ement- a im Carson, age 22, i a recent college graduate who policy is ooking fr employment. ji majored in agricultural the S engineering and hopes tobe abe to put hs spcia- 2 ie krowiedge to work. One problem that Jim is encoun- ae tering in his jobsearch is that he has had asthma since Bes dithood and sometimes suffers severe problems in ths we read Thus, he must be especially careful about the type fj he takes and the environment in which he will work. Jim also fears that when he does accept a job, his new employer's health insurance plan might exclude him (either temporarily or perhaps permanently) from coverage for any problems related to his asthma, While he was in col- lege, Jim's parents’ health insurance provided protection {or him, but that coverage will soon end now that he has gaduated. Jim's parents are urging him to buy an individual [> tealth insurance policy as soon as possible. But Jim is -afid that it willbe difficult to find an insurer that is will ingto sell him coverage, given his health histor. If he does find such an insure, Jim is not confident that he wil be able tp choose the appropriate set of coverage options for his ‘raumstances. Plus, he is wortied about not being able to nto the doctors with whom he feels most comfortable. F- F-rall, given the publicity in recent years about health care F- efoms, Jim wonders about the potential implications for tisowm situation. These and related issues are discussed in Loss of Health Cuiaprer OBJECTIVES ‘After studying this chapter, you should be able to |, Describe the similarities and differences among commercial insurers, traditional Blue Cross and Blue Shield associations, and the new for-profit Blues organizations. Explain the major characteristics of health ‘maintenance organizations and explain how point-of-service plans and preferred provider organizations differ from them. Compute the amount of a covered loss that ‘would be reimbursable from an insurer. given the amount of the loss and applicable deductibles, coinsurance provisions, and limits, 4, Distinguish among forms of basic health in- surance policies and describe three forms of major medical insurance. 5, List several characteristics to consider when purchasing a long-term care and disability income insurance contracts, Explain the nature and structure of Medi- care benefits and the approach used to stan- dardize Medigap policies. Explain the mandatory and allowable provi- sions in individual health insurance with re- spect to grace periods, reinstatement, claim procedures. occupational issues, the mis statement of age when applying for cover- age, and the existence of more than one policy covering the same loss, 8. Describe health care reforms recently en- acted or currently under consideration United States. 6 thePart Four Risk Management Applications Life, Health, and Income Exposures ‘As a tool in personal risk management plans, the importance of health insurance cannot be overemphasized. However, the high cost of health care, combined with concerns about the lack of availability of health insurance for some persons, has led to a rapidly changing envi- ronment in which health care is delivered in the United States. This chapter focuses on meth- Wha ‘ods to manage the two primary losses arising out of an individual's loss of health, a discussed in Chapter 4, with particular emphasis on recent changes. The losses that are discussed in- As Bly clude (1) expenses for medical services and (2) income losses when the person is unable to ‘soles work due to an accident or illness. nie ‘owns t HEALTH INSURANCE PROVIDERS particu Health insurance is provided by several types of organizations: commercial insurers, Blue becaus. Cross and Blue Shield associations, health maintenance organizations (HMOs), point-of- (insurec service (POS) plans, and preferred provider organizations (PPOs). When payment for healt grantee ‘expenses is provided as an employee benefit (see Chapter 19), many employers set up self- je Subsidie insurance arrangements to either replace or supplement coverage obtained from one or more than w ‘of these types of providers. In addition, some health insurance is provided by the Medicare some 9 ‘and Medicaid systems, the social insurance arrangements set up through the federal and state J ae the ‘governments should.t Insurers and the Blues a for Until recently, commercial insurers and Blue Cross and Blue Shield associations (the Blues) |B to thee were legally very different in terms of structure, though from the perspective of an individual Gross gf insured they appeared to be very simile. The Blues were originally designed to be nonproft je. §3 bilby craton owing te beers (ose) prepay sane ype of ates Ewing penses. Blue Cross associations focused on the prepayment of hospital expenses, whereas Blue Shield groups covered physicians’ services. When combined, the medical expense cov- SourcestF erage offered by the Blues could be vitally identical to that availabe from commercial ie» “Be Cp surers. Beginning in the mid-1990s, however, even the structural differences between the Blues and insurers began eroding. In an effort to become more competitive, Blues in sever! states began forming or acquiring for-profit subsidiaries, and a number of thé Blues organi- zations converted to a for-profit status in their entirety. It must be emphasized that there never was one national plan called “Blue Cross-Blue Shield.” Rather, the Blues were independent groups organized by doctors, hospitals, and otter ‘medical service providers in a particular geographic region. The groups agreed to meet cer tain common standards in exchange for authorization to use the Blues’ name. Many states granted the Blues preferential tax treatment because of their nonprofit status, thus lowering ie ‘one source of operational expenses for them in comparison with for-profit insurers. But s changes in the health care delivery system evolved, many of the Blues found themselves in- J suring a large percentage of individuals who had difficulty obtaining health insurance else where. In turn. this situation eaused the Blues to experience substantial financial losses. Inad- ition, traditional not-for-profit Blues have more limited access to capital than for-profit stock companies. Thus, most of the Blues are now transforming themselves in part o in whole, and it is quite possible that within a few years Blue Cross~Blue Shield associations as they once existed will be a thing of the past. Health Maintenance Organizations By the beginning of the 21st century, over 80 million persons in the United States were en. rolled in health maintenance organizations (HMOs).' HMOs can be structured in several | Unless otherwise noted, all health care statistics cited inthis chapter are obtained from Source Book of Health Insurance Data (Washington, D.C.: Health Insurance Association of America, 2002)Chapter 17 Loss of Health ) wre ce ETHICAL PERSPECTIVES ut the envi- ae What Do the Blues Owe the States? ns ed in- 4s Blue Cross~Blue Shield organizatidAs convert them- previously espoused by Blue Crass. In contrast, the conver- ible to selves into regular insurance companies, often with for- sion ofthe Blues association in Virginia yielded a contibu- broft objectives, an interesting question arises: Who really tion of about $175 million in cash and stock to the state ‘vuns the funds that have built up over the years within a treasury, with additional shares of stock in the new insurer particular Blues association? Ist the Blues entity itself? Or given to existing policyholders. But the conversion in one because ofits past nonprofit status is it the subscribers Georgia was accompanied only by the offering of stock beens (insureds)? What about the substantial tax advantages rights to policyholders, without any additional contribu- ent gganted by many of the states over many years? These tion to either the state or to charity. A subsequent lawsuit pelt. subsidies allowed the Blues to compete more effectively resulted in an out-of-court settlement in which the com- ae than would otherwise have been possible, so perhaps pany agreed to transfer over $70 million to a charitable osicare some of the accumulated funds belong to the states. Or foundation. With such significant money at stake and ho wuts are the Blues charitable organizations whose assets generally accepted principles regarding the appropriate should be used for health-related charitable purposes? As the Blues convert some or al oftheir operations to aforprofit orientation, a variety of answers are emerging to these questions. For example, the conversion of Blue ‘outcome, conversions are often highly contentious. Blue Cross and Blue Shield of North Carolina simply dropped its plan to convert to a forprofit company after spending nearly two years trying unsuccessfully to get approval os of California resulted in a contribution of more than $8 billon to endow two foundations whase purposes ate ; Wimprove state residents’ access to health care—a goal from the state. As additional Blues associations cofvert in the future, the issue of who is entitled to accumulated funds is certain to be a recurting concern, ase cov Sarees: Ruth Simon, “How the New Blue Cross May Bite You,” Money, January 1997, 98-102; Kristi W. Swartz and Danielle Deaver, reial in? "Bue Cross of North Carolina Drops Bid to Become For-Profit Company,” Knight Ridder Tribune Business News, ily 9, 2003, 1. veen the organi- 2s ways, but all are designed to provide their members with comprehensive health services »ss—Blue within a well-defined geographical area. The HMO is paid a set fee per month by its mem- ind other 23 bers, and it provides all necessary medical services. Coverage is usually broader than that pro- neet cer § vided by insurers, and both cost control and prevention of health problems tend to be empha- ay states. . By stressing regular health care, early diagnosis and treatment, and disease prevention, lowering’ HMOs can be effective in helping their members identify and correct small health problems s. But as before they become major ones. Persons belonging to an HMO generally must receive all medical care from physicians associated with that HMO. Each person chooses a primary care physician within the HMO; this doctor is responsible for coordinating all medical cave fur the palien, including avcess to ‘medical specialists. The role of the primary care physician is very important in controlling costs by limiting care to only that deemed to be medically necessary, For this reason, primary care physicians are sometimes referred to as gatekeepers. Most medical specialties are rep- resented within the HMO, but if highly specialized treatment is required, patients can be re~ ferred to other doctors at no additional cost to the patient. Arrangements also exist with hos- Pitals in the area for the provision of hospital services when needed. One type of HMO is the group practice HMO, in which a large group of physicians share facilites and support personnel and work out of one or a few main locations. A group practice HMO in a city with a population of 100,000 likely would have only one location: & ‘gr0up practice HMO in a city of several million people might have several locations. The doc- tors within a group practice HMO are not employees of the HMO; rather, as a group they have es. nad ofit stock hole, and