HEALTH INSURANCE: MODULE V-H

Health insurance has grown into a vast and complicated field involving many types of policies and programs: Group, individual, Major Medical, Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), prepaid plans (Blue Cross/Blue Shield), Dental plans, Long-Term Care, Medigap, cafeteria plans, and many more-in one way or another, these could all be classified as 'Health insurance.' In this sales campaign, we will attempt to narrow the field to some basic Health plans, including HMOs and PPOs, sold to individuals and groups. Medigap, Long-Term Care policies, and other specialized coverages deserve more in-depth coverage than they could receive here. Cafeteria plans are covered in your 'Payroll Deduction' sales campaign.

The P/C agent is no doubt familiar with the concept of a 'package policy'-covering many eventualities in one contract. Health insurance can be thought of as operating on the same principle. Health insurance assumes risks from many causes and offers many benefits.

From the consumer's point of view, Health insurance today is both an economic and a social necessity. It is the method by which any member of the public may hold a contract or certificate that will not only make certain guarantees for the prevention and cure of disease, the maintenance of health, and the provision of care for accidents and emergencies, but will also provide protection from financial ruin that could most certainly follow a costly accident or illness. In fact, Health insurance is so important to the consumer that in many arenas it has become a political issue-there's talk of revising the entire U.S. health care system. But regardless of what happens in the future, the fact is that people need Health insurance, and someone has to sell it to them. Thus, while this material will not attempt to analyze the politics surrounding Health insurance today, it will attempt to provide you, the P/C agent, with a solid understanding of some basic Health insurance contracts and how to go about selling them.

To understand the multiplicity of Health insurance contracts available today, it helps to have a brief overview of how those contracts have developed and how they operate today. Over the years, many versions of Health insurance contracts have been created, used for a time, and made obsolete by the emergence of new, more modern versions. Plans have always attempted to extend their benefits to encompass ever-more sophisticated methods of medicine and its delivery.

The earliest forms of individual Health insurance, introduced prior to 1910, were generally issued as an adjunct to Disability Income insurance and provided for a 50% to 100% increase in the monthly Disability benefit during hospital confinement. It was not really until the 1930s and the Depression years that a form of Health or Medical Expense insurance separate from Disability Income insurance became widely used. Since that time, forms have grown and adapted to the many types of treatment available.

Group Health insurance has its origins with private insurance companies early in the 20^th century, often appearing as a rider to Group Life and Disability Income contracts. But at that time, Health coverage was not considered a very desirable product by insurers, and very little was sold. The real impetus for the concept of Medical Expense coverage for groups of people came with the development of hospital service associations and medical service associations during the Depression era. These plans were originally designed to facilitate hospitals' collection of bills and protect their solvency, and have developed today into what we know as pre-paid plans-Blue Cross/Blue Shield plans. Pre-paid Health plans have 'subscribers' rather than 'insureds,' who pay 'dues' rather than 'premiums.' They are for the most part nonprofit organizations, although some 'Blues' was to change to for-profit organizations.

The success of these plans caused insurers to recognize, by about the early 1940s, that Medical Expense benefits could be underwritten successfully. With World War II and its wage and price controls, employers were looking for all manner of non-taxable employee benefits, and the growth of Group Health plans was rapid and explosive. An era of intense competition ensued.

A relatively new form of Health insurance contract is the HMO. Such contracts came into being in 1973 as a result of a congressional act entitled 'Health Maintenance Act of 1973.' The Act was intended to establish a system of preventative medicine and programs for staying healthy, and to bring health and accident care to the poor, the indigent, and the unemployed. HMOs provide medical care through a series of providers under contract. (More about exactly how benefits are provided can be found later.) HMOs can be forprofit or nonprofit organizations, and are subject to the medical quality control functions of both state and federal governments. HMOs are subject to periodic 'utilization review' evaluations by internal control and/or by separate profit-making organizations hired for that purpose.

While there are still federal government subsidies to HMOs for the original purposes, the HMO Act has been liberalized so that HMOs are able to compete for the Health insurance dollar in many places in the commercial markets, under many circumstances. HMOs today use both captive and independent agents to sell their 'memberships' both on salary and for a commission.

Yet another new form of Health insurance contract is the PPO. A PPO is a health care delivery system for individuals and groups that is essentially a cost-containment system. In those states that have enabled and regulate PPOs, those that offer services to the general public must be owned or managed by a legal reserve Life and Health insurance company. Unlike HMOs, PPOs must not respond to any federal regulations, but are subject to state regulation. PPOs operate similarly to HMOs in that they provide care through a series of providers under contract.

Dental plans, usually written in a contract separate from the Health insurance plan, are becoming increasingly popular as part of an overall Health insurance plan, particularly in Group plans. These plans had their origin in 1954, when longshoremen won dental plan benefits from the West Coast shipping industry in a union agreement. The union asked dental societies in West Coast states to help implement the program, and the first dental service corporation came into being. Commonly called 'Delta Plans,' these service corporations are generally nonprofit and administer Dental plans. The success of the longshoremen's program proved the feasibility of underwriting dental care costs. Dental prepayment plans became a sound marketing reality, and in the early 1970s, insurance companies began embracing the idea of marketing insured Dental plans.

Today, about half the insured population is covered by some form of Health plan (individual or group) sold by agents for a commission or by companies (without the use of agents) for a profit. More than 1,000 insurance companies (exclusive of Blue Cross/Blue Shield, HMOs, and so on) offer diverse and numerous Health insurance contracts. The rest of the market is handled by 'the Blues,' with fewer than 200 such organizations covering a significant number of people, by about 400 HMOs registered with the federal government, by about 300 PPOs authorized in 18 states, and by government and various public-sponsored programs. Roughly half the U.S. population has some form of Dental coverage, and such plans are available both to individuals and groups.

What follows is a brief explanation of the coverages and features you are likely to find in various types of Health insurance plans. Keep in mind that, unlike with P/C coverages, there are no 'standard' policy forms. Language of contracts and sales materials is not uniform. Very often, plans calling benefits by the same name mean different things. Language describing salient points of contracts and benefits can vary widely. You should study the terms, coverages, and exclusions of any policy or program you are selling thoroughly before making any presentations, or you may call in a Health insurance specialist.

Whether an insured plan, a pre-paid plan, an HMO, or a PPO, an individual Health coverage contract should provide coverage for most of the following, as appropriate for each client:

• Accidents
• Alcohol and drug abuse
• Allergy testing-serum treatment
• Ambulance and transportation
• Ambulatory surgery (aka outpatient surgery)
• Anesthesia
• Annual physical
• Assistant surgeon
• Blood/plasma transfusions
• Burn ward benefits
• Chemotherapy
• Chiropractic (with limitations)
• Complications of pregnancy
• Congenital defects benefit
• Coronary Care Unit (CCU, a.k.a. Coronary Care and Monitoring Unit or CCMU)
• Dental surgery
• Dental tumors
• Family planning benefit
• Foot care
• Hemodialysis (limited benefit)
• Hospital miscellaneous charges
• Hospital room and board
• Impacted wisdom teeth
• Inhalation therapy
• Intensive Care Unit (ICU, aka Critical Care Unit or CCU)
• Laboratory tests
• Mental and nervous disorders
• Normal maternity benefits (1)

• Occupational therapy
• Organ transplant
• Orthopedic training (exercises)
• Outpatient benefits
• Physical therapy
• Pre-admittance testing
• Prescription drugs, in/out of the hospital
• Private hospital room (only if required by law)
• Prosthetic devices
• Radiation therapy
• Speech therapy
• Substance abuse
• Surgery
• Surgery-second and third opinions
• Testing
• Well baby care
• X-rays

A good Group Health insurance contract should provide the aforementioned benefits, plus a Group Life benefit and Group Accidental Death and Dismemberment coverage if mandated by law. Following is a list of some options you might encounter in a Group Health contract:

• Common carrier
• Dependent Life coverage
• Dental plan
• Long-Term Disability coverage
• Loss of Time (Sickness), aka Weekly Indemnity
• Legal service
• Medicare supplement plan
• Prescription drug cards service
• Pharmaceutical PPO
• Supplemental accident
• Vision care

Because pre-paid plans, HMOs, and PPOs do not issue Life insurance or Accidental Death and Dismemberment coverage, and because many optional coverages are written only in certain plans, it may be necessary for you as the agent to put together several different plans for a total employee benefits package for your insured.

Although designed to cover the same basic risks, insured plans, pre-paid plans, and HMOs and PPOs deliver their benefits quite differently.

Insured Plans-Generally, an insured plan will have an overall lifetime limit of liability, stating that a covered person may only be covered for '$[Amount] lifetime limit of liability, from all causes.' That limit is commonly $1 million or more. These limits are based on actual cash payouts of plans. Some plans have 'unlimited' lifetime benefits, and some will make incremental restoration of amounts used to the total available lifetime limit during the year after use.

Insured plans almost always have an annual deductible, ranging from $100 to $10,000 or more, which is often selected by the insured. (In a Group insured plan, the deductible per employee may be dictated.) For each covered participant, the deductible has to be satisfied, from the first claims submitted each year. Some plans offer limitations on deductibles for insureds with families. The deductible may be the stated amount per covered individual per year, with a family limit of two or three times that amount, regardless of the number in the family. Many plans will 'carry over' a deductible paid by a covered participant during October, November, or December to the following year. There are numerous variations on deductibles offered by particular plans; be sure to understand thoroughly all the deductible options in the plans you are selling.

Co-payments almost always applies to insured plans. The co-payment will apply to expenses incurred during a calendar year until the covered participant's medical care expenses reach specified levels, after which the plan usually pays 100%. This represents a true stop-loss for the participant. A common plan is for the insurer to pay 80%, then 100% after expenses reach $5,000; but again, plans vary considerably. In individual Health plans, insureds may be able to choose the percentage of co-payments and stop-loss limit.

In addition to using deductibles and co-payments, insurers may keep down costs and claims by limiting coverage to 'usual, customary, and reasonable' (UCR) charges. In other words, the insurer will pay 80%, after the deductible is paid, of usual, customary, and reasonable charges for a particular procedure. There is no uniform system for defining UCR. In general, it means the average cost for which the medical service can be obtained in the area in which it is delivered. In essence, each company determines its own UCR. A similar system you may run across is known as the relative value scale (RVS), although it is not used often anymore. RVS is a system of predetermined allowances of medical procedures, the value of which, in terms of time allotted, is determined by the insurer. The amount of reimbursement per hour for the provider is selected by the insured. Where it still exists, RVS more often than not applies to forms of surgery.

Pre-Paid Plans-These plans operate similarly to insured plans, but usually do not have an overall lifetime limit of liability. They will offer subscribers various levels of annual deductibles and co-payments, and some offer optional coverages such as dental and vision care with separate deductibles and co-payments.

In addition, these plans usually contract with medical care providers to the extent that what the plan allows under its version of UCR or RVS, less any co-payments, will be accepted by the provider as payment in full for the service provided. Deductibles still must be paid by covered participants. Keep in mind that although these arrangements are in place, all of the plan's contractees may not adhere to the agreement-no body of evidence exists to say whether or not the majority accept the pre-paid plan's payment as payment in full. Pre-paid plans seldom use any claim forms. Once the covered participant has established the fact of coverage, all paperwork is thereafter undertaken on a direct basis between the providers and the plan.

HMOs-There are essentially two types of HMOs: staff model plans and independent practice associations (IPAs). Staff model plans have their own clinical and sometimes hospital facilities. IPAs, also known as 'foundation HMOs,' comprise an open panel of physicians and other providers who are contracted with the HMO, but may also provide services to other patients on a private, fee-for-service basis. The IPA sets a capitation payment and payment amounts for covered services.

HMOs are closely regulated as to benefits, pricing, method of sale, and delivery of benefits by state and federal governments. Recently, HMOs have been granted some pricing flexibility by these agencies, via the 'Community Rating by Class Guidelines.' The guidelines establish parameters for the use of rating factors such as age, sex, industry, geographic location, and multitier rating (premiums vary by family size and composition).

In providing benefits, few HMOs offer any type of indemnity services. Most staff model plans have a schedule of co-payments that covered participants must pay as a means of obtaining the medical care required. The amount or level of co-payment may be selected by the contract holder-the insured in the case of an individual, the purchasing company in the case of a group plan-and is generally fairly nominal, rarely exceeding $15 per clinical visit, per covered individual. This type of arrangement usually also applies to any optional coverages offered by the HMO.

IPA HMOs may have copayments for outpatient services and deductibles, coinsurance, and UCR or RVS schedules for inpatient medical care when covered participants have to be hospitalized.

PPOs-PPOs deliver benefits in a manner similar to HMOs, using either a staff model or an IPA plan. A PPO, however, is less regulated as to premium charges, and may also provide for some benefits on an indemnity basis if an insured chooses to obtain care from a provider not contracted by the PPO.

Underwriting

A word about underwriting is appropriate here, because it differs greatly between individual and group plans, between insured plans and pre-paid plans, HMOs, and PPOs.

Individual Plans-These are usually very carefully underwritten before contracts are issued. You can expect the prospect to have to variously fill out health questionnaires, obtain attending physicians' statements, and in some instances take physical examinations. Insurers may also obtain information from the Medical Information Bureau (a reporting service) and look at motor vehicle records.

Some individual plans will exclude certain illnesses and/or rate up premiums (charge more) in various cases, according to insurers' underwriting and morbidity experience for that illness. Other insurers will not issue a policy unless they can issue it at a standard (not rated up) rating.

HMOs, PPOs, Pre-Paid Plans-Some HMOs and PPOs accept individuals into their plans; all prepaid plans accept them. Underwriting differs for each plan, but because HMOs are directed by law to help prevent illness as well as to cure it, and to tend to the needs of those injured in accidents, underwriting criteria are necessarily different. Generally, they have no facility for serving contracts with exclusions or substandard ratings. Pre-paid plans for individuals usually have strict underwriting guidelines and declinations are not uncommon.

Group Plans-Individuals are generally neither questioned nor examined as to their health for Group Health insurance purposes. The policy is issued to the group as a whole. What constitutes a 'group' may differ from company to company when it comes to underwriting. For Group Life insurance, many states have adopted a uniform law that defines a group as being 10 or more persons. However, there is no uniform law for Group Health plans. Some insurers use 25, others use five, and a few use three or even only one as their definition.

It is appropriate here to mention briefly Multiple Employer Trusts (METs). In a MET, many small groups are brought together and underwritten as a larger group, thus enabling the insurer to provide true group underwriting and rates. All eligible participants are covered under a master policy.

Health insurance plans may be one, two, or more separate contracts, depending on whether they are individual or group coverages and upon the coverages and options in the plan. Regardless of the number of contracts in a plan, all Health insurance contracts are unilateral; that is, the policy-holder has no duties to perform under the contract. Only the issuer has duties. The contract holder only promises to pay premiums.

Individual Health insurance contracts are governed by a Uniform Policy Provisions law recommended by the National Association of Insurance Commissioners (NAIC) in 1950. The states have adopted the NAIC recommendations with variations. The laws generally require that Health insurance contracts contain and explain the following sections:

1. Entire Contract
2. Reinstatement
3. Proof of Loss
4. Payment of Claims
5. Claim Forms
6. Grace Period
7. Notice of Claim
8. Legal Actions
9. Change of Beneficiary
10. Time of Payment of Claim
11. Physical Examination and Autopsy
12. Incontestability

Contracts must also contain eleven other provisions, whose wording can change with approval of insurance departments. These are:

1. Change of Occupation
2. Other Insurance, Thi