The coinsurance is that portion of the balance due that each participant pays. The insurer pays their fair share and the insured pays his/her fair share. Typically, the coinsurance amount is an 80/20 split once the deductible has been satisfied.
Now let's see how the stop-loss feature comes into play wherein the insurer will pay 100% of certain covered expenses.
Stop-Loss Feature
Between deductibles and coinsurance, the risk of high medical expenses can still be a gigantic risk for the insured. The stop-loss feature in major medical contracts serves to help reduce these costs.
The stop-loss feature places a limit on the maximum out-of-pocket expenses an insured must incur for health care, above which the policy pays 100% of the remaining eligible expenses.
The stop-loss feature provides an added benefit to the typical 80/20 split. Usually once the deductible is satisfied, insurers will pick up 80% of future medical expenses and the insured is responsible for the remaining 20%. With the stop-loss feature, there is an additional element providing for maximum out-of-pocket expenditures for the insured.
$4,500 - $500 (deductible) = $4,000
20% of $4,000 = $800 (Bud's responsibility)
$4,000 - $800 = $3,200 (insurer's responsibility)
$800 + $500 = $1,300 (Bud's total out-of-pocket expenses)
Bud has satisfied his deductible for the year and $800 goes toward his $2,000 stop-loss, so all he has to meet for any future medical expenses during the year is $1,200 ($2,000 - $800 = $1,200).
Now let's say Bud incurs further medical expenses, this time totaling $10,000. He has already satisfied his deductible from the previous illness, but he's still responsible for his share of the coinsurance up to the stop-loss limit.
20% of $10,000 = $2,000
$2,000 - $800 (already applied to stop-loss) = $1,200
Bud is only responsible for $1,200 in this case. Any further covered medical expenses for the year become the insurer's responsibility.
High Deductible Health Plans (HDHP)
A high deductible health plan, or HDHP is one that offers low premiums but requires the insured to pay a relatively high deductible. For an individual in 2013, a qualified HDHP has a minimum of a $1,250 deductible and a cap on out-of-pocket expenses of $6,250. Conversely, a family HDHP has a minimum deductible of $2,500 and a cap of $12,500.
Since HDHPs require such high deductibles and copayments from participants, they're usually paired with one of the HSAs discussed previously. In doing this, employers or employees can put aside tax-free contributions that grow, so long as they're utilized for qualified medical expenses.
Flexible Spending Accounts (FSAs)
A flexible spending account (FSA) is defined as a "cafeteria plan that is funded with pretax employee contributions called salary reductions." In these plans, an employee agrees to "a reduction in compensation and these funds are set aside to pay for certain medical expenses." When FSAs are paired with the HDHPs mentioned above, there are lower employer costs for the health care plan as a result. The employees are also provided a "convenient, tax-advantaged way to meet their higher plan obligations." Usually, FSAs are present in medium to large-sized employers.
Health Reimbursement Accounts (HRAs)
Health reimbursement accounts (HRAs) are another variation of the health care funding. Employers set aside "pretax contributions for each employee to pay deductibles, coinsurance, and co-payments. The employer sets plan limits and authorized uses of these funds, and typically unused funds may roll over from year to year. HRAs are the dominant funding for HDHPs."
Lesson 11 Quiz
The following quiz is provided for your information to help you measure your retention level on the material covered within this lesson. It is not graded. Only the final examination is graded.
Answer or complete each question to the best of your knowledge and click on the "Check your answer" button. If your answer is incorrect, you will be instructed where to find the correct answer. It is not necessary to repeat the quiz if you exit this page; however, your answers will not be saved once you exit. This feature is provided for future practice purposes.
1 | Basic Forms of Coverage Group health insurance policies are generally written on ______________ basis.
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2 | Which of the following would NOT be considered a basic form of coverage for health insurance plans?
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3 | Purchasing Health Insurance Life insurance, AD&D, and disability income insurance are . Medical Expense insurance is based on . Lesson 11.2 |
4 | Individual health insurance is written on a basis, whereas group health insurance is generally written on a basis. Lesson 11.2.2 |
5 | In Florida, group health insurance policies are not required to offer coverage for alcoholism and drug dependency to the policyholder as an option.
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6 | Characteristics Under a cancelable health insurance policy, the insurer must provide written notification of contract termination ______ days in advance.
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7 | Under which of the following policies can insurers increase premiums when the policy is renewed?
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8 | Which of the following policies does not allow insurers to increase premiums when the policy is renewed?
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9 | Premiums for health insurance are paid regularly for annually renewable benefits. Health coverage is subject to change year to year and premiums are subject to increases year to year.
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10 | Dividend payments are always guaranteed.
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11 | Which are the two major factors used to determine whether dividends or refunds will be issued?
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12 | funds represent the insurer's liability for losses that have not occurred but for which premiums have been paid. funds represent the insurer's liability for losses that have occurred but for which settlement is not yet complete. Lesson 11.3.4 |
13 | Uses of Health Insurance Cafeteria plans are also called:
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14 | Premiums for business overhead expense insurance are . Benefits are income. Lesson 11.4.3 |
15 | Which of the following characteristic(s) is/are associated with a disability buy-out plan?
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16 | Group Health Insurance A fictitious group is a group of persons who have gathered together strictly for the purpose of obtaining insurance.
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17 | Risks the insurance company takes when insuring people who have prior health problems are called:
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18 | Group short-term disability plans are characterized by maximum benefit periods of:
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19 | Group AD&D plans normally contain conversion privileges.
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20 | Under group long-term disability plans, benefit amounts are usually limited to approximately _______ of the participant's income.
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21 | Group long-term disability plans usually provide a benefit period of:
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22 | The difference between credit life insurance and credit accident & health insurance is that in credit life insurance, the insured must before the loan benefits will pay; in credit accident & health insurance, the insured must . Lesson 11.5.6 |
23 | Under a group health plan, if the insured's out-of-pocket expenses exceed _______ of the individual's adjusted gross income, a tax deduction can be taken for expenses over and above that mark.
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24 | Group health plan premium payments made by the employer are to the employer. Premium payments made by the employee are . Lesson 11.5.7 CONGRATULATIONS on completing Lesson 11. Now complete the Florida study manual Units 15, 24, and 25 Questions for Review. |