Objective 1 - Plan Provisions

Question 1

Types of group life insurance benefits

Answer 1

Types of group life ins benefits

1. Basic group term life (most common) - provides employees a common level of basic insurance protection
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. Group credit life insurance - death benefit equals the unpaid consumer debt of the insured. Beneficiary is the creditor. Premium is paid by the debtor.
10. Living benefits (separate list, Bluhm ch 32)

Question 2

Typical basic group term life plan designs

Answer 2

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 plans (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 (eg. hourly vs. non-officer management vs. officers)

Question 3

Group term life disability provisions

Answer 3

Most plans contain one of the following:

1. Waiver of premium - coverage continues without premium payment when an employee becomes totally disabled.
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 4

Formula for group term life imputed income

Answer 4

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 1 (rates vary by age).
Monthly imputed income = [Table 1 rate * (Coverage amount - $50,000) / $1,000] - employee contributions

Question 5

Benefit provision for group disability income

Answer 5

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 accidents 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 LTD elimination 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. Limitations and exclusions - benefits for mental and nervous conditions are usually limited to the first 2 years of disability. Disabilities resulting form an act of war or intentionally self-inflicted injury are usually excluded.
7. Optional benefits (see separate list)

Question 6

Typical definition of disability for group disability income

Answer 6

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 7

Methods for reducing benefits for income earned during a disability

Answer 7

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 8

Optional benefits that may be added to group disability contracts

Answer 8

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. Conversion option - insured who lose coverage can convert to either group or individual disability coverage
6. Spousal benefits - disability protection for spouses of insured employees
7. 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 9

Key dimensions of medical benefit plans

Answer 9

(any medical plan can be defined by its position on these dimensions or continuums)

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. Degree to which the provider participates in the risk related to the cost of service

Question 10

Services covered by medical policies

Answer 10

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

Question 11

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

Answer 11

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 can potentially lead 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 12

Type of provider reimbursement

Answer 12

1. Discounts 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 the patient’s diagnosis, regardless of the length of stay or level of services
5. Ambulatory payment classifications - similar to DRGs. Used for O/P 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 13

Provisions included in medical plans

Answer 13

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 benefit plans
4. Subrogation - assigns the carrier the right to recovery from any injuring party (commonly used for workers’ comp claims)
5. Preexisting conditions exclusion - limits coverage for services related to preexisting conditions
6. COBRA continuation - employers with at least 20 employees must offer continued coverage for 18 to 36 months beyond a person’s normal termination date
7. Conversions - offered to individuals no longer eligible under the group medical plan (often with limited benefits and very high premiums)

Question 14

Common exclusions for medical plans

Answer 14

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 mental, 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 15

Criteria for provincial Medicare plans to qualify for federal contributions

Answer 15

(These are principles from the Canadian 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 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 reduction in the federal grants to the province.)

Question 16

Benefits covered by most Canadian provincial Medicare plans

Answer 16

1. Hospital services - room and board in a public ward, as well as physicians’ services, diagnostics, anesthesia, nursing, drugs, supplies, and therapy
2. Physician services - includes services of a general practitioner, specialist, psychiatrist, and others
3. Other professionals, such as optometrists, chiropractors, osteopaths, and podiatrists
4. Prescription drugs for social assistance recipients and residents over age 65 in most provinces
5. Prostheses and therapeutic equipment
6. Other diagnostic services, such as laboratory tests and x-rays performed outside a hospital
7. Dental care - medically-required oral and dental surgery performed in a hospital
8. Out-of-province coverage - includes expenses incurred in other provinces and outside of Canada

Question 17

Concerns about the Canadian Medicare system, from recent reports

Answer 17

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 due to a shortage of beds in LTC facilities
6. Technology-intensive services are not available everywhere
7. The demand for services exceeds the supply, resulting in rationing
8. Some essential services (such as prescription drugs for chronic illnesses) are not covered by Medicare

Question 18

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

Answer 18

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 represent approximately 2/3 of the cost of private medical plans. Various plan designs exist, but they generally cover all drugs prescribed by a physician
3. Health 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 include almost any insurable expense not otherwise covered, such as ambulance, x-rays, and prostheses
5. Out-of-Canada coverage - the most common coverage is for emergency care for short trips outside Canada

Question 19

Group dental insurance is provided through:

Answer 19

1. Traditional employers
2. Multiple employer trusts
3. Unions
4. Associations
5. Chambers of commerce

Question 20

Organizations that sell dental insurance

Answer 20

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

Question 21

Basic components of dental plan designs

Answer 21

1. Plans are designed to emphasize preventative care
2. Cost containment provisions exist to limit the antiselection the results from the elective nature of benefits (see separate list of provisions)
3. Plans only reimburse for the least expensive form of adequate treatment
4. Substantial out-of-pocket costs ensure that participants use care appropriately
5. Benefits are divided into different classes, with reimbursement varying by class (see separate list of classes)

Question 22

Classes of dental benefits

Answer 22

1. Type I (preventative and diagnostic) - oral exams, x-rays, cleanings, fluoride, sealants
2. Type II (basic) - fillings, anesthesia, endodontics, periodontics and extractions (those last three are sometimes Type III)
3. Types III (major) - inlays, onlays, crowns, bridges, dentures
4. Type IV (orthodontics) is sometimes added to dental plans

Question 23

Dental plan cost containment provisions

Answer 23

1. Reimbursement limitations - may reimburse 100% for Type I, 80% for Type II, and 50% for Type III
2. Calendar year deductible - typically $50 or less and may be waived for Type I
3. Calendar year annual maximum - typically $1,000, but ranges from $500 to $2,500
4. Exclusions include cosmetic services, experimental treatments, and services for on-the-job injuries
5. Pre-existing conditions limitations - prevent the plan from paying for charges incurred prior to the insurance effective date (such as replacement of a missing tooth from before insurance was purchased)
6. Benefits after insurance ends - coverage for work stated before termination only continues for 31 days

Question 24

Underwriting and rating parameters for dental

Answer 24

1. Group size - minimum group size of 5 is usually enforced to avoid antiselection
2. Eligible individuals - usually active employees and dependents (COBRA applies)
3. Participation - usually 75% required to reduce antiselection
4. Employer contributions - usually the employer contributes at least 50% to ensure minimum participation
5. Other coverages - if dental is packaged with other insurance options it helps to prevent antiselection
6. Demographics - rates can vary based on gender, age, location, industry or family structure
7. Waiting and deferral periods - may have waiting periods for new hires (or cover accidents only)
8. Incentive coinsurance - start with low coinsurance for types II and III and raise the level each year as the individual utilized preventative services
9. Transferred business - if the plan is a replacement, then pay for claims incurred in the prior year

Question 25

Dental reimbursement models and delivery systems

Answer 25

1. Indemnity - traditional FFS reimbursement
   a) Scheduled indemnity plans
   b) UCR (Usual, Customary and Reasonable) plans
2. PPO - generally reimbursed with discounted FFS
   a) Managed indemnity plans (passive PPOs)
   b) Discounted FFS PPO plans
   c) Fee schedule PPO plans
   d) Exclusive provider organization (EPO) plans
   e) POS plans
3. Dental HMO - generally prepaid or capitated
   a) Independent Provider Associations (IPA) plans
   b) Staff model DHMO plans
4. Discount card plans - members receive discounts from preferred providers (this is not insurance)

Question 26

Comparison of dental reimbursement models

Answer 26

Plan type / Indemnity / PPO / DHMO
Premium - High, Medium, Low
Patient access - Highest, Fair, Limited
Benefit richness - Least, Fair, Highest
Reimbursement - UCR/Schedule, Schedule, Capitation
Cost management - Least, Fair, Most
Utilization - High, High, Low
Quality assurance - Least, Fair, Highest
Fraud potential - High, Moderate, Low
Provider contracting - No, Yes, Yes

Question 27

Claim administration procedures used by dental plans

Answer 27

1. Predetermination - the plan wants members to submit expensive treatment plans for review before service
2. Least expensive alternate treatment - may limit reimbursement to this amount
3. Coordination of benefits - done to avoid paying benefits 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 based on:
   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 services when unusual circumstances or complications exist

Question 28

Reasons for increases in prescription drug costs

Answer 28

1. Prescription drug pipeline - manufacturers are anxious to recover their investments in R&D of new drugs
2. 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
3. Patents - these protect a drug’s original manufacturer from competition for a period of time
4. Direct to consumer advertising - marketing of high-cost drugs has been effective, resulting in many patients requesting the new drug
5. Faster approval process - the FDA has streamlined its approval process, increasing the number of high-cost drugs coming to the market
6. Brand name advertising - after generics become available, marketing of brand drugs continues, which helps maintain their sales
7. Aging population - leads to more demand for drug therapies
8. Increase in awareness of and testing for disease - often results in drug therapies to avoid acute illnesses
9. Personalized medicine - generic testing sometimes leads to unnecessary medication use

Question 29

Types of prescription drug benefit coverage

Answer 29

1. Prescription drug cards - generally do not integrate with medical benefits, so only drug claims count toward the deductible. usually administered separately from medical benefits, often using a PBM or TPA
2. Drug coverage through a major medical plan - drugs are integrated with medical benefits, so both count towards satisfying the deductible. Other benefit features are also integrated

Question 30

Types of formulary designs

Answer 30

Formularies are lists of preferred drugs

1. Closed - only formulary drugs are covered. But the 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
3. Tiered (incentive) - separate formulary tiers are established, with copays or coinsurance varying by tier

Question 31

Process for adding drugs to the formulary

Answer 31

1. The Pharmacy and Therapeutics Committee monitors for new products and gathers information on them
2. Then they determine whether the drug is clinically effective, safe, and cost-effective (compared to existing alternatives). The drug is not added if it fails any of these criteria.
3. If the criteria are met and there are no therapeutically interchangeable products, the drug is added to the formulary
4. If the criteria are met but there are interchangeable drugs, the health plan does a cost analysis to determine which drug to add
5. After decisions are made, the health plan must implement changes and educate its associates, providers, pharmacists, and customers

Question 32

Factors that determine leverage when negotiating rebates from drug manufacturers

Answer 32

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 33

Sales and marketing process for group long-term care insurance (LTCI)

Answer 33

1. First sale (to the plan sponsor) - must educate about the value of group LTCI, which includes:
   a) Keeping a current and competitive benefit portfolio, with no cost to the sponsor if it is offered as a voluntary coverage
   b) Helping attract and retain quality employees
   c) Reducing productivity losses through missed or distracted work time
   d) Responding to the needs and expectations of employees
2. Second sale (enrollment of employees) - the enrollment campaign will discuss the benefits of LTCI, which includes:
   a) Protecting retirement savings from potentially catastrophic LTC expenses
   b) Preserving one’s freedom of choice and independence if LTC services are needed
   c) Avoiding becoming a burden to one’s family, financially and for caregiving

Question 34

Marketing tools and media used in the group LTCI enrollment campaign

Answer 34

1. Informational articles in company publications
2. Mailings to employees’ homes (announcement letter, payroll stuffers, and reminder postcards)
3. Lead generator brochures
4. A toll-free number to request additional information
5. A website to educate the plan and, if desired, to allow rate quotes and enrollment
6. A printed or CD enrollment kit that includes plan details and an application
7. Group enrollment meetings
8. Email reminders
9. Videos

Question 35

Types of LTCI plans

Answer 35

These are the different approaches for paying benefits

1. Service reimbursement model - pays the cost of LTC services, subject to fixed limits that vary by type of services (eg. $100 per day for nursing home care and $50 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 actuarial 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 36

Plan provisions on LTCI policies

Answer 36

1. Benefit triggers (see separate list)
2. Elimination or waiting period - a time period during which the insured must remain disabled and benefit eligible before benefits are paid (commonly 30, 60, 90, or 100 days)
3. Covered services (see separate list of benefits covered)
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)
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 benefits
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 addition, and treatment covered by other policies or Medicare

Question 37

Benefit triggers for LTCI policies

Answer 37

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 2 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 judgment in emergency situations

Question 38

Definitions of ADLs allowed by HIPPA

Answer 38

1. Bathing - washing oneself with a sponge bath or in either a tub or shower, including getting into or out of the tub or shower
2. Continence - the ability to maintain control of bowl and bladder function; or, when unable to do so, the ability to perform associated personal hygiene (including caring for catheter or ostomy bag)
3. Dressing - putting on and taking off all items of clothing and necessary braces, fasteners, or artificial limbs
4. Eating - feeding oneself from a receptacle (plate, cup, etc.) or by a 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 39

Types of nonforfeiture benefits on LTCI policies

Answer 39

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 40

Types of health insurers and MCOs

Answer 40

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 PPOs 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 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 network.
7. HMOs - 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 HDHP with some form of individual pretax savings account (HRA or HSA)
9. Third-party administrator - administrator 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 41

Common types of managed care overlays

Answer 41

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 42

Features that differentiate HMOs from health insurers

Answer 42

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
4. Must allow direct access to primary care physicians (PCPs) and ob/gyn physicians
5. Must have written policies and procedures for physician credentialing, utilization management, and quality management
6. Must maintain defined minimum levels of capital reserves
7. Usually share some financial risk with physicians
8. Most require members to see a PCP for routine services and to access specialty care
9. Most are accredited by an accrediting organization

Question 43

Types of HMOs

Answer 43

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 associations (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 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 provided in network are covered (unless you have an OA POS plan…)

Question 44

Advantages and disadvantages of open-panel HMOs

Answer 44

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. Premium are often higher than those of closed panels

Question 45

Advantages and disadvantages of closed-panel HMOs

Answer 45

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 as 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 46

Types of integrated health care delivery systems (IDSs)

Answer 46

In IDSs, providers unite to manage health care and contract with health plans

1. IPAs
2. Physician practice management companies - these companies purchased 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 - provides a vehicle for negotiating with payer 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 directly 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 employs PCPs and specialists. This substantially increases the hospital’s negotiating leverage.

Question 47

Structural requirements of accountable care organizations (ACOs)

Answer 47

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 purposes of:
   a) Receiving and distributing shared svings
   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 mush have a sufficient investment such that ACO loses would be a significant motivator

Question 48

Key characteristics of patient-centered medical homes

Answer 48

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 49

Types of individual health insurance

Answer 49

(these plans make up the managed care continuum)

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 Supplemental and Medicare Select - supplement Medicare coverage by filling in the gaps in that coverage
5. Medicare Advantage - plans that contract with the US government to 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 ADLs (defined in a separate list) or who are cognitively impaired
9. Dental - not usually sold in the individual market due to antiselection concerns

Question 50

Types of limited benefit medical insurance

Answer 50

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

Question 51

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

Answer 51

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 52

Major types of business protection coverage

Answer 52

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 employee 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 for short-term needs only.

Question 53

Benefits that may be covered by LTC policies

Answer 53

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 relive an informal care provider
6. Home modifications and equipment (aka independence support services) - 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 provided 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. Death benefit - typically pays a percentage of all premium paid minus any benefits paid
11. Cash alternative benefit - some plans give the option of receiving claim payment for home and community-based care as a cash benefit, rather than as a reimbursement benefit

Question 54

Methods of providing inflation protection on LTC policies

Answer 54

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 ever three or five years) given the opportunity to purchase additional coverage on a guaranteed issue basis