Because learning changes everything.

Chapter 5
Part 3
Health, Disability, and Long-Term Care
Insurance

This slide is prepared based on the slide from McGraw

Hill and served for the Personal Finance subject at the
HCMCOU.
Instructor : Nhan Pham

© 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.
 Learning Objectives
▪ Explain why the costs of health insurance and health
care have been increasing.
▪ Define health insurance and disability income
insurance and explain their importance in financial
planning.
▪ Analyze the benefits and limitations of the various
types of health care coverage.
▪ Evaluate private sources of health insurance and
health care.
▪ Appraise the sources of government health care
programs.
▪ Recognize the need for disability income insurance.
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 Health Care Costs
Explain why the costs of health insurance and health care
have been increasing.
Health insurance is one way people protect themselves
against economic loss due to illness, accident or disability.
Patient Protection and Affordable Care Act, and the Health
Care and Education Reconciliation Act enacted on March 30,
2010.
• Health care debate continues and needs further reform.

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 High Medical Costs
Health care costs are estimated at $4.2 trillion (18.2% of GDP)
in 2021.
• Expected to grow to $6.2 trillion by 2028.
Yet about 26.1 million people have no health insurance.
Rapid increase in medical expenditures.
• In 2020, health care costs rose from $41.6 billion in 1965
to over $4.0 trillion.
High administrative costs.
• 11% of health care dollar versus 1% in Canada.

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 Why Does Health Care Cost So Much? 1

• Use of sophisticated, expensive technologies.

• Duplication of tests and technologies.
• Increases in the variety and frequency of treatments.
• Increasing number and longevity of elderly people.
• Regulations that result in cost shifting rather than cost
reduction.
• Increasing number of accidents and crimes that require
emergency medical services.

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 Why Does Health Care Cost So Much? 2

• Limited competition and restrictive work rules in the health

care delivery system.
• Labor intensiveness and rapid average earnings growth for
health care professionals.
• Using more expensive medical care than necessary.
• Built-in inflation in health care delivery system
• Malpractice insurance and fraud.
• Aging baby boomers.
• Other major factors – fraud, waste, etc.

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 What Is Being Done About the High Costs
of Health Care?
• Careful review of fees and charges.
• Establish incentives for preventive care and services
provided out of the hospital where medically acceptable.
• Involve community in balancing health care needs and
health care resources.
• Encourage prepaid group practices.
• Support community health education programs so people
take better care of themselves.
• Physicians encourage patients to pay cash for routine
care.

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 What Can You Do to Reduce Personal
Health Care Costs? 1

• Consider participating in a flexible spending account.

• Consider a high-deductible health plan.
• Ask for less expensive generic drugs.
• Use a mail-order or online pharmacy for long term drugs.
• Review free or low-cost coverage for uninsured children
through state.

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 What Can You Do to Reduce Personal
Health Care Costs? 2

• Review state plans for prescription drug assistance.

• Follow up with doctor by phone if allowed.
• Investigate non-urgent procedures recommended by
doctor.
• Review billing statements for errors.
• Appeal unfair decisions by your health plan.
• Practice preventive care.

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 What Can You Do to Reduce Personal
Health Care Costs? 3

Prescription to stay well:

1. Eat a balanced diet and keep your weight under control.
2. Avoid smoking and don’t drink to excess.
3. Get sufficient rest, relaxation, and exercise.
4. Drive carefully and watch out for accident and fire hazards
in the home.
5. Maintain a healthy lifestyle.
6. Get recommended health screening and manage chronic
conditions.

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 Health Insurance and Financial Planning
Define health insurance and disability income insurance
and explain their importance in financial planning.
HEALTH INSURANCE reduces the financial burdens people
suffer due to illness or injury.
• It’s part of your overall insurance program to safeguard your
family’s economic security.
• Includes both medical expense insurance and disability
income insurance.

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 Group Health Insurance 1

• Group plans comprise about 90% of all health insurance.

• Most group plans are employer sponsored; employer pays
part or most of the cost.
• The Tax Cuts and Jobs Act of 2017 requires large
employers (more than 50 employees) to provide health
insurance coverage to all employees.
• In June 2018, the U.S. Department of Labor expanded
access to affordable health coverage options for small
businesses and their employees through Association
Health Plans (AHPs).

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 Group Health Insurance 2

The Health Insurance Portability and Accountability Act

of 1996 (HIPAA) legislates new federal standards for health
insurance portability, nondiscrimination in health insurance,
and guaranteed renewability.
• Example: if a parent with a sick child can move from one
group plan to another without lapses in health insurance
and without paying more than other employees for
coverage.

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 Individual Health Insurance and
Supplementing Your Group Insurance
INDIVIDUAL HEALTH INSURANCE.
• A policy tailored to your particular needs from the company
of your choice.

SUPPLEMENTING YOUR GROUP INSURANCE.

• The coordination of benefits (COB) provision in a policy
says that benefits received from all sources are limited to
100% of allowable medical expenses.

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 Medical Coverage and Divorce
• Coverage under a former spouse’s medical plan can be
continued for 36 months and premiums are paid entirely by
the individual.
• COBRA requires many employers to offer employees and
dependents the option to continue their group coverage for
a set period of time following a divorce.
• Does not cover federal government and religious institution
employees.

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 Who is Entitled to Continuation Coverage?

Qualifying Event Qualified Beneficiaries Maximum Period of

Continuation Coverage
Termination (for reasons other Employee, Spouse, Dependent 18 months
than gross misconduct) or child
reduction in hours of
employment
Employee enrollment in Spouse, Dependent child 36 months
Medicare
Divorce or legal separation Spouse, Dependent child 36 months
Death of employee Spouse, Dependent child 36 months
Loss of “dependent child” Spouse, Dependent child 36 months
status under the plan

Source: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/publications/an-employees-
guide-to-health-benefits-under-cobra.pdf, accessed April 5, 2021.

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 Types of Health Insurance Coverage
Analyze the benefits and limitations of the various types of
health care coverage.
A Good Health Insurance Plan should:
• Offer basic coverage for hospital and doctor bills.
• Provide at least 120 days’ hospital room/board.
• Provide at least $1 million lifetime maximum for each family
member.
• Pay at least 80% out-of-hospital expenses after annual
deductible of $1,000 per person or $2,000 per family.
• Impose no unreasonable exclusions.
• Limit out-of-pocket expenses to $4,000 to $6,000.

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 Types of Medical Coverage 1

Hospital Expense Insurance.

• Hospital room, board, and other charges.
Surgical Expense Insurance.
• Surgeon's fee for an operation.
Physician Expense Insurance.
• Pays for physician’s care such as office visits, lab tests,
and x-rays.
• It does not include surgery.
• Basic health insurance coverage.

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 Types of Medical Coverage 2

Major Medical Expense Insurance.

• Covers expenses for a serious injury or long-term illness;
adds to basic plan.
• Has a deductible, coinsurance, and a stop-loss provision.
• Coinsurance provision which both the insured and the
insurer share the covered losses.
Comprehensive Major Medical Insurance.
• Low deductible offered without a separate, basic plan.
• Covers hospital, surgical, medical, and other bills.

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 Deductibles and Coinsurance
Example:
Ariana’s policy includes an $800 deductible and a
coinsurance provision requiring her to pay 20 percent of all
bills.
If her total is $3,800, for instance, the company will first
exclude $800 from coverage, which is Ariana’s deductible.
It will then pay 80 percent of the remaining $3,000, or
$2,400. Therefore, Ariana’s total costs are $1,400 ($800 for
the deductible and $600 for the coinsurance).

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 Types of Medical Coverage 3

Hospital Indemnity Policies.

• Pays cash benefit when hospitalized.
Dental Expense Insurance.
• Covers exams, cleaning, x-rays, fillings, root canals, oral
surgery, etc.
Vision Care Insurance.
• Exams, contact lenses, and glasses.
Other Insurance Policies.
• Dread disease, trip accident, and cancer policies; focus on
unrealistic fears; poor value.

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 How You and Your Insurer Share Costs

Source: “Glossary of Health Coverage and Medical Terms,” www.healthcare.gov/sbc-glossary/, accessed April 5, 2021.

Access the text alternative for these images

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 Long-Term Care Insurance
Virtually unknown 50 years ago; growing faster than any other
form of insurance.
A recent study by Americans for Long-Term Care Security (ALT
CS) found that one out of five Americans over age 50 is at risk
of needing some form of long-term care within the next 12
months.
• More than half of the population will need LTC at some point.

Can be very expensive.

National average of 1 year in nursing home can cost over
$105,000.
Annual Premiums from under $2,000 to $16,000.

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 Major Provisions in a Health Insurance
Policy 1

Eligibility.
• Varies with age, marital status, and dependency.
Assigned Benefits.
• Insurance pays your doctor or hospital directly.
Internal Limits.
• Fixed amount paid per day for a hospital room.

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 Major Provisions in a Health Insurance
Policy 2

Copayment.
• Cost sharing in the form of a flat dollar amount you pay,
such as $20 to $30 per doctor visit or $15 to $30 for
prescriptions.
Service Benefits.
• Entitlement to specific care rather than a fixed dollar
amount per procedure.
Benefit Limits.
• Maximum dollar amount or maximum number of days in
the hospital. (i.e., $250,000+)

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 Major Provisions in a Health Insurance
Policy 3

Exclusions and Limitations.

Coordination of Benefits.
• Coverage under more than one policy.

Guaranteed Renewable.
Cancellation and Termination.
• Explains the circumstances.

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 Health Insurance Trade-Offs
• Reimbursement versus indemnity.
• Internal limits versus aggregate limits.
• Deductibles and coinsurance.
• Out-of-pocket limit.
• Benefits based on reasonable and customary charges.

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 Which Coverage Should You Choose?

For medical insurance, you have three choices:

• Basic.
• Major medical.
• Both basic and major medical.

Ideally, you should get a basic plan and a major medical

supplementary plan or a comprehensive major medical
policy that combines the values of both into a single polic.

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 Private Sources of Health Insurance and
Health Care
Evaluate private sources of health insurance and health
care.
Private Insurance Companies.
• Individual policy.
• Group policy sold to an employer.

Hospital And Medical Service Plans.

• Blue Cross: hospital care benefits.
• Blue Shield: surgical and medical services benefits.

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 Health Maintenance Organizations (HMO)

Managed Care.
• Prepaid health plan for comprehensive health care to
members.
• Best known are HMOs and PPOs.
• Primary care physician.

Health Maintenance Organization.

• Contracts with selected care providers.
• Fixed pre-paid monthly premium.
• Focus is on preventive care.
• Basic and supplemental services.

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 Preferred Provider Organizations (PPO)

Preferred Provider Organization.

• Several providers to choose from.
• Costs more than an HMO.
• Specified services at predetermined fees to PPO
members.
• If you go to a non-PPO provider, you pay more.
• Includes Exclusive Provider Organization (EPO) and
Point-of-Service (POS) plans.

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 How Health Plans Compare
HMO EPO PPO Point-of-service

What’s the Generally lowest Usually lower Generally Usually lower

cost? of all plans than PPO highest of all than PPO
plans
Do I have to use Yes (except for Yes (except for No (but you’ll No (but you’ll
providers in the emergencies and emergencies and have to pay more have to pay more
network? for care that isn’t for care that isn’t if you go out of if you go out of
available in available in network) network)
network) network)
Do I have to Yes No No Usually
choose a
primary care
physician?
Do I need a Yes No No Usually
referral to a
specialist?

Source: https://www.tdi.texas.gov/pubs/consumer/cb005.html, accessed April 5, 2021.

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 Other Options
Home Health Care Agencies.
• Home health care aide and hospices.
Employer Self-Funded Health Plans.
• Company collects premiums and pays medical benefits;
may not have the assets to cover medical costs that
exceed premiums.
New Health Care Accounts.
• Health Savings Accounts.
• Health Reimbursement Accounts.
• Flex Spending Accounts.

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 Comparison of HSAs, FSAs, and HRAs

Health Savings Accounts Flexible Spending Accounts Health Reimbursement

(HSAs) (Arrangements) (FSAs) Accounts (HRAs)
• Employer sponsored. • Employer sponsored. • Employer sponsored.
• Set aside tax-free dollars you • Set aside tax-free dollars • Funded solely by your
can use to pay for medical you can use to pay for employer to spend on your
expenses that are not covered medical expenses that are health care.
by insurance. not covered by insurance. • Tied to high-deductible
• Tied to a high-deductible • Not tied to a high- policies.
policy. deductible policy. • Reimbursement of claims is
• Unspent money can be • Money left over can’t be tax-deductible for employers.
carried over and accumulate carried over; if you don’t • The maximum annual
year to year. use it, you lose it to your contribution is determined by
• Can invest the funds in employer. your employer’s plan
stocks, bonds, and mutual document.
funds. • Can carry over unspent
• The money grows tax-free but money from year to year, but
can be spent only on health you lose the balance if you
care. change jobs.
• You own the funds; you take • Premiums tend to be lower
any unspent funds with you if than for traditional insurance
you leave the employer. but higher than for HSAs.

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 Government Health Care Programs 1

Appraise the sources of government health care

programs.
Medicare is a federal program for those age 65 or older, and
certain disabled persons.
Part A: Hospital Insurance.
• Inpatient hospital care, inpatient skilled nursing facility
care, home health care, hospice care.

Part B: Medical Insurance.

• Voluntary.
• Doctor’s services not covered by Part A.
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 Government Health Care Programs 2

Medicare (continued).
• Part C: Medicare Advantage Plan.
• Part D: Medicare Prescription Drug benefit.
Medigap or MedSup insurance.
• May pay what Medicare doesn’t.
Medicaid.
• Low-income individuals and families.
• State administered with federal guidelines.

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 A Brief Look At Medicare

Source: Medicare & You (Washington, DC: The Centers for Medicare and Medicaid Services, 2021), p. 4, accessed April
4, 2021.

Access the text alternative for these images

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 What Is Not Covered By Medicare? 1

• Acupuncture.
• Care in a skilled facility.
• Skilled nursing care not approved.
• Intermediate and custodial nursing care
• Most screening tests, vaccinations, and some diabetic
supplies.
• Private-duty nursing.

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 What Is Not Covered By Medicare? 2

• Routine checkups, dental care, most immunizations,

cosmetic surgery, routine foot care, eyeglasses, and
hearing aids.
• Care received outside of the U.S. except Canada and
Mexico.
• Services Medicare does not consider medically necessary.
• Physician charges above Medicare’s approved amount.

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 Health Insurance And The Patient Protection and
Affordable Care Act of 2010 1

• Offers tax credits for small businesses to make coverage

more affordable.
• Prohibits denying coverage to children with pre-existing
conditions.
• Provides access to affordable insurance for uninsured due
to pre-existing conditions.
• Bans insurance companies from dropping sick people.
• Eliminates copayment for preventive services.
• Allows children up to age 26 to remain on parent’s plan.
• Prohibits lifetime caps on coverage; restricts use of annual
limits.
• Provides consumers with access to appeal process.

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 Health Insurance And The Patient Protection and
Affordable Care Act of 2010 2

• Increases funds for Community Health Centers.

• Provides path to increase number of heath care providers.
• Premium increases must be justified.
• Requires most Americans to purchase health care.
• Creates insurance exchanges to purchase coverage.
• Expands Medicaid program.
• Employers with 20 or more employees must provide
insurance.

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 Affordable Care Act And The Individual
Shared Responsibility Provision 1

Requires you and each member of your family to:

• Have minimum essential health coverage every month, or
• Have an exemption from the responsibility to have
minimum essential coverage, or
• Make a shared responsibility payment when you file your
federal income tax return.

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 Affordable Care Act And The Individual
Shared Responsibility Provision 2

The Health Insurance Marketplace.

• Compare plans and enroll in a health plan.
What do college students need to know about the
marketplace?
• Marketplace health plan.
• Coverage on parent’s plan.
• High-deductible health plan.
• Medicaid and the Children’s Health Insurance Program
(CHIP).
• For more information visit HealthCare.gov.

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 Fight Against Medicare/Medicaid Fraud
and Abuse
In 1997 President Clinton introduced the Medicare/Medicaid
Anti-Waste, Fraud and Abuse Act.
• Established tough new requirements for health care
providers that wish to participate in the Medicare/Medicaid
program.

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 Government and Private Consumer Health
Information Websites
With more than 60 central websites on eight domains, the
Department of Health and Human Servuces (HHS) maintains
the most reliable sources of information.
Health finder.
MedlinePlus.
NIH Health Information Page.
FDA: Food and Drug Administration.

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 Disability Income Insurance
Recognize the need for disability income insurance.
• Disability income insurance protects your most valuable
asset: your ability to earn income.
• Disability is more likely than death at any age.
• Provides regular cash income lost as the result of an
accident or illness.
• If you become disabled, your income drops but your
medical expenses go up.

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 Definition of Disability
• Some policies define it simply as the inability to do your
regular work.
• Good disability plans pay when you are unable to work at
your regular job.
• Poor disability plans pay only when you are unable to work
at any job.

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 Disability Insurance Trade-Offs
• Waiting or elimination period.
• Duration of benefits.
• Amount of benefits.
• Accident and sickness coverage.
• Guaranteed renewability.

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 Sources of Disability Income
Employer.
• Group disability plan may be short or long term.
• Most insurers limit benefits from all sources to no more
than 70 to 80% of your take-home pay.
Social Security.
• Covers total disability that lasts more than twelve months
and you must be unable to do any work.
Worker’s Compensation.
• Applies if your accident or illness occurred at your place of
work or resulted from your type of employment.

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 Determining Your Disability Income
Insurance Requirements
Determine whether available benefits are sufficient to meet
disability income needs.
Know how long you have to wait before benefits begin.
• Waiting or elimination period.
Most insurers limit benefits from all sources to no more than
70-80% of your take home pay.

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