LECTURE

HEALTH INSURANCE
Introduction
 Its important in personal risk management program.
 Problems with illness/injury: 1) failure to pay
medical bills, 2) loss of earned income.
Healthcare Problems in
Tanzania
 Food for thought

What are the health problems in Tanzania?

Health Indicators
 Suggest increased fertility, decline in life
expectancy, decline in child and adult mortality; but
an increase in maternal mortality.
 Any thought???
Healthcare Issues
 Common diseases???
 Tropical diseases???
 Lifestyle issues???
 Alcohol, eating habits, smoking, exercising, work
stress???
 Seven key issues:
 1. Access:
 By poor and women.
 Because of health care charges, long distances to
facilities, inadequate and unaffordable transport
systems, poor quality of care, and poor governance
and accountability mechanisms.
Healthcare Issues
 Skilled providers shortage, medical staff morale,
etc.
 2. Health Care Charges:
 i.e. user fees, transport costs, other unofficial costs
including bribes, payments for drugs and supplies,
and time spent away from productive activities
which are particularly critical for people living in
poverty.
 3. Participation and Decision-Making:
 In determining health care priorities, deciding where
funds should be allocated, and monitoring
expenditures.
Healthcare Issues
 Mechanisms for discussing these issues.
 4. Governance and Accountability:
 That is, abuses of power, financial mismanagement
and corruption.
 5. Exemptions and Waivers:
 Not systematically implemented.
 The poor and vulnerable still end up having to pay
for drugs, transport, small charges (e.g. cards,
materials), and bribes.
 Problems with accountability mechanisms.
Healthcare Issues
 Awareness about rights.
 A lack of clear criteria and policy guidelines for
identifying people who are eligible for waivers.
 6. Poverty:
 Use limited and critical assets to pay for treatment.
 Use meagre savings (if they have any) and sell their
crops, animals, land and their labour to get medical
services.
 7. Health Care Seeking Behaviour and Choice of
Providers:
Healthcare Issues
 Because of poverty, resort to self-treatment, seek
ineffective alternatives, or report much too late for
care, often with fatal consequences.
 Many resort to traditional healers.
INDIVIDUAL HEALTH INSURANCE
COVERAGE
 Dominated by group insurance, more than 90% of
premiums.
 Here we discuss individual coverages.
 For people not employed, retired workers, college
students attaining a limiting age under their parents’
group health insurance plans.
 We discuss five of them.
HOSPITAL-SURGICAL INSURANCE
 Basic plans: cover routine medical expenses and are
not designed to cover catastrophic losses.
 Low lifetime aggregate limits.
 Relatively low maximum benefits for each illness.
 Medical expenses covered: inpatient and
miscellaneous hospital expenses such as X-rays,
inpatient drugs, and laboratory tests; surgical
expenses; outpatient services, and physician’s visits.
 Currently, have limited presence and relatively
unimportant in America. Tanzania???
MAJOR MEDICAL INSURANCE
 Designed to pay a high proportion of the covered
expenses of a catastrophic illness or injury.
 Characteristics:
 Broad Coverage: eligible expenses while in the
hospital, in the doctor’s office, or at home; which
include hospital room and board charges,
miscellaneous hospital services and supplies,
treatment by licensed physicians and surgeons,
prescription drugs, durable medical equipment, and
numerous other expenses.
MAJOR MEDICAL INSURANCE
 High Maximum Limits: written with high lifetime
limits with other have no maximum limits. Able to
cover major catastrophic illness or injury.
 Benefit Period: such as three years, refers to the
length of time that major medical benefits will be
paid after the deductible is satisfied.
 The purpose of the benefit period is to provide a
definite time period within which eligible medical
expenses for a specific disease or injury must be
incurred in order to be reimbursed under the policy.
MAJOR MEDICAL INSURANCE
 Deductible: to eliminate payment of small claims and
the relatively high administrative expenses of
processing small claims hence the insurer can provide
high policy limits and still keep the premiums
reasonable.
 Calendar-year deductible: aggregate deductible
that has to be satisfied only once during the calendar
year.
 Family deductible: medical expenses for all family
members are accumulated for purposes of satisfying
the deductible.
MAJOR MEDICAL INSURANCE
 Common-accident provision: only one deductible
has to be satisfied if two or more family members are
injured in a common accident, such as an auto
accident.
 Coinsurance (percentage participation clause):
requires the insured to pay a certain percentage of
eligible medical expenses in excess of the deductible.
 Ex: Joyce has covered medical expenses of
10,500,000/=, has a Tshs. 100 million major
medical policy with a 500,000/= deductible and
80-20 coinsurance provision.
MAJOR MEDICAL INSURANCE
 Insurer pays: 80%x (10,500,000 – 500,000)
 = 8,500,000/-
 Joyce pays: 20%x (10,500,000 – 500,000) +
500,000 = 2,500,000/-
 Purpose of the coinsurance clause is to reduce
premiums and to prevent overutilization of policy
 Stop-loss limit: 100 percent of the eligible medical
expenses are paid after the insured incurs a certain
amount of out-of-pocket expenses.
 Purpose of stop-loss limit is to reduce the financial
MAJOR MEDICAL INSURANCE
 Exclusions: Common exclusions are:
 Expenses caused by war or military conflict
 Elective cosmetic surgery
 Dental care, except as a result of an accident
 Eye and hearing examinations, eyeglasses, and
hearing aids
 Pregnancy and childbirth, except complications of
pregnancy (Maternity expenses can be covered by
a rider)
MAJOR MEDICAL INSURANCE
 Expenses covered by workers compensation and
similar laws
 Services furnished by governmental agencies unless
the patient has an obligation to pay
 Experimental surgery
 Internal limits: annual or lifetime limits on the
amount paid for certain diseases, such as alcoholism
and drug addiction.
HEALTH SAVINGS ACCOUNTS
 HSA: tax-exempt or custodial account established
exclusively for the purpose of paying qualified
medical expenses of the account beneficiary who is
covered under a high-deductible health insurance
plan.
 Have two components:
 a high-deductible health insurance policy that
covers catastrophic medical bills, and
 an investment account from which the account holder
can withdraw money tax-free for medical costs.
HEALTH SAVINGS ACCOUNTS
 Account requirements:
 Must be covered by a high-deductible health plan.
 Must not be covered by any other comprehensive
health plan that is not a qualified high-deductible
plan.
 Proponents:
 If consumers have to pay for health care out of
pocket, they will be more sensitive to health-care
costs, will avoid unnecessary services, and will shop
around for health care. As a result, health care costs
can be held down.
HEALTH SAVINGS ACCOUNTS
 Health insurance will be more affordable because
of lower premiums, which will reduce the number of
uninsured people.
 If medical bills are not incurred, money in the HSA
account can be saved for retirement.
 Workers will still have health insurance if they
change jobs or become unemployed.
 Critics:
 The HSA tax breaks are geared toward people with
higher incomes and are of limited value to low-
income persons who are currently uninsured.
HEALTH SAVINGS ACCOUNTS
 Low income persons cannot afford to pay the high
annual deductible and are unlikely to choose HSAs.
 HSAs are geared toward younger and healthier
individuals who may decide not to join a traditional
plan, thus unhealthy persons are more likely to remain
in traditional plans (Adverse Selection).
 HSAs will encourage insureds to forgo routine or
preventive care.
 HSAs will not contain rising health care costs (a host
of other factors).
LONG-TERM CARE INSURANCE
 Long-term care insurance: pays a daily or monthly
benefit for medical or custodial care received in a
nursing facility, in a hospital, or at home.
 Situation that can’t best be handled by Medicare
program (limited scope).
 Most policies sold currently are tax-qualified to
receive favourable income-tax treatment.
 Three major categories:
LONG-TERM CARE INSURANCE
 Facility-only policy: covers care in a nursing home,
assisted-living facility, Alzheimer’s facility, or
hospice as long as the insured satisfies the benefit
triggers which determine whether the insured is
chronically ill and eligible for benefits.
 Home health care policy: covers care received
outside of an institution and typical covers home
health care, adult day care, and respite care.
 Respite care is a benefit that provides occasional
full-time care to an insured who is receiving home
health care services, which allows a caregiver to take
a needed break.
LONG-TERM CARE INSURANCE
 Comprehensive policy: covers care in a nursing
home, assisted living facility, and hospice and also
makes available optional benefits for home health
care and adult day care.
DISABILITY-INCOME INSURANCE
 Disability has effects on present savings, assets, and
ability to earn an income.
 Disability-income insurance provides income
payments when the insured is unable to work
because of sickness or injury.
 Normally pays monthly income benefits.
 To prevent overinsurance and to reduce moral
hazard and malingering, most insurers limit the
amount of insurance sold to no more than 60 to 80
percent of your gross earnings.
 Most policies require total disability.
DISABILITY-INCOME INSURANCE
 Definitions of total disability:
 Total disability I: complete inability of the insured to
perform each and every duty of his or her own
occupation.
 Ex: a surgeon whose hand is blown off in a hunting
accident.
 Total disability II: complete disability to perform the
duties of any occupation for which the insured is
reasonably fitted by education, training, and
experience.
DISABILITY-INCOME INSURANCE
 Ex: a surgeon who lost a hand in a hunting accident
could get a job as a professor in a medical school
or as a research scientist.
 Total disability III: for hazardous occupations, is
inability to perform the duties of any gainful
occupation.
 Total Disability IV (loss-of-income test): disabled if
your income is reduced as a result of a sickness or
accident.
 Policy pays a percentage of the maximum monthly
benefit equal to the percentage of earned income
DISABILITY-INCOME INSURANCE
 Ex: If Clara earns 5,000,000/= monthly and
because of disability earnings are reduced to
2,500,000/- (50% decline).
 If a disability-income contract has maximum monthly
benefit of 3,000,000/=
 Policy pays 50% x 3,000,000 = 1,500,000/=
 Total Disability V: (combine 1 and 2): for some
initial period of disability – such as two years – total
disability is defined in terms of the insured’s own
occupation. After the initial period of disability
expires, the second definition is applied.
DISABILITY-INCOME INSURANCE
 Ex: Dr. Bakari, a dentist can no longer practise
because of arthritis in his hands.
 For the first two years, he would be considered
totally disabled.
 However, after two years, if he could work as a
dental supply representative or as an instructor in a
dental school, he would no longer be considered
disabled.
INDIVIDUAL MEDICAL EXPENSE
INSURANCE PROVISIONS
 Some provisions are required by laws to appear in
individual medical expense insurance contracts.
 Other provisions are optional.

 We discuss some.

1. Renewal Provisions
 Renewal provisions: length of time that an individual

policy can remain in force.

 Various types are available.
 Optionally renewable policy: insurer has the right

to terminate a policy on any anniversary date, or in

INDIVIDUAL MEDICAL EXPENSE
INSURANCE PROVISIONS
 Non-renewable for stated reasons only: insurer
may refuse to renew the coverage, but only for
certain reasons stated in the policy, e.g. attaining a
certain age, no longer employed, etc.
 Guaranteed renewal: insurer guarantees to renew
the policy to some stated age, BUT with right to
increase premium rates.
 Noncancellable policy: cannot be cancelled.
 Insurer guarantees renewal of the policy to some
stated age, and the premiums are guaranteed not
to be increased during that period.
INDIVIDUAL MEDICAL EXPENSE
INSURANCE PROVISIONS
 2. Pre-existing-Conditions Clause
 Pre-existing condition: physical or mental condition
for which the insured received treatment or that
existed during some specified time period prior to
the effective date of the policy.
 Pre-existing conditions are not covered until the
policy has been in force for a specified period, such
as two years, unless the condition is disclosed in the
application and is not excluded by the rider.
INDIVIDUAL MEDICAL EXPENSE
INSURANCE PROVISIONS
 3. Notice of 10-Day Right to Examine Policy
 If you are not satisfied with a medical expense
policy, you have 10 days to return the policy after
receiving it.
 The entire premium will be refunded, and the policy
will be void.
 4. Claims
 Under the notice of claim provision, you are
required to give written notice to the insurer within
20 days after a covered loss occurs or as soon as is
reasonably possible.
INDIVIDUAL MEDICAL EXPENSE
INSURANCE PROVISIONS
 Under the claim forms provision, the insurer is
required to send you a claim form within 15 days
after notice is received.
 Finally, under the proof-of-loss provision, you must
send written proof of loss to the insurer within 90
days after a covered loss occurs.
 5. Grace Period
 A 31-day period after the premium due date to
pay an overdue premium.
 If the premium is paid after the due date but within
the grace period, coverage is still in force.
INDIVIDUAL MEDICAL EXPENSE
INSURANCE PROVISIONS
 6. Reinstatement
 If the premium is not paid within the grace period
the policy lapses.
 The reinstatement provision permits the insured to
reinstate a lapsed policy.
 7. Time Limit on Certain Defences
 The time limit on certain defences states that after
the policy has been in force for two years, the
insurer cannot void the policy or deny a claim on the
basis of misstatements in the application, except for
fraudulent misstatements.
SHOPPING FOR INDIVIDUAL
HEALTH INSURANCE
 High-quality individual health insurance plans are
expensive.
 Buy health insurance coverages that provide
meaningful protection.
 Guidelines to follow:
 1. Insure for the Catastrophic Loss.
 Purchase health insurance that provides protection
against a catastrophic loss that can destroy you
financially.
 The cost of a serious illness or injury can prove
SHOPPING FOR INDIVIDUAL
HEALTH INSURANCE
 Ex: high-quality individual major medical policy or
be covered under a group major medical plan.
 2. Consider Group Health Insurance First.
 As employer, family, etc.
 Reasons:
 1. Employers frequently make available a number
of group health insurance plans to their employees.
 2. Group health insurance is typically broader in
coverage than individual protection and has fewer
exclusions and restrictions.
SHOPPING FOR INDIVIDUAL
HEALTH INSURANCE
 3. Employers usually pay part of the monthly
premiums, which makes the plan financially
attractive to the employees and their families.
 4. Group health insurance plans provide substantial
tax advantages.
 3. Purchase a Policy That Has a Preferred
Provider Network.
 Good network of health-care providers who agree
to provide medical services to the insureds at
discounted fees.
 SHOPPING FOR INDIVIDUAL
HEALTH INSURANCE
 They include physicians, dentists, hospitals,
pharmaceuticals firms, and other health-care
providers who are part of the network.
 4. Don’t Ignore Disability-Income Insurance.
 A substantial amount of earned income is lost each
year because of sickness and injury.
 It can be replaced by disability-income and sick-
leave benefits.
 Purchase an individual guaranteed renewable or
noncancellable disability-income insurance policy that
will pay at least two-thirds of your earnings up to
age 65 with an elimination period of 30 to 90 days.
SHOPPING FOR INDIVIDUAL
HEALTH INSURANCE
 Even if you are covered under a group short-term
or long-term disability-income plan, you should still
consider an individual policy.
 5. Avoid Limited Policies.
 A limited policy covers only certain diseases or
accidents, pays limited benefits, or places serious
restrictions on the right to receive benefits.
 A hospital indemnity policy is one example that pays
a fixed daily or monthly benefit if you are
admitted to a hospital.
SHOPPING FOR INDIVIDUAL
HEALTH INSURANCE
 A cancer policy is another example that insures only
for cancer and it is being challenged for insuring
heavily only on one disease.
 Accident-only policies should also be avoided
because they are limited in coverage and benefits.
 6. Watch Out for Restrictive Policy Provisions and
Exclusions.
 If you are shopping for an individual policy, you
should be aware of any restrictions on coverage
that may apply.
 i.e. pre-existing-conditions clause and an
exclusionary rider.
SHOPPING FOR INDIVIDUAL
HEALTH INSURANCE
 7. Use Deductibles and Elimination Periods to
Reduce Premiums.
 High-quality individual health insurance coverages
are expensive.
 You can reduce premiums by purchasing a policy
with a substantial deductible.
 Premiums for a disability-income policy can be
substantially reduced by buying a policy with
elimination period of 90 days or longer.
SHOPPING FOR INDIVIDUAL
HEALTH INSURANCE
 8. Contact more than one insurer before
purchasing a policy.
 Consider price, policy benefits, restrictions,
deductibles, etc.