiaries can enroll or change their MA or Part D coverage
4. Resides in the plan’s service area
5. Abides by the terms of the insurance contract

Part D plans have similar guaranteed issue requirements except that:

1. Beneficiaries are eligible as long aws they are enrolled in Part A, B, or C
2. Beneficiaries with ESRD are eligible

Question 51

Learning Objective 1 - Plan Provisions
The Products

51. Steps in the Medicare Advantage and Part D bid submission process

Answer 51

1. Advance notice of payment policies and draft call letter - CMS publishes these early in the year, outlining proposed changes for the next year
2. Announcement of MA capitation rates and the final call letter - CMS publishes this in early spring
3. Submission of initial bid - the sponsor submits a bid for each plan by no later than the first Monday in June. This bid projects the expected cost of providing benefits and is certified by a qualified actuary.
4. Desk review - the bids are reviewed by CMS and third-party actuaries contracted by CMS. This review is usually completed by late July.
5. Rebate reallocation process - Part D bids must be adjusted once the final national average bid amounts and member premiums are known. Plan sponsors do this in early August.
6. Finalize the bid, including a second actuarial certification
7. Bid or financial audit - after bids are approved, the plan may be selected for this more detailed review

Question 52

Learning Objective 1 - Plan Provisions
The Products

52. Methods used by disability income policies to adjust for the cost of living

Answer 52

1. Guaranteed insurability - automatically offering increased coverage to active insureds, at specified intervals
2. Automatic increases - adjust insured amounts over time, without action by the insured
3. Increase benefit payments over time for those on disability (may apply in addition to one of the previous two methods)

Question 53

Learning Objective 1 - Plan Provisions
The Products

53. Major types of business protection coverage

Answer 53

1. Keyperson coverage - sold to businesses to protect them from the risk of key individuals becoming disabled. Benefits last one or two years, to provide time for the key person to be replaced.
2. Disability buyout coverage - provides the funds needed (generally lump sum) for a totally disabled partner or owner of a business to be bought out by the remaining partners or owners
3. Business overhead expense - pays for business overhead expenses in the event of the owner’s disability. Coverage periods are typically fairly short, to provide short-term needs only.

Question 54

Learning Objective 1 - Plan Provisions
The Products

54. Benefit triggers for LTC insurance policies

Answer 54

The insured must satisfy the benefit trigger to become eligible for benefits. For tax-qualified policies, the trigger must be:

1. The inability to perform (without substantial assistance) at least two activities of daily living (ADLs) (see separate list of ADLs), or
2. A cognitive impairment that requires substantial supervision to protect the health and safety of the insured. Behaviors that indicate cognitive impairment are:a) Wandering and getting lost
   b) Combativeness
   c) Inability to dress appropriately for the weather
   d) Poor judgement in emergency situations

Question 55

Learning Objective 1 - Plan Provisions
The Products

55. The ADLs allowed by HIPAA, and typical definitions

Answer 55

1. Bathing - washing oneself by sponge bath in either a tub or shower, including the task of getting into or out of the tub or shower
2. Continence - the ability to maintain control of bowel and bladder function, or if unable to do so, the ability to perform associated personal hygiene, including caring for a catheter or colostomy bag
3. Dressing - putting on and taking off all items of clothing and any necessary braces, fasteners, or artificial limbs
4. Eating - feeding oneself from a receptacle (plate, cup, etc.) or by feeding tube or intravenously
5. Toileting - getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene
6. Transferring - moving into or out of a bed, chair, or wheelchair

Question 56

Learning Objective 1 - Plan Provisions
The Products

56. Benefits that may be covered by LTC policies

Answer 56

1. Nursing home care - care provided in a facility that provides skilled, intermediate, or custodial care, and is either Medicare-approved or state-licensed to provide this care
2. Assisted living facility (ALF) care - care provided in a facility that is state licensed as an ALF
3. Home and community-based care - LTC services provided in the person’s home or in a community-based facility (like an adult day care center)
4. Hospice care - care provided through a facility or program designed to serve the terminally ill
5. Respite care - formal, paid care provided to relieve an informal care provider
6. Home modifications and equipment (referred to as independence support services in Skwire Chapter 13) - services that allow an individual to remain at home, rather than have to be institutionalized (such as emergency alert systems and wheelchair ramps)
7. Care management services - services provide to develop a plan of care, identify providers, and coordinate care
8. Bed reservation benefit - continues to reimburse the insured for institutional care even if he or she needs to temporarily transfer to an acute care facility due to a medical condition (for up to 21 days per year)
9. Caregiver training - provides training and education to help informal caregivers obtain state licensure as a home health care provider
10. Dental benefit - typically pays a percentage of all premiums paid minus any benefits paid
11. Cash alternative benefit (from Skwire Chapter 13) - some plans give the option of receiving claim payments for home and community-based care as a cash benefit, rather than as a reimbursement benefit

Question 57

Learning Objective 1 - Plan Provisions
The Products

57. Methods of providing inflation protection on LTC policies

Answer 57

1. Automatic inflation protection - benefit limits increase automatically each year by a preset percentage (required to be at least 5%) on a compound basis
2. Simple inflation protection - like automatic inflation, but using simple interest instead of compound interest
3. Periodic increase offers - the insured is periodically (usually every three or five years) given the opportunity to purchase additional coverage on a guaranteed issue basis
4. Coinsurance (rarely offered) - the insurer covers a specific percentage of actual or reasonable charges, and does not include a maximum indemnity limit