Module 8 Flashcards
are employer-sponsored benefits other than wages, which enhance the economic
security of individuals and families and are partly or fully paid for by employers.
employee benefits
Basic Underwriting Principles
-Insurance Incidental to the Group.
-Flow of Persons Through the Group.
-Automatic Determination of Benefits.
-Minimum Participation Requirements.
-Third-Party Sharing of Cost.
-Simple and Efficient Administration.
which means the group should not be formed for the sole purpose of obtaining insurance. The purpose of this requirement is to reduce adverse selection against the insurer. If the group is formed for the specific purpose of obtaining insurance, a
disproportionate number of unhealthy persons would join the group to obtain low-cost insurance, and the loss experience would be unfavorable.
insurance incidental to the group
Ideally, in group life insurance, there should be a flow of younger
persons into the group and a flow of older persons out of the group. Without a flow of younger persons into the
group, the average age of the group will increase, and premium rates will likewise increase. Higher premiums
may cause some younger and healthier members to drop out of the plan, while the older and unhealthy members
will still remain, which would lead to still higher losses and increased rates.
flow of persons to the group
Benefits should be automatically determined by some formula
that precludes individual selection of insurance amounts. The amount of group life insurance can be based on
earnings, position, length of service, or some combination of these factors. The purpose of this requirement is to
reduce adverse selection against the insurer. If individual members were permitted to select unlimited amounts
of insurance, unhealthy persons would likely select larger amounts, while healthier persons would likely select
smaller amounts.
automatic determination of benefits
A minimum percentage of the eligible employees must
participate in the plan. If the plan is a noncontributory plan, the premiums are paid entirely by the employer and
100 percent of the eligible employees must be covered. If the plan is a contributory plan, the employee pays part
or all of the cost and a large proportion of the eligible employees must elect to participate in the plan. In a
contributory plan, it may be difficult to get 100 percent participation, so a lower percentage such as 50 to 75
percent is typically required.
minimum participation requirements
Ideally, individual members should not pay the entire cost of their
protection. In most groups, the employer pays part of the cost. A third-party sharing of cost avoids the problem
of a substantial increase in premiums for older members. In a plan in which the members pay the entire cost,
younger persons help pay for the insurance provided to older persons. Once they become aware of this fact,
some younger persons may drop out of the plan and obtain their insurance at lower cost elsewhere.
Third Party Sharing of Cost
The group plan should be simple and efficiently administered. Premiums are collected from the employees by payroll deduction, which reduces the insurer’s administrative expenses and keeps participation in the plan high.
Simple and Efficient Administration
Eligibility Requirements
- Be a full-time employee
- Satisfy a probationary period
- Apply for insurance during the eligibility period
- Be actively at work when insurance becomes effective
Group life insurance plans include the following:
- Group term life insurance
- Group universal life insurance
- Group accidental death and dismemberment insurance (AD&D)
- Worksite marketing programs
is the most important form of group life insurance.
Group Term Life Insurance
Types of Group Term Coverages
Basic amount of term insurance.
Supplemental term insurance.
Portable term insurance.
Employers typically provide a basic amount of term insurance on covered employees.
Basic amount of term insurance
Group life insurance plans typically include supplemental term insurance.
Supplemental term insurance
Some group plans have a portable term insurance option that allows employees
to continue their term insurance protection if they lose their eligibility for group coverage.
portable term insurance
is a voluntary life insurance product paid entirely by the employee through
payroll deduction.
Group Universal Life Insurance
that pays additional benefits if the employee dies in an accident or incurs certain types of bodily injury.
Group Accidental Death and Dismemberment (AD&D)
which allow an insurer to offer its insurance
products to interested employees.
worksite marketing programs
Group medical expense coverage is available from several providers including the following:
Commercial Insurers
Blue Cross and Blue Shield Plans
Managed Care Organizations
Self-Insured Employer Plans
are medical expense plans that cover hospital expenses, physician
and surgeon fees, ancillary charges, and other medical expenses.
Blue Cross and Blue Shield Plans
are another source of group medical expense benefits. These organizations generally are for-profit organizations that offer managed care plans to employers.
Managed Care Organizations
Many employers self-insure part or all of the benefits provided to their employees. Self-insurance (also called self-funding) means that the employer pays part or all of the cost of providing health insurance to the employees.
Self-insured employer plans
is an organized system of health care that provides
comprehensive medical services to its members on a prepaid basis.
health maintenance organizations (hmos)
is a generic name
for medical expense plans that provide covered services to the members in a cost-effective manner.
managed care
There are several types of managed care plans. The most important include the following:
-Health Maintenance Organizations (HMOs)
-Preferred Provider Organizations (PPOs)
-Point-of-Service (POS) Plans
is another managed care plan that combines the characteristics of both
HMOs and PPOs, but members have the option to elect care outside the network.
Point-of-Service Plans
is a plan that contracts with health-care providers to provide certain medical
services to the plan members at discounted fees.
Preferred Provider Organizations
Types of HMOs
-Staff Model
-Group Model
-Network Model
-Individual practice association plan
physicians are employees of the HMO and are paid a salary and
possibly an incentive bonus to hold down costs.
staff model
physicians are employees of another group that has a contract with
the HMO to provide medical services to HMO members.
group model
.the HMO contracts with two or more independent group
practices to provide medical services to covered members.
network model
KEY FEATURES OF GROUP MEDICAL EXPENSE INSURANCE
-comprehensive benefits
-calendar-year deductible
-coinsurance requirements
-copayments
-annual limit on out-of-pocket expenses
-no cost-sharing for certain preventive services
-noncovered services
is an open panel of physicians who work out of their own offices and treat patients on a fee-for- service basis.
individual practice association plan
- Most new plans provide comprehensive benefits to covered employees with
no lifetime limits and, beginning in 2014, no annual limits on benefits. Typical benefits include coverage
for primary care physicians, surgeons, specialists, chiropractors, and other providers; inpatient hospital
costs, outpatient diagnostic tests, outpatient surgery, emergency room fees, prescription drugs, maternity
and baby benefits, mental illness and substance abuse, and numerous other benefits.
comprehensive benefits
Group plans typically have a calendar-year deductible that must be satisfied
before benefits are paid. The deductible can be either an individual deductible or family deductible in
which covered medical expenses of family members can be applied to the deductible.
calendar-year deductible
Most plans also have coinsurance requirements in which the employee
must pay a certain percentage of covered expenses in excess of the annual deductible up to some
maximum annual limit, such as 20, 25 percent, or 30 percent. The coinsurance percentage is substantially
higher if care is received outside the network, such as 40 percent.
coninsurance requirements
Most covered workers in HMOs, PPOs, and POS plans face copayments for certain
expenses, such as an office visit to a primary care physician or specialist, or purchase of a prescription
drug.
copayments
Most plans have annual limits on out-of-pocket expenses, such as $3000 for individual coverage and $6000 for family coverage. The plans specify the medical
expenses that can be counted towards meeting the annual limit. Not all medical expenses can be applied to the annual limit. The majority of plans allow the deductible and coinsurance amounts to be counted.
annual limit on out-of-pocket expenses
Certain routine and preventive services are not subject to cost-sharing provisions (deductibles, coinsurance, and copayments). If care is received from a network provider, there is 100 percent reimbursement. If care is received outside the network, the cost
is subject to substantially higher deductible and coinsurance charges.
no cost-sharing for certain preventive services
All group medical expense plans have exclusions and limitations on certain
services. Depending on the plan, excluded services can include services for injury or sickness arising out of and in the course of employment; services for illness or injury sustained while performing military service; services considered to be experimental or investigative; eyeglasses and hearing aids; and services, drugs, and supplies considered not to be cost effective when compared to standard alternatives.
noncovered services
is a generic term for a plan that combines a high-deductible health plan with a health savings account (HSA) or health reimbursement arrangement (HRA). These plans are designed to make employees more sensitive to healthcare costs, to provide
a financial incentive to avoid unnecessary care, and to seek out low-cost providers.
consumer directed health plan
is a medical expense plan with an annual deductible that is substantially higher than deductibles in traditional medical expense plans and generally ranges from at least $1200 to $5000 or some higher amount.
high-deductible health plan
is an employer-funded plan with favorable tax advantages, which reimburse employees for medical expenses not covered by the employer’s standard insurance plan.
health reimbursement arrangement
contain numerous contractual provisions that can have a significant financial impact on the insured.
group medical expense
Three important provisions deal with:
- Pre-existing Conditions
- Coordination of Benefits
- Continuation of Group Health Insurance
which placed restrictions on the right of insurers and employers to deny or limit coverage for preexisting conditions. employer-sponsored group health insurance plans could not exclude or limit coverage
for a preexisting condition for more than 12 months.
Health Insurance Portability and Accountability Act (HIPAA),
which specifies
the order of payment when an insured is covered under two or more group health insurance plans.
Coordination of Benefits
Employees often quit their jobs, are laid off, or are fired. If a qualifying event occurs that results in a
loss of coverage, employees and covered dependents can elect to remain in the employer’s group
health insurance plan for a limited period under the Consolidated Omnibus Budget Reconciliation Act
of 1985 (also known as COBRA).
Continuation of Group Medical Expense Insurance
helps pay the cost of normal dental care and also covers damage to teeth from
an accident.
Group Dental Insurance
HMOs have a number of basic characteristics, including the following:
Organized health care plan
Broad, comprehensive medical services
Restrictions on the choice of health-care providers.
Payment of fixed premiums and cost-sharing provisions.
Heavy emphasis on controlling cost.
two basic types of plans
short term plans
long term plans
allow employees to select those employee benefits that best meet their specific needs.
cafeteria plans
Cafeteria plans take several forms:
- Full Choice Plans
- Premium Conversion Plans
- Flexible Spending Accounts
These plans are also called “full flex plans.” This type of plan allows employees to select a full range of benefits.
full choice plans
which is a generic name for a plan that allows
employees to make their premium contributions for plan benefits with before-tax dollars.
premium conversion plans
After the calendar deductible is met, the employee must meet a coinsurance requirement and pay a certain percentage of charges in excess of the deductible.
coinsurance
RECENT DEVELOPMENTS IN EMPLOYER-SPONSORED HEALTH PLANS
-Continued escalation in health insurance premiums
-Higher deductibles for employees
-Continued decline in medical coverage for early retirees
-Tiered or high-performance networks
-Tiered pricing for prescription drugs
-Wellness benefits
-Health risk assessments
-Onsite health clinics
Many large employers (1000 employees or more) have onsite health clinics for
employees at one or more locations. Employees can receive treatment for nonoccupational diseases or
injury at these locations. Employers with onsite facilities believe it is less expensive to provide onsite
coverage for routine medical expenses rather than through traditional health-care channels.
onsite health clinics
is an evaluation of the employee’s health status based on information provided by the employee, such as health history and current medical condition.
health risk assessments
Many employers have designed voluntary wellness programs for their employees. These include weight-loss programs, gym membership discounts, onsite exercise facilities, smoking cessation programs, nutrition programs, newsletters, Web sites that encourage healthy living, and similar programs. Many large employers provide financial incentives to their employees to encourage them to participate in health management or wellness programs. Beginning in 2014, the Affordable Care Act allows employers to give a wellness discount of up to 30 percent of the premiums paid by an employee.
wellness benefits
To hold down increases in prescription drug costs, many
employers have also adopted a tiered pricing system for prescription drugs. The vast majority of employees now face a three-tier or four-tier pricing system for prescription drugs.
tiered pricing for prescription drugs
To hold down cost, some plans have established tiered or high-
performance networks in which health-care providers are grouped into tiers based on the quality and cost of medical care provided. The objective is to encourage covered employees to receive care from low-
cost providers that provide high-quality care.
tiered or high-performance networks
Coverage for workers who want to retire early is becoming increasingly rare. In 2011, only 24 percent of large employers offered health insurance coverage to retirees under age 65, down sharply from 46 percent in 1993.
continued decline in medical coverages for early retirees
In response to rising costs, employers continue to shift costs to their employees by higher cost-sharing provisions. In addition to higher premiums, a growing number of employees face significantly higher annual deductibles in their employers’ plans.
higher deductibles for employees
Group health insurance premiums continue to rise. In 2011, average annual premiums for employer-sponsored health plans reached $5429 for single coverage and $15,073 for family coverage (see Exhibit 16.2). The rise in premiums has substantially exceeded the growth in workers’ wages and general inflation.
continued escalation in health insurance premiums
pays weekly or monthly cash payments to employees who are disabled from accidents or illness.
group disability-income insurance
also used to control costs. It provides useful information to both the dentist and patient on the amount that will be paid.
predetermination-of-benefits provision
HMOs place heavy emphasis on controlling costs
Heavy emphasis on controlling costs
HMO members typically pay a fixed prepaid fee
(usually paid monthly) for the medical care provided
Payment of fixed premiums and cost-sharing privisions
Traditional HMOs typically limit the choice of
physicians and other health-care providers who are part of the HMO network.
restrictions on the choice of health-care providers
HMOs provide broad, comprehensive health services to their members. Covered services typically include hospital care, surgeons’ and physicians’ fees, maternity care, laboratory and X-ray services, outpatient services, special-duty nursing, and numerous other
medical services.
Broad, comprehensive medical services
HMOs have the responsibility of organizing and delivering comprehensive
health services to their members.
organized health-care plan
“Employee benefits are an extremely important part of an employee’s financial security.”
Jerry Rosenbloom
Group medical expense plans have changed dramatically over time. Older plans generally were indemnity plans while newer ones are managed care plans. Older plans were called indemnity plans or fee-for-
service plans.
Traditional Indemnity Plans
ACA
Affordable Care Act
NAIC
National Association of Insurance Commissioners
COBRA
Consolidated Omnibus Budget Reconciliation Act
of 1985
