Health Insurance Coverage Information

Please Click on the State you need Health Insurance in...

Cancer, COBRA, and Other Special Coverages

In the heated debate between managed care and traditional indemnity insurance, some smaller but equally important health coverage issues are lost. These smaller issues are often related to specialty health insurance policiesmatters which are not broad enough to become political debates, but which can be devastating when they impact an individual person or family.

In t!:ris chapter, we will consider how some of these smaller coverages work. We'll also take a quick look at the rmancial and medical factors which impact their coverage.

Some people opt to purchase alternative coverages-on a stand-alone basis or combined with each other-such as dental coverage, vision coverage, a separate prescription plan or even long-term care coverage. Of course, some of these people look for the coverage precisely because they suspect they will have a particular kind of need.

On the other hand, some people choose these coverages for financial reasons: Because their employers offer the insurance for free, or for a discounted fee via a tax-advantaged "cafeteria plan."

In the meantime, specialty coverages remain a specialty. But one that's worth considering in detail.

Cancer Policies

Cancer insurance is sometimes referred to as a limited risk policy or the even older name dread disease policy. The names reflect the basic truth of the coverage: It only provides benefits for a single category of health risks-cancer.

Generally, this type of policy provides a daily benefit or indemnity (such as $50, $75, $100, etc.) if you or a family member is hospitalized for cancer or is receiving regular cancer treatment on either an inpatient or outpatient basis. However, a specific insurance company or particular policy may limit coverage even more steeply. In this case, daily benefits may be provided only for inpatient treatment of cancer with outpatient expenses excluded.

If you have a cancer policy and are hospitalized for cancer-related treatment or surgery, over and above any other benefits, the policy will indemnify you at a specified amount ($100 per day is common) for as long as the treatment or hospital confinement continues. Of course, if you're hospitalized due to a broken leg, the cancer policy will pay nothing.

Cancer policies do contain limitations in terms of both the daily benefit, a policy maximum or a time limitation. For example, a plan may pay $100 per day for up to 30 days of confinement, 90 days of treatment, etc.

If you have hospitalization insurance do you need an additional policy for cancer insurance? The answer depends upon your ability to pay extra premium, awareness of the risk of cancer, etc. Because cancer is one of the leading causes of death, most people are aware of its risks and costs. However, this awareness may not create any urgency for "extra protection" by means of a cancer policy.

For example, almost everyone is aware of the relationship between smoking and lung cancer, yet, hundreds of thousands continue to smoke because they don't care or don't believe the cancer will happen to them. Or, even more unfortunately, they simply can't quit.

Do smokers buy cancer insurance? Probably not. Before they issue a policy, most insurance companies that write cancer coverage will ask you if you smoke. If you answer"yes," the premiums are very high.

In most other cases, the premiums for cancer insurance are relatively low-just a few dollars in annual premium per thousand dollars of coverage for a healthy person in his or her thirties.

So, why don't more people buy the insurance? Several reasons stand out. First, many people don't see a reason to buy extra coverage when they already have regular health insurance. Second, most consumers don't like to think about their health in terms of contracting specific, deadly diseases. Third, most insurance companies would rather focus on broad coverages sold to large audiences. They don't encourage their agents to sell specialty policies.

Of course, a particular person may be more aware of cancer's effects, due to his or her own experience-the loss of a loved one to the disease or a family history. This person will probably be more inclined to buy the extra protection.

Buying cancer insurance is a choice you will have to base upon your o~n specific needs and motivations. The coverage often ~ill duplicate what y:ou are paying for in your comprehensive medical plan. Be sure you ,understand the limitations and exclusions-whether or not you have any real need for this coverage-before, youpuy the P?licy.

Accidental Death and Dismemberment (AD&D)

AD&D is a form of coverage that pays either a specified amount or a multiple of the weekly disability benefit if a policyholder dies, loses his or her sight, or loses two limbs as a result of an accident.

The accidental death benefit-commonly referred to as the principal sum-is actually the "face amount" of the policy. So, if you buy a $100,000 AD&D benefit, the principal sum paid to your beneficiary if death is caused by an accident is $100,000.

Your insurance company will define-in a liberal or restrictive way-the words accident and accidental death in the policy.

An AD&D plan has two parts: the accidental death benefit and the accidental dismemberment benefit.

We will examine the definition of accident here, because if you're in the market for health insurance, you probably won't need to determine how your insurance will define accidental death for the purposes of receiving health benefits.

If you get in an accident and suffer the loss of a limb-but don't die-the policy's accidental dismemberment benefit will be paid. This benefit is referred to as the capital sum. The capital sum is the same as the face amount. So, if you have a $100,000 AD&D benefit, the capital sum is the same $100,000.

Eligibility for the dismemberment benefit usually requires the actual severance of a body limb such as an arm or a leg.

This is different than loss of use of a limb. And the distinction gets a little gory.

If you are severely injured in an accident and suffer the loss of use of your legs, the capital sum will not be paid for loss of u~e. Your legs must be seve!ed as a result of the accident.

Most policies will require the severance of two limbs (such as both arms) in order for the full capital sum to be paid. Loss of only one limb frequently results in just 50 percent of the capital sum being paid. AD&D policies usually require that the loss must occur within a specified period of time following the accident, such as 90 days.

• For example, if you are injured in an accident and linger between life and death and then finally die four months later, the principal sum would not be paid, since death occurred after the 90-day period.

Hospital-Surgery Coverage

This specialty coverage-which was more common in past decades that in the 1990s-insures you against specific, limited costs relat~d to surgical procedures and brief hospital stays.

Most policies may provide first-dollar coverage. That means that there is no deductible, or amount that you have to pay, for a covered medical expense. Other policies may contain a small deductible. In either case, the coverage has to start quickly, because it's designed not to last very long.

Hospital-surgical policies usually do not cover lengthy hospitalizations and costly medical care. In the event that you need these types of services, you may incur large expenses that are difficult to meet unless you have other insurance.

A caveat: These bene1!ts are generally considered to be reimbursements for medical expenses already incurred, and that can raise some tax issues.

You can't deduct medical expenses . from your income for tax purposes that have been reimbursed by the insurance company. This.. is true whether the premiums. for the policy were paid by you or your employer.

Catastrophic Medical Coverage

Catastrophic medical coverage pays hospital and medical expenses above a certain-usually high-deductible. You may be responsible for $15,000 or $ 25,000 in medical bills before a catastrophic policy begins to cover you.

Once you get there, the medical expense benefits usually have no limit -so you are entitled to receive all necessary medical and surgical treatment to cure or relieve a condition. However, your insurance company might set certain maximums or limits for a particular type of care or a particular medical procedure. But, even in this case, overall benefits are usually unlimited.

In many ways, a catastrophic policy will function just like a major medical policy. The policies provide benefits when you have a covered condition that requires hospitalization. These benefits typically include room and board and other hospital services, surgery, physicians' nonsurgical service& that are performed in a hospital, expenses for diagnostic x-rays and laboratory tests, and room and board in an extended care facility.

Benefits for hospital room and board may be a per-day dollar amount or part of the hospital's daily rate for '"a semi-private room. Benefits for surgery typically are listed, showing the maximum benefit for each type ofsurgica1 procedu.re.

Generally, smart consumers use catastrophic policies in one of several ways:

• as additional protection to combine with a limited hospital-surgical policy or a major medical policy with a lower-than-adequate lifetime limit
• as a last-resort policy for people who are in poor health and don't qualify for any other form of coverage
• as back-up coverage for companies that self-fund health insurance benefits offered to their employees or individuals using alternative funding tools like Medical Savings Accounts (MSAs)

Generally, a catastrophic policy is not anyone's first choice for health coverage. Extremely wealthy people may not mind paying a $25,000 deductible out of pocket. People with poor health may have no choice. Otherwise, another form of coverage-even a stingy HMO~will provide more coverage per dollar spent (on premiums and deductibles).

Dental, Vision, and Prescription

In addition to medical and hospitalization coverage, some people opt to buy coverage for things such as dental expenses, vision expenses and even prescription expenses.

Dental coverage usually includes payment for preventive care, such as regular checkups, x-rays, and cleanings. It also pays for the things most people hate about dental work: fillings, tooth removal, inlays, bridgework, oral surgery, and root canals; This insurance also will help you in a more limited way-50 percent is a common figure-with expenses for dentures and orthodonture.

Normally, you'll have to shell out a pretty hefty copayment, although that co-payment may be smaller for preventive services. (Typically, insurance will not help pay for cosmetic work on your teeth.)

Vision plans typically are discount services. For a small fee-about $15 to $20 a year-you get a membership card that entitles you to discounts on eye exams, glasses, and contacts. These discounts (usually in the 50 percent range for eyewear) often are good at a wide variety of stores, including most of the major chains. Some of the plans also offer contact lenses at a discount by mail. Some even provide a discount on non-prescription sunglasses. If you purchase glasses or contact lenses on a regular basis (for example, if you wear disposable lenses), these plans can. be cost-effective.

Prescription plans are much like vision plans. They also get you a discount on prescriptions if you visit a participating pharmacy. Again, they typically include most major chains. Discounts range from 5 percent to 50 percent on most drugs. Discounts may be higher if you purchase your prescription drugs through a mail-order program.

Most. people who have health insutance do not need a wescription plan-unless they have an extremely high deductible Qn a'major medica1'plan and purchase prescription drugson~a regular basis.

Long-term Care Insurance

A coverage that has been gaining national attention during the past decade is long-term care insurance. In the late 1980s; the number of companies selling this coverage doubled, according to the Washington Insurance Council. By December 1991, more than two million people were buying long-term care insurance protection.

Long-term care insurance provides a wide array of maintenance and health services-medical care, nursing care, therapy, etc.-if you become chronically ill or disabled and are unable to care for yourself for an extended period of time. It may pay- for your care on an inpatient or an outpatient basis-or even entirely at home. These services generally are not covered by other health insurance.

Long-term care can be very expensive. On average, a year in a nursing home costs about $40,000. In some regions, it may cost much more. Home care is less expensive, but it still adds up.

Most long-term care policies pay a fixed'dollar amount, typically from $40 to more than $200 a day, for each day you receive covered care in a nursing home. The daily benefit for at-home care is usually half the benefit for nursing home care. Because the per-day benefit you buy today may be inadequate to cover higher costs in the future, most policies also offer an inflation adjustment feature.

It makes sense for most people with some assets to protect to buy long-term care coverage. Recent changes in federal law may allow you to take certain income tax deductions for some long-term care expenses and insurance premiums.

Limited and Special Risks

Limited risk policies generally include accident-only contracts or contracts that provide coverage for specific situations. For example, a travel accident policy purchased at .a local airport usually covers an individual for travel on the airplane on that particular day.

In contrast, a special risk policy is one which covers an unusual type of risk. For example, a professional football player insures his legs so that if he receives a career-ending injury; the policy would indemnify him for the loss (usually loss of income and earning potential). This type of risk cannot be covered under a regular accident policy.

Specified or dread disease policies provide benefits only if you contract the specific disease or group of diseases named in the policy. Because benefits are limited in amount, these policies are not a substitute for broad medical coverage. And specified disease policies are not available in every state.

Hospital Indemnity plans

In theory; when a person is hospitalized, there are-in addition to medical expenses-additional living expenses incurred. If the hospitalized person turns out to be a homemaker and mother, her family may incur day care and housekeeping expenses while she is in the hospital. And her hospitalization insurance may not cover all of the medical expenses. In short, the woman may well need additional money at the time of a hospitalization.

A hospital indemnity plan provides a daily benefit for each day you are hospitalized as an inpatient -,-and this is paid without regard to the hospital expenses incurred. ;rhis daily amount is paid to yeiu and the benefit is triggered spnply by conf'mement"as an inp~tient.

An indemnity benefit may be $ 50, $100, $150, etc., per day. The total benefit due will be a simple total of the number of days you are in the hospital. If you are hospitalized for 10 days and the daily benefit is $100, then you are eligible for a total" of $1,000.

Example: Tom has a major medical policy with a $500 deductible and 80 percent to 20 percent co-insurance on the first $5,000 of expenses. He also carries a $100 per day hospital indemnity plan. Tom is hospitalized for major surgery for a total of 20 days. In accordance with his major medical policy; he will have a minimum of $1,500 out-of-pocket expense. If Tom's total expense is $1,500, his hospital indemnity policy will provide him with a check in the amount of $2,000. This check is payable to Tom, not to the provider. Tom can use this amount in any way he pleases.

Generally, hospital indemnity plans are considered to be a supplemental coverage. You can't possibly cover all your hospital expenses with a $100 or even a $200 per day indemnity plan. If you need supplemental benefits reimbursement for deductibles and co-insurance payments then a hospital indemnity policy may make sense.

Some policies contain limitations on preexisting medical conditions that you may have before your insurance takes effect. Others contain an elimination period (EP), which means that benefits will not be paid until after~you have been hospitalized for a specified number of days. When you apply for the policy, you may be allowed to choose among two or three elimination periods, with different premiums for each. Although you can reduce your premiums by choosing a longer elimination period, you should bear in mind that most patients are hospitalized for relatively brief periods of time.

Blanket Health Insurance

Blanket health insurance is primarily an accident-only policy issued to an organization to protect certain groups of people during a particular activity or situation. Blanket policies are commonly provided for schools to cover activities such as athletics, volunteer fire departments or summer camps for small children.

For example, a high school student who is a member of the school's basketball team is probably covered by a blanket health insurance plan. So, if he is injured while engaged in a school activity, expenses will be covered by the blanket health insurance plan. This would also apply to other students involved in various school activities such as cheerleaders, members of other athletic teams, etc. The coverage is designed only to provide protection against injuries incurred while participating in the particular activity.

The policy is issued to the organization and the covered members may receive a certificate of insurance. There may be a premium charged to the individuals. Often, the organization pays the premium-which is modest since benefits are only provided for certain individuals under certain circumstances.

Cafeteria Plans

Congress first authorized so-called cafeteria plans in 1978, as part of the Internal Revenue Code (Section 125).

The term "cafeteria" refers to the way in which you can spend proceeds from the account-on any specific needs which, may arise, like choosing dishes in a cafeteria line.; Since we're talking about hcilth coverage, this is an unfortunate image. Cafeteria plans are also known as "flexible-spending accounts" and "Section,125 plans."

Any company can set up a cafeteria plan for its employees. This allows the employees to pay for a full menu of medically oriented expenses with pre-tax dollars. This not only reduces taxable income for employees-making the benefits virtually free-it also reduces taxable payroll for the employer.

You can use the money from a cafeteria plan' to pay for various deductible expenses. These may include:

• health insurance premiums
• unreimbursed medical expenses (including copayments for doctor visits or prescription drugs)
• dependent care expenses
• alternative medical treatments (including acupuncture and chiropractic)
• treatment of alcoholism
• programs to lose weight or quit smokirig
• vision care (eye doctor visits, glasses, contacts, etc.)
• birth control pills (which some health plans do not ordinarily cover)
• special schooling and care for people with disabilities (from wheelchairs and crutches to artificial limbs and Braille books)
• dental fees, dentures and orthodontia
• psychiatric care
• hearing aids

If your employer offers a cafeteria plan, you choose the amount you would like to have withheld from each paycheck. If you typically spend $200 a month on child care and another $ 50 on prescription co-payments, for example, you might elect to have $250 a month withheld from your paycheck. If you also have annual expenses for glasses, co-payments for checkups, dental visits and so on, you can have an additional amount deducted each month to cover these costs, as well.

This money is placed into an escrow account. Whenever you have a medical cost that is not covered by your insurance, you submit a claim to the company that manages your employer's cafeteria plan, and that firm debits your account and sends you a check.

A cafeteria plan can be a. very good way to save money on health care costs. However, the key is to avoid having too much money deducted from your paychecks. Whatever money you put into a cafeteria plan each "year 11lust be used for health care costs. If there ,is 11loney left over, it cannot be rolled over to the account forth next year, or returned to you. As far as you're concerned, it's gone.

Medical Savings Accounts

A new option, when it comes to specialty health insurance, is the tax-free medical. savings account (MSA). It combines a long-term savings account and a high-deductible health insurance policy.

As of January 1, 1997, these accounts could be offered to a limited number of individuals who are self-employed or employed at firms with 50 or fewer employees. The accounts are part of a four-year pilot program of a health insurance coverage that was put in motion by the Kassebaum-Kennedy Health Insurance Portability and Accountability Act, passed in 1996. Policies are being sold on a first-come, first-serve basis to those who qualify. T.he pilot program allows no more than 750,000 policies to be distributed.

HOw do .MSAs work? They're like a combina.tion of a cafeteria contribution plan and an individual r,etirement acco~t(IRA). You contribute a certain amount of money to the acc°l¥1t each month. That money can be used to pay a variety of, medical expenses-anti it is not subject to !ncom~ taX.

When you start an MSA, you also switch to a highdeductible catastrophic health insurance policy. (Both are offered in tandem by the same insurance company.) The annual deductible for a single person must be between $1,500 and $2,250. For families, it must be between $3,000 and $4,500.

Individuals then can contribute up to 65 percent of the deductible into the MSA each year. Families can contribute up to 75 percent. The contributions are not subject to federal income taxes and are used to meet the deductible, until the insurance coverage begins to kick in.

MSAs also allow you to use your money for a broader range of services than most health plans. MSAs can cover small, everyday claims, as well as medical expenses that normally would not be covered by other insurance plans such as dental care, eyeglasses, psychotherapy and home health care. MSAs also can be,.used toward payment of premiums for long-term care insurance or coverage upon leaving a job.

Premiums for MSAs will differ, depending on such factors as your age, the type of plan, and your place of residence. But if the annual premium is not exhausted at the end of the year, this amount will roll over into the next year.

This is the big difference between an MSA and a flexiblespending health account, which some companies already offer. Flexible-spending health accounts also use pretax dollars for medical expenses not covered by insurance. However, the unused balance in a flexible spending account is forfeited at year end. MSA funds can accumulate over time.

This is why MSA policies are being marketed as investment tools-since the leftover money can be rolled over year after year and collect interest. Leftover money can be used for future health care expenses, or be invested in stocks, bonds and money market accounts.

There are even managed care MSAs. Kentucky-based Humana Ine. offers an MSA program through its whollyowned subsidiary; Employers Health Insurance Co. Other insurers that are offering MSAs include BlueCrosslBlue Shield, Golden Rule, American Medical Security Group and Fortis.

At the end of the pilot program's term, which is December 31, 2000, Congress will decide whether to keep the MSA program and broaden it, or discontinue it.

If You Leave Your Job

If you have health insurance through your employer and you leave the job-whether you're fired or you quit-the odds are that you will want to keep your coverage for a time.

Under the Consolidated Omnibus Budget Recondliation Act, or COBRA, which is part of a federal law enacted in 1986, you have the right to keep your coverage ,~t group rates if you lose your group health insurance because o(a reduction in your hours of employment or because you leave or lose your job-unless, of course, you are fired for gro~ misconduct. You also have the righno continue coverag~ for your spouse and any dependents.

COBRA only applies, however, to employers with 20 or more employees, at least half of the time during the preceding year. How long you can keep the coverage depends on your particular qualifying event-that is, dying, being fired, quitting. Different coverage periods follow each of these events.

If you were flfed (for anything other than gross misconduct, in which case you dorit qualify at all), you, your sp<:>use, and dependent children are entitled to 18 months of continuous coverage.

If your COBRA coverage is about to expire-assuming you haven't taken another job in the interim that provides group health insurance-you can apply to the insurance company for conversion from COBRA to an individual policy. You must do so within 31 days of termination of COBRA. The company is not obligated to provide you with at} individual policy; however, if they only sell group insurance.

Your former employer will not keep paying for the health insurance. You'll have to start picking up the tab. The insurance company can charge you 102 percent of what the coverage under the group plan actually costs (the extra 2 percent is an allowance to cover administrative costs). Be assured that, even with the two points, this amount is almost always less than what you would pay if you purchased your own individual coverage-and it is often substantially less.

By law, your employer is required Dto let you know about COBRA and what steps you must take to retain your health insurance coverage. Your employer also will break. down the costs for various coverages you may have, so .youcan chopse to continue all or only some of them. For instance, you may decide to keep your HMO coverage but give up your vision and dental plan.

The Health Insurance Portability and Accountability Act also made a few changes to the provisions of COBRA, which became effective January 1, 1997. Now, newborn and newly adopted children of people who have COBRA coverage automatically qualify for the coverage, as long as you can enroll them within 30 days of the adoption or birth. In addition, a disabled COBRA beneficiary is eligible for 11 additional months of coverage if he or she was determined to have been disabled under Social Security at the time of a qualifying event or at a time during the first 60 days of continuation.(fhe disabled individual must notify the plan administrator of his or her disability status within 60 days of the determination and within the first 18 months of continuation.)

If your COBRA coverage is about to expire and you anticipate getting another job that provides health insurance soon, you may want to consider a temporary insurance policy.

A temporary medical policy is fairly limited, but itwill protect you from catastrophic medical expenses. It usually will have a deductible. After that, itewill reimburse you for a percentage of your costs. Some plans will reimburse ,;you on a percentage basis up to a set amount (sometimes $5,000), then pay 100 . percent of your costs above that amount. A temporary medical policy will pay typical hospita.lizationcosts-but only for procedures that are medically necessary, at rates that are usual and customary-as well as recovery costs, including time in a nursing home or in-home visits from a registered nurse. It often will not pay for any condition you had diu-ing the 24 months prior to the start of the policy, or for any self-inflicted injuries or anything that might be covered by workers"comp insurance.

Also excluded are coverage for injuries incurred in a war (you should be covered by the military, if you're serving), dental treatment, routine physicals and immunizations, routine pediatric care of a newborn child, normal pregnancy or childbirth, sterilization (or the reversal of sterilization), mental illness, alcoholism or drug abuse, prescription drugs and medications that you get when not in a hospital, treatment outside the United States-and the list goes on.

In addition, if you purchase 120 days' worth of temporary medical cover

Summary

If you are buying any kind of specialty health insurance, read and compare the policies you are considering before you buy one, and make sure you understand all of the provisions. Marketing or sales literature is no substitute for the actual policy. Read the policy itself before you buy.

Ask for a summary of each policy's benefits or an outline of coverage. Good agents and good insurance companies want you to know what you are buying. Don't be afraid to ask your benefits manager or insurance agent to explain anything that is unclear.

And bear in mind: In some cases, even after you buy a policy, if you fmd that it doesn't meet your needs, you may have 30 days to return the policy and get your money back. This is called the fn;e look option. In order to use it effectively, you need to know the right questions to ask.