INSURANCE 101:Consumer-Driven Health Plans (CDHP)

With the evolution of the healthcare marketplace, many insurers have begun to shift the risk of health insurance from the insurer to the insured.  Essentially, this means that insurers are requiring insured members to take control of their healthcare decisions.  This approach is becoming more commonplace in reducing or eliminating unnecessary procedures and expenses and improving the overall quality of health care.

Franchise Insurance
Health insurance can be provided for groups too small to be considered a group by most state standards.  Generally, this type of insurance is marketed to the employees of a small business or members of an association or professional society.  It provides members with a lower premium group policy with similar provisions for each member; however, each member can customize certain benefits based on his her needs.

Small Employer Plans
Groups of usually 50 or less employees have become expensive to insure with the rising costs of health care.  Recent developments by several states include mandating insurance to be offered to small employers, limits on waiting periods, and guaranteed coverage regardless of pre-existing health concerns.  Plans cannot be canceled due to a rise in health claims, but can be canceled if premium is not paid by the employer.

Health Reimbursement Arrangement (HRA)
Considered a dominant form of consumer-directed health plans, an HRA is a high-deductible health plan associated with a tax favored saving account that an employer creates for each employee.  The plan allows members to use the savings account to pay for health care costs including deductibles, coinsurance, and other covered health care expenses.  Any unused funds in the employer account is usually rolled over and saved for the next year.

IRS 125 Plan (Cafeteria Plan)
Also known as a Flexible Benefits Plan, it is a benefit program under Section 125 of the Internal Revenue Code that offers employees a choice between permissible taxable benefits, including:  cash, and nontaxable benefits such as life and health insurance, vacations, retirement plans and child care. Although a common core of benefits may be required, the employee can determine how his or her remaining benefit dollars are to be allocated for each type of benefit from the total amount promised by the employer. Sometimes employee contributions may be made for additional coverage.

Flexible Spending Account or Arrangement (FSA)
Accounts offered and administered by employers that provide a way for employees to set aside, out of their paycheck, pre-tax dollars to pay for the employee’s share of insurance premiums or medical expenses not covered by the employer’s health plan. The employer may also make contributions to a FSA. Typically, benefits or cash must be used within the given benefit year or the employee loses the money. Flexible spending accounts can also be provided to cover childcare expenses, but those accounts must be established separately from medical FSAs.

Medical Savings Account (MSA)
Savings accounts designated for out-of-pocket medical expenses. In an MSA, employers and individuals are allowed to contribute to a savings account on a pre-tax basis and carry over the unused funds at the end of the year.

FSA vs. MSA
One major difference between a Flexible Spending Account (FSA) and a Medical Savings Account (MSA) is the ability under an MSA to carry over the unused funds for use in a future year, instead of losing unused funds at the end of the year.  Most MSAs allow unused balances and earnings to accumulate.  Unlike FSAs, most MSAs are combined with a high deductible health insurance plan.

High Deductible Health Plan (HDHP)
A type of health insurance plan that is associated with an HSA or MSA and is named after the typically high deductible amounts attached to such plans.  Deductible amounts determine the policy’s premium rate, so the higher the deductible, the lower the premium payment.

Health Savings Account (HSA)
A Health Savings Account (HSA) is a tax-advantaged medical expense savings account that works in conjunction with a qualified high deductible health insurance plan (HDHP) as a means of helping policyholders reduce their overall healthcare costs. It is a relatively new type of savings account that has replaced Medical Savings Accounts (MSAs).

Often set up by employers for their employees or by the self-employed, an HSA provides tax advantages for both contributions to the account and withdrawals from the account for qualified medical expenses that are not covered by the HDHP. It is established through a bank or other financial institution often provided to the policyholder by the insurance company responsible for the HDHP. Withdrawals from the account are made through HSA debit cards or financial institution checks associated with the HSA.

HSA Contributions
In addition to the policyholder, anyone can contribute to a policyholder’s HSA including the policyholder’s employer, family members, and friends.  Contributions made by the policyholder are 100% tax deductible up to his or her annual self-only or family contribution limit.  Contributions made by family members or friends must be payable to the account holder, who in turn, deposits it into his or her HSA account.

Employer contributions and self-employed income contributions are deposited into an HSA with pre-tax dollars and is not considered to be taxable income for the employee or self-employed policyholder.  These pre-tax contributions are not treated as income to the policyholder and therefore are not included in his or her annual taxable income amount.  Unlike a Health Reimbursement Arrangement (HRA), the HSA policyholder controls the account and once deposited into the HSA, contributions become the property of the policyholder, even if he or she changes employment.

Annual Contribution Limits (Self-Only & Family HDHP Coverage)
All contributions, regardless of its source, count towards the annual maximum limit. Annual limits have increased each year since the inception of the HSA in 2004.  The 2018 contribution limit for self-only coverage is $3,450, up from $3,400 in 2017, and for family coverage the 2018 contribution limit is $6,900, up from $6,750 in 2017. Unlike an FSA, funds in an HSA roll over each year and accumulate over time.

Policyholders age 55 and older may make additional annual deposits, called ‘catch-up’ contributions of up to $1,000 on top of the annual contribution limit.

Funding an HSA is similar to funding an IRA in that contributions are invested and grow tax-free over time.  An HSA is also portable from one HDHP to another and if the policyholder dies, the HSA is transferable to the policyholder’s spouse tax-free.  If no spouse exists, the account will pass on to a named beneficiary designated at the inception of the policy; however, unlike transferring to a spouse, the HSA will end on the date of the policyholder’s death and the distribution of the account will be taxed as income to the beneficiary. If no beneficiary exists at the time of the policyholder’s death, the account will be distributed to the policyholder’s estate and taxed as such.

HSA Withdrawals (Qualified vs. Unqualified)
HSA funds are withdrawn from the account through an HSA debit card or checking account that is provided at the time the account is established. Prior approval to withdraw funds is not required and may be done so anytime the policyholder needs to access the account.

HSA withdrawals are either qualified or unqualified, meaning the funds can be withdrawn tax-free or subject to income tax (and an additional penalty tax).

Tax-free qualified medical expenses are those that are not already covered by the HDHP such as the policyholder’s deductible, coinsurance and co-pay expenses.  Several additional medical expenses that are payable using HSA funds include bandages, birth control pills, chiropractor visits, dental treatments, eye exams and elective surgery, stop-smoking programs, prescriptions and certain over-the-counter drugs, as well as many other HSA-qualified medical expenses. However, the HDHP’s policy premium is not a qualified HSA expense.

Withdrawals for non-qualified medical expenses, as well as any other withdrawal, is taxed as ordinary income, and if withdrawn prior to age 65, is also subject to a 20% early withdrawal penalty tax. After age 65, withdrawals made for non-qualified expenses, or any other withdrawals, are taxed as ordinary income but are not subject to the 20% penalty tax.

Self-Insured Plans
Large corporations, labor unions and other qualified groups ‘self-insure,’ paying the more common and less expensive medical expenses incurred by their employees or members to reduce the premium costs involved with providing insurance.  However, an employer usually covers employee claims up to a predetermined stop-loss amount, at which point an insurance company pays the remainder of the claims. This stop-loss is intended to limit the employer’s responsibility for an excessive amount of claims. Although claims are funded by the employer, the employer may still use an insurance company for administrative purposes and claims processing, known as Administrative Services Only (ASO) or Third Party Administrator (TPA). Employees often pay premiums in the form of dues to their employer or group.

Multiple Employer Trust (MET)
Multiple employers within a similar industry or field join and receive health insurance from a series of trusts that are established and maintained to provide insurance to employees of multiple companies at a lower and more affordable rate.

In order to obtain coverage through a MET, an employer must become a member of and subscribe to a trust that brings together a number of small, unrelated employers for the purpose of providing group health coverage.  An insurer or third party administrator (TPA) creates and administers the insurance for the various employers, and all claims are paid through the series of trusts that the insurance was established through.  METs can also be set up as noninsured, meaning that no insurance company is used and claims are paid directly from the trusts.

Multiple Employer Welfare Association / Arrangement (MEWA)
Similar to a MET, a ‘MEWA’ is the technical term under federal law that is used to define any arrangement not maintained pursuant to a collective bargaining agreement (other than a state-licensed insurance company or HMO) that provides health insurance benefits to the employees of two or more private employers.

Essentially, these types of arrangements are usually established by trade associations or other similar groups of employers to combine the purchasing power of several employers in an effort to self-insure employees.  This allows smaller employers with a means of offering more affordable health coverage through participation in the MEWA.

HMO VS PPO: Which is best for you

Although HMOs and PPOs are both considered to be service providers, they differ in many respects:

• HMOs require members to choose a primary care physician (PCP) to authorize and coordinate the member’s medical needs and are limited to a much smaller geographical area in which to choose from available HMO providers
• PPO insurers do not require a PCP and provide a larger network of physicians and hospitals, usually encompassing providers within several states, or throughout the country
• HMOs pay a fixed monthly capitation fee per member to medical providers in exchange for services rendered to HMO members, regardless of the amount of services rendered
• PPO insurers pay a fee-for-service to medical providers for actual services rendered, in comparison to a fixed capitation fee
• HMOs are highly regulated by both the states and federal government
• PPO insurers are less stringently regulated by the government

INSURANCE 101: Health Insurance Basics

One of the biggest debates in America today involves our nation’s increasing need for managed health care, the costs associated with these needs and the current systems in place to manage these costs.

Managed Health Care
Managed Care is defined as any healthcare system that is established to manage the costs of medical care through a network of physicians, hospitals urgent care centers and home health care providers that are contracted with an insurer, or the government, to provide medical services to members within the network.

Managed care is provided through various companies and associations in the form of health insurance.  While some companies provide members with limited health insurance coverage, most insurance companies provide comprehensive health insurance coverage to members, as well as offer financial incentives for members who utilize the providers attached to the network.  Health care is also managed through various programs provided to qualified U.S. citizens by state governments, as well as the federal government.  Examples of managed care include:

Commercial Insurers (Stock and Mutual companies)

• Blue Cross and Blue Shield companies
• Health maintenance organizations (HMOs)
• Preferred provider organizations (PPOs)
• Exclusive provider organizations (EPOs)
• Multiple Employer Trusts (METs)
• Multiple Employer Welfare associations (MEWAs)

Quite simply, both Health and Disability Insurance provide financial protection against loss resulting from illness or bodily injury.  It is designed to indemnify an insured for medical treatment or financial loss in the event of an accident, illness, or disease.  The indemnity is the amount of coverage payable, based on the policy’s schedule of benefits, to the health care facility and doctors to help cover medical expenses incurred by the insured.

Whether referred to as ‘accident and sickness’ insurance, ‘accident and health’ insurance, or simply, ‘health’ insurance, our nation’s medical needs and costs are managed through a complex relationship between medical care providers and the financial entities that fund such services.

Several types of health insurance coverage exist and are marketed by insurers throughout the country to individuals as well as employers.  Health insurance can be purchased through a commercial insurer, such as a stock, mutual, or multi-line company.  It can also be purchased by a service provider, such as a Blue Cross Blue Shield company, an HMO or a PPO insurer.  Health care coverage can also be self-funded through a business, or provided by state or federal programs such as Medicaid, Medicare, OASDI and other state or federal programs.

Essentially, though, all health care can be categorized into three broad areas:  ‘medical expense’ insurance, ‘disability income’ insurance and ‘accidental death and dismemberment’ insurance.

Categories of Health Insurance

Medical Expense Insurance
Considered to be an ‘indemnity’ type of contract, medical expense insurance, simply known as ‘health insurance,’ provides financial coverage for medical expenses resulting from injury and illnesses. Typical expenses covered under a medical expense insurance plan include hospitalization and surgical fees, doctors’ fees, prescription costs, nursing care, and any other rehabilitative costs associated with one’s health.  Purchased individually or as part of a group, through an employer, medical expense insurance is a necessity!

Disability Income (DI) Insurance
Considered to be a ‘valued’ contract, the primary purpose of disability income insurance is to replace a certain percentage of an insured’s income that would otherwise be lost due to a debilitating event that prevents a normal wage-earner from earning normal wages.  In other words, if an insured individual becomes disabled and cannot work to earn his or her normal wages as a result of the disability, this type of insurance will pay a guaranteed amount of benefit on a regular basis to help maintain the insured’s standard of living during the disability period.

Accidental Death and Dismemberment Insurance (AD&D)
As with disability income insurance, AD&D is also considered to be a ‘valued’ contract.  If death or bodily dismemberment were to occur as a result of an accident to the insured, an AD&D insurance policy would pay the insured, or the designated beneficiary, a lump-sum benefit.  The Principal Sum (face amount) pays out if death occurs, and the Capital Sum (a percentage of the principal sum) pays out if dismemberment or loss of vision occurs.

The Changing Economy and Insurance
Health insurance has long been associated as a benefit of one’s employment, providing health coverage for employees and their families.  Signing up for a health insurance plan was as simple as filling out employment papers during company orientation.  Less attention was focused on medical expenses as they occurred because insurance covered them for the most part.

Unfortunately, today’s society of benefit cutbacks and high unemployment has led many people to have to find health insurance for the first time.  Due to its high cost, many employers no longer provide health insurance coverage, leaving employees to find it in the open market. As many people have already experienced, getting health insurance outside of one’s employer is completely different than as a benefit through the employer.

Though the economic outlook for many companies looks bleak in a bad economy, the insurance industry remains a vibrant and growing industry, both in profit and employment.  The insurance industry can be looked at as ‘recession proof’ because, no matter how bad the economy gets, people still need insurance.  The demand for insurance is actually higher in a bad economy due in part to the need to change plans because of rising insurance premiums, or the loss of group insurance, or worse, the loss of a job.

In any event, insurance is still needed – even more so – to provide financial protection against medical expenses and healthcare costs.  Again, many people have already lost, or soon will lose their health coverage and will be looking for a replacement policy.  As such, the employment outlook for health and life insurance agents, according the U.S. Bureau of Labor Statistics, is projected to increase 12% over the next 7 years and will be in demand as the population continues to increase in size, as well as age.

Determining Health Insurance Needs
Health insurance coverage can vary greatly between insurers and the plans they market.  For example, some health plans provide members with coverage for doctor’s visits through a co-payment, while other plans require the member to pay all expenses until the policy’s deductible is fulfilled before benefits are paid.

One of the benefits of the individual insurance market, as opposed to an employer’s group insurance plan, is the wide variety of products available to consumers from which to choose in order to find the correct plan based on plan benefits and associated premium costs.

The responsibility of an insurance agent is to listen to and understand the needs of the client and to help choose the policy that best fits those needs.  A family with children will have different insurance needs than an older couple looking towards retirement.  While many questions arise when choosing a health insurance policy, a few general questions should be reviewed including:

Which insurance company should be chosen?
Everyone has their own unique needs, so choosing an insurance policy to fit those needs is important to ensure proper coverage is provided.  Insurance can be purchased through one’s life insurer, a Blue Cross and Blue Shield company, an HMO, or a PPO.  Or if qualified, health insurance can be provided through government-sponsored programs, such as Medicare, Tricare, Medicaid, or Social Security Disability.

How much coverage is adequate and affordable?
In addition to selecting the provider, it is important to understand the depth of coverage provided by each health plan.  Some plans cover much more expense than others, and some plans require the insured to cover a larger amount of cost, while other plans cover more cost with less out-of-pocket expense for the insured.  It is also important to realize that a policy’s cost to the insured increases with its level of benefits; therefore, it is wise to choose a policy that is within one’s budget and can be maintained throughout the calendar year.

What are the policy’s Limits and Exclusions?
It is also important to understand the limits on what a policy insures against, as well as the potential exclusions.  Understanding the policy’s limits and exclusions is one of the most important aspect of choosing the correct health insurance policy.  As an insurance agent, it is of the utmost importance to collect and review an applicant’s medical conditions and history in order to properly promote an insurance policy for what it can and cannot do for the insured.

Additional Sources of Coverage to Consider
In addition to the private health and disability insurance policies available for individuals to purchase, employers and other qualified groups often provide health and disability insurance coverage for their employees or members of the group.

Federal and state health and disability programs are also available to individuals who qualify for coverage based on age, health, financial status or military involvement.  The following sources of coverage should be considered when determining a family’s health or disability insurance needs:

Employment related benefits

• Workers’ Compensation
• Social Security
• Medicare
• Medicaid
• Tricare

With the variety of health and disability insurance policies to consider, it is important to understand the types of benefits, associated costs and potential qualifications required when choosing the correct health insurance policy to fit the needs of the client, be it an individual, family, group of employees, retirees or individuals with special medical needs.

INSURANCE 101: Disability Insurance Defined

While health insurance is designed to protect against financial loss in the event of medical expenses, it does not replace lost income during a period of disability.  Health insurance does not cover monthly mortgage payments, auto and home utility expenses, food or any other daily consumption expenses.  Disability is not just physical.  Loss of work and financial security are just as detrimental as becoming physically disabled.

Medical emergencies such as heart attacks, strokes, and physical accidents can cause victims to become dependent on the help of others for extended periods of time and can cause a significant gap in employment and wage earning.  These short or long-term medical incapacity scenarios, coupled with the high costs of medical care necessary to recover from such events are the main causes of financial loss.

Simply referred to as ‘DI’ insurance, Disability Income Insurance is considered to be ‘income protection,’ and is commonly referred to as ‘income replacement insurance.’  In its most basic form, this type of insurance is designed to provide continual, periodic (monthly) payments to an insured in the absence of regular working income, due to a qualified disabling illness or injury.

Disability can vary from total to partial, as well as from temporary to recurrent or permanent, and benefits are paid accordingly.  It is important to understand the provisions, features and uses of DI insurance, and how it is used for both personal financial security, as well as to protect businesses against the financial loss of a key executive.

Eligibility and Rate Factors
A disability insurance policy is underwritten just the same as a health insurance policy would be underwritten in that the insurer rates the applicant based on his or her age, gender, health (past and present), job classification and his or her personal avocations.  In addition, a disability insurance policy considers the income requirement of an individual in determining premium rates and benefit amounts.

The eligibility and premium rates associated with higher risk applicants who might be in poor health or involve high risk professions or avocations, are determined by the insurer’s underwriting guidelines.

Eligibility and premium rates are also based on the characteristics of the DI policy, such as its probation and ‘elimination,’ or waiting periods.  DI insurance benefit payments typically require a brief elimination period before benefits are paid to the insured.

Delayed Disability
Due to the fact that a disability can develop after an injury occurs, most DI insurers provide for a ‘window’ of time, usually 60-90 days, following an injury in which the insured is still qualified for DI benefits.

Cause of Disability
Disability income insurance benefits are only payable as a result of an accident or illness.  An important factor that helps determine whether or not benefits are to be paid to an insured is based on how the disability actually occurred.  A DI policy is written with either an ‘accidental means’ or ‘accidental bodily injury’ provision in determining whether or not benefits are payable to an insured:

Accidental Means Provision
This provision states that the cause of an injury must be unexpected and accidental.  For instance, if an individual is partaking in a behavior that is considered risky by an insurer (such as rock climbing), and an accident occurs, benefits will usually not be paid.

Accidental Bodily Injury Provision
In comparison, this provision states that the result of an injury must be unexpected and accidental.  So in the rock climbing incident, if the insured falls and their policy contains this provision, chances are they will be provided benefits.

Based on various court decisions, most DI policies are now written using the accidental bodily injury provision because it is not as restrictive as the accidental means provision.

Characteristics of Disability Insurance

Impairment Riders
Disability insurance excludes benefits for injuries or illnesses that are considered to be pre-existing by the DI insurer.  Depending on the condition, the DI insurer can also deny an individual from receiving any coverage.  However, by adding an exclusionary rider called an ‘impairment’ rider to the policy, the DI insurer can specifically exclude the disqualifying condition in order to still allow the individual to qualify for the DI policy.

An impairment rider can be very beneficial because it enables certain individuals to purchase disability insurance (with the exclusionary rider) when normally the individual would be refused coverage (due to the pre-existing condition).

Minimum and Maximum Benefits
DI policies contain both a minimum monthly benefit amount to ensure that the insured receives at least a minimum monthly benefit payment, as well as a maximum monthly benefit amount, regardless of its percentage of lost income to the insured.

Notice of Claim
As with health insurance, in a DI insurance policy, a claimant has the same 20 days in which to submit notice of a DI claim.  In addition, most insurers require an insured to submit a ‘Notice of Continued Disability,’ usually every 6 months during the disability period, as well.

Proof of Loss
In a DI insurance policy, proof of loss follows the same time frame as prescribed by the National Association of Insurance Commissioners, requiring a claimant to provide proof of disability within 90 days of loss, or if due to extenuating circumstances, at the latest, within 1 year.

Physical Exam Requirement
If deemed necessary, a physical exam can be requested by the insurer to ensure the validity of the insured’s disability claim.  This can also be requested as often as the insurer feels necessary throughout the disability period, with exam expenses covered by the insurer.  Again, this is to ensure the continued validity of a disability claim, and is requested as needed to verify the validity of the DI claim.

Proof of Earnings
In addition to providing the insurer with proof of loss, the claimant must also provide prior and current earnings to the insurer so that the DI benefit amount accurately reflects actual lost earnings.  This proof is usually provided through the claimant’s Federal Income Tax returns or other official records deemed acceptable by the insurer.

Limitation of Benefits
Disability income insurance is not designed, nor does it replace 100% of an individual’s pre-disability income.  Insurers place limits on the amount of disability benefits, most commonly providing a pre-determined payment amount that is less than what would equal 100% of the individual’s normal income on an individual basis, or in a group policy, by providing a percentage, typically 60-70%, of an individual’s pre-disability income level.  Often, the lower amount of income encourages a quicker return to work; however, it is also of importance for the insurer to curb potential insurance fraud.

Stages of DI Coverage

Stage 1 – Probationary Period
The probationary period is the initial stage of DI coverage which begins on the DI policy’s effective date, and often lasts for 15 to 30 days. This period is established to prevent pre-existing conditions that might require immediate benefits, and therefore, no benefits are payable during this period. This period applies to sickness, but does not apply to injuries that result from an accident.

Stage 2 – Elimination Period
Also known as a ‘time deductible,’ the elimination period begins immediately after a disability begins, in which time benefits are not payable to the insured.  This elimination period is similar to a health policy’s deductible amount in a medical expense plan because both require an insured to incur some expense before benefit payment begin.  In the case of disability, coverage does not provide for lost income until after the elimination period has expired.

A DI policy’s elimination period is chosen by the insured based on the policy’s premium charged.  The longer or shorter the policy’s elimination period, the lesser or more expensive the policy’s premium are for the insured.  Elimination period choices range from 30 days to 1 or 2 years; however, the most common DI elimination period is 90 days.

Stage 3 – Benefit Period
The benefit period represents the period of time in which DI benefits are payable to the insured.  Benefit periods are classified as either ‘short-term’ or ‘long-term.’  Similarly, the longer the benefit period, the higher the policy’s premium.

Benefit amounts are paid to the insured as a percentage of actual pre-disability income, and payment amounts are calculated based on the Current Income Level of the insured at the time of policy issuance.  This can be of concern for individuals who expect to increase their income in the future; as a result, most insurers provide for additional coverage to be purchased through an ‘added rider’ to the DI policy to ensure the correct benefit amount based on the insured’s increase in income.

Total Disability
In order for an insured to receive benefits for lost income under a DI policy, he or she must be deemed ‘totally disabled,’ according to the terms and conditions stated in the disability policy.  Determined by one of two methods, becoming total disabled is required element in order to receive DI benefits through a disability insurance policy.

Based on whether or not the insured individual has lost the ability to earn gainful employment, each insurer defines total disability according to an employee’s ‘own occupation’ or, in some cases towards ‘any occupation,’ or any type of gainful employment.

Methods to Determine Total Disability

‘Own’ Occupation
Benefits are payable upon the inability of an insured to complete the job requirements at his or her own occupation.  The majority of DI policies follow the ‘own’ occupation method of determining total disability.

‘Any’ Occupation
Although not as common, a more restrictive method of determining the total disability of an insured is based on the insured’s ability to perform the duties of ‘any’ occupation in which the insured can be trained to perform such duties.  Under this method, if the insured can be trained and employed through an alternative occupation, regardless of wage differences, he or she would not qualify for DI benefits under this method.

Policy Wording Regarding Professional Specialties
In most ‘own’ occupation policies, benefits are paid to the insured in the event that he or she cannot perform the specific duties of his or her recognized professional specialty in which he or she had previously earned income.

Total Temporary vs. Total Permanent Disability
Again, to qualify under total disability, an insured must meet the definition of total disability as defined in the DI policy.  Once qualified, based on the medical outcome, an insured will either continue to receive DI benefits up to the maximum amounts stated in the policy; or over time, he or she will heal, at which point the insured is no longer considered to be totally disabled.

A ‘temporary’ total disability qualifies an insured for total disability benefit levels, but is expected to last temporarily with the insured’s recovery over time.  A ‘permanent’ total disability qualifies an insured for total disability benefit levels and is expected to be paid up to the maximum time limit available under the policy due to both the total and permanent disability of the insured.

Presumption of Disability
Common with most DI policies, the Presumption of Disability Provision states that an insured is automatically determined to be totally disabled in the event that, as the result of an accident, he or she becomes blind, deaf, loses his or her speech, or suffers the loss of two (2) or more limbs.  Presumptive disability benefits are paid as a lump-sum to the insured, even if he or she is able to continue working.

Accident Only vs. Sickness Only Disability
While most DI policies provide coverage for both injury and illness related disability claims, some policies are more restrictive in nature, and distinguish between DI benefits to either injury or illness related injury claims, but not both.  Though not as common, these types of DI policies are also referred to as ‘total accident’ or ‘total sickness’ policies due to the specific coverage that is provided to the insured.

Short-Term Disability
Coverage includes a short (30 days or less) elimination period and provides benefits usually lasting around 6 months to 2 years with disability benefit income amounts equal to 60-70% of the insured’s pre-disability income.

Long-Term Disability
Coverage includes a longer (90 days to 6 months) elimination period and provides benefits lasting several years, up to age 65.  It also provides benefit amounts equal to 60-70% of the insured’s pre-disability income.

Recurrent Disability
Disabilities can and often do reoccur.  Aware of this fact, disability insurers provide provisions that account for such recurrences.  To avoid a new elimination period, a recurrence of the same disability is covered under the previous disability claim if it occurs after such period ends.

Dependent on each insurer, recurrent eligibility periods range from 90 days to 6 months after the initial benefit period ends.  Any recurrence thereafter is covered under a new disability claim, requiring the insured to go through a new elimination period.

Partial (Residual) Disability Benefits
Partial disability is defined as the ability to perform one or more normal job duties, but not all normal duties, or the inability to continue to work on a full-time basis, resulting in a decrease in an individual’s normal income level due to a disability.  Partial disability typically follows a total disability benefit period, though it can also manifest itself due to a disability that does not qualify for total disability coverage.

Also called ‘residual’ disability, partial disability can be temporary or permanent, depending on the insured’s disabling condition.  As is the case for total disability, a residual disability can be permanent, with benefits paid out to the insured up to the policy’s benefit limits, or the insured can heal over time, thus only requiring temporary benefits.

An insured qualifies as partially disabled when he or she can perform one or more of his or her normal occupational tasks and duties, but cannot perform all of the normal duties performed before the disability, thus resulting in a decrease in income.  The partial disability payout is intended to help replace a portion of this lost, and is usually calculated as a percentage of the total disability payout amount.

Most insured individuals return to work on a part time basis after their total disability benefit period expires. Similarly, because of this decrease from full time to part time, an individual’s income also decreases to match the part time schedule.

Illness generally does not qualify as partial disability except for major medical events such as heart attacks, strokes or other ‘disabling’ illnesses.  An individual can become totally disabled, and then, over time heal enough to qualify as only partially disabled, thus allowing the ability to contribute (though at a lesser amount) to his or her wages.

Partial disability typically pays either a ‘flat’ 50% of the total disability benefit amount, or it provides residual benefits that match the actual loss of income by the insured.  Unlike the flat benefit method, many DI insurers now provide ‘residual’ disability benefits because it better matches pre-disability income to actual lost income.

Under a residual benefit policy, payments reflect the percentage amount of actual lost income, though most insurers do not provide DI benefits for earnings that account for less than 20-25% of pre-disability income.

October 6th - 12th is this year's National Fire Prevention Week

Knowing What to Do in a House Fire Can Save Lives


"In a fire, seconds count. Seconds can mean the difference between residents of our community escaping safely from a fire or having their lives end in tragedy."

The National Fire Prevention Association's theme for this year's Fire Prevention week is “Every Second Counts: Plan 2 Ways Out!” Safety King is helping them bring attention to the idea that every resident needs an escape plan in the case of a fire. Every room in a home should have at least 2 ways to exit in under 2 minutes, because every second counts.

Other steps to improve your home's safety include checking that your smoke alarms are working and having your dryer vent cleaned out annually. 

October is Crime Prevention Month

October is Crime Prevention Month, making it the perfect time for homeowners to evaluate their homes’ security and amp up measures.

Every 13 seconds, a burglary occurs somewhere in the U.S.,

adding up to approximately 2.5 million burglaries each year, according to Alarms.org. Two-thirds of those crimes are home break-ins, and if it were not for home security systems, that figure could be significantly higher — a study from UNC Charlotte found that 83% of convicted burglars said they checked for an alarm system before attempting a break-in, and 60% said they would change their mind if a system was found.

In recent years, the home security industry has experienced a renaissance with self-install options and internet-connected alarm systems sparking consumer interest with their ease of use and modern features. While alarm systems serve as an effective deterrent against potential burglars, only 17% of homes have one installed, says Alarms.org. Nevertheless, there are other precautions homeowners can take to prevent their homes and families from being victimized.

INSURANCE 101: Medigap

Medigap History

The Original Medicare program, composed of Part A and Part B, provides Medicare recipients with substantial coverage towards their overall healthcare needs; however, it still leaves ‘gaps’ in its coverage and requires recipients to cover certain Medicare costs.

Typical enrollee expenses include Part B premium payments, Parts A and B deductibles, coinsurance, and copays, as well as any expenses that exceed the Original Medicare’s coverage limits.

Unless a Medicare recipient is also enrolled in a welfare program such as Medicaid, or is receiving benefit payments from Social Security disability coverage, he or she will be required to pay some out-of-pocket Medicare expenses each year.

Shortly after the introduction of the Medicare program in the late 1960s and early 1970s, many private insurers began selling private Medicare supplement insurance plans to help cover the out-of-pocket costs that remained for Medicare recipients.  Commonly referred to as Medigap Plans, these private supplement plans were designed to help cover the costs associated with the ‘gaps’ in the Original Medicare coverage.

Federal and State Regulation
When Medigap plans were first introduced to the public, many private Medicare supplement insurers lacked consistency between the supplement plans that they marketed to Medicare recipients.  In addition, several incidences of sales marketing deception and abuse led to the introduction of federal regulation to help regulate the private Medicare supplement market.

Though it was considered to be voluntary by each state, in an attempt to coordinate and standardize private Medigap policies, Congress authorized Medigap regulation through the Omnibus Budget Reconciliation Act (OBRA) of 1990 and the states began regulating the private Medicare supplement market.

In order to protect vulnerable consumers in their healthcare purchasing decisions and to ensure that each private Medicare supplement plan met specific coverage standards, the National Association of Insurance Commissioners (NAIC) developed a standardized model in which the states regulate the private Medigap market.  Except for a few states including Massachusetts, Minnesota and Wisconsin that had already enacted its own regulation, all other states regulate Medigap insurance under the standardized NAIC model.

Medigap Eligibility and Enrollment
Unlike Part C which ‘disenrolls’ an individual from Parts A and Part B, a Medigap plan works with Part A and Part B, requiring recipients to first enroll into the Original Medicare program and then supplement it with a Medigap plan.  Individuals who are enrolled in Part C cannot also receive coverage from a Medigap plan and must re-enroll into Parts A and B in order to purchase a Medigap plan.

All Medigap insurers are required to offer a one-time, 6-month enrollment period after turning age 65 for individuals who have already enrolled in Medicare Part B that guarantees an enrollee the right to purchase any part of a Medicare supplement insurance policy, regardless of his or her health status.  Beyond the initial enrollment period, an insurer can require a paramedical exam or an attending physician’s statement if needed to ensure the health of the enrollee.

Types of Standardized Medigap Plans
Medigap insurance consists of 10 standardized ‘plans, each one titled according to the following letters: Plans A, B, C, D, F, G, K, L, M and N.  Letters E, H, I and J are older Medigap plans that were eliminated over the years.  Each of the 10 standardized plans includes fundamental benefits found in Plan A, with additional benefits attached to the remaining plans: B, C, D, F, G, M and N.

All plans must supplement both Part A and Part B of Medicare and automatically adjust benefits to reflect statutory changes in Medicare.  Though all Medigap plans must provide coverage as prescribed in Plan A, additional benefits are provided depending on the plan chosen.

If a Medigap plan excludes coverage for pre-existing conditions, coverage cannot exclude pre-existing conditions after the plan has been in effect for 6 months.  All Medigap plans must also include a minimum of a 30-day free look provision.

Plan A Coverage
The fundamental or ‘core’ benefits found in Plan A include the following:

• Medicare Part A copayments for the 61st through the 90th day of hospitalization in each benefit period
• Medicare Part A copayments for each of the 60 nonrenewable lifetime impatient hospital reserve days
• Medicare Part A hospital coinsurance costs up to an additional 365 days after Medicare benefits have been exhausted
• 100% of Medicare-eligible expenses for the first 3 pints of blood for Medicare Part A and Part B
• After the annual deductible is met, Medigap plans must provide coverage for the 20% coinsurance required in Medicare Part B, up to a maximum of $5,000 per year; however, Medigap plans may include a deductible before this benefit becomes payable.
• Medicare Part B coinsurance for preventive care expenses

Plan B Coverage
In addition to the core benefits required in Plan A, Plan B covers the Medicare Part A deductible.

Plan C Coverage
In addition to the core benefits required in Plan A and the Medicare Part A deductible covered in Plan B, Plan C also covers the Medicare Part B deductible, as well as Skilled Nursing Facility (SNF) care coinsurance amounts and any foreign travel emergency coverage up to Plan C’s coverage limits.

Plan D Coverage
Similar to Plan C, Plan D provides the same coverage amounts, with the exclusion of Medicare Part B’s deductible.  Plan D also provides ‘at-home recovery,’ which covers personal care services during recovery from an injury or illness that may be excluded from home health coverage paid under Part A.

Plan F Coverage
Similar to Plan C, Plan F also covers any ‘excess’ charges remaining from Medicare Part B.

Plan G Coverage
Similar to Plan F, Plan G provides the same coverage amounts, with the exclusion of the Medicare Part B deductible. Plan G also provides ‘at-home recovery,’ which covers personal care services during recovery from an injury or illness that may be excluded from home health coverage paid under Part A.

Medigap Plans K and L provide different benefits than the other Medigap plans and were established to provide some motivation for insured individuals to help control their own healthcare costs.  Accomplished through higher out-of-pocket costs and a lower percentage of covered healthcare costs, Plans K and L are also lower in premium and more affordable to the average Medicare recipient.

Plan K Coverage
In addition to the required benefits of Plan A, Plan K includes the following:

• 50% of Medicare Part A deductible
• 50% of Skilled Nursing Facility (SNF) care costs
• 50% of Part A hospice care costs
• 50% of Medicare-eligible expenses for the first 3 pints of blood for Medicare Part A and Part B
• 50% of Part B coinsurance (and 100% of Part B preventive care services)

Plan L Coverage
In addition to the required benefits of Plan A, Plan L includes the following:

• 75% of Medicare Part A deductible
• 75% of Skilled Nursing Facility (SNF) care costs
• 75% of Part A hospice care costs
• 75% of Medicare-eligible expenses for the first 3 pints of blood for Medicare Part A and Part B
• 75% of Part B coinsurance (and 100% of Part B preventive care services)

Plan M Coverage
In addition to the required benefits of Plan A, Plan M includes the following:

• 50% of Medicare Part A deductible
• Skilled Nursing Facility (SNF) care
• Foreign travel emergency coverage up to Plan M’s coverage limits.

Plan N Coverage
Similar to Plan D, except that Plan N includes limits on physician visits and ER visits.

Medicare SELECT vs. Medigap Insurance
Medicare SELECT plans are similar to traditional Medigap plans except that SELECT plans are less costly to the insured individual.  Unlike a traditional Medigap plan, Medicare SELECT is considered to be a managed care plan in which an insured must see ‘in-network’ physicians and hospitals in order for healthcare expenses to be covered.

Medigap Restrictions Relating to Part D
As previously mentioned, Medicare Part D is the optional outpatient prescription drug coverage for Medicare recipients who are approved for Medicare Part A or Part B.  Created as a result of The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), this Act also enacted the prohibition against selling Medigap policies with prescription drug coverage after December 31, 2005, such as the sales of Medigap plans H, I and J.  If these plans (H, I, and J) were sold prior to January 1, 2006, they could be renewed as long as the policyholder does not purchase Part D.