Health and Accident Insurance Providers 

 January 28, 2022


  1. Basic Principles of Life, Health Insurance and Annuities
  2. Nature of Insurance; Risk, Perils and Hazards
  3. Legal Concepts of the Insurance Contract
  4. Life Insurance Policies, Provisions, Options and Riders
  5. Life Insurance Premiums, Proceeds and Beneficiaries
  6. Life Insurance Underwriting and Policy Issue
  7. Group Life Insurance
  8. Annuities
  9. Social Security
  10. Retirement Plans
  11. Uses of Life Insurance
  12. Health and Accident Insurance
  13. Health Insurance Providers
  14. Disability Income Insurance
  15. Medical Expense Insurance
  16. Private Insurance Plans for Seniors
  17. Health Insurance Policy Provisions
  18. Health Insurance Underwriting
  19. Michigan Laws and Rules Pertinent to Insurance

Table of Contents

focused on:

  • Premium Factors
  • Renewability Provisions
  • Out-Of-Pocket Maximum
  • Medical Expense Insurance
  • Section 125
  • Creditable Coverage
  • Franchise Health Plans
  • Credit Accident and Health Plans
  • Small Employer Group Health Plans
  • Cafeteria Plans
  • Dental Coverage & Wellness Programs
  • Special Risk Policies
  • Contributory Vs Noncontributory
  • Excess Charge
  • Self Insurance
  • Gatekeeper System
  • Consumer Cooperative
  • Primary Care Physician Referral
  • Preferred Provider Organization
  • META / MEWA / Medicaid
  • Workers Compensation Program
  • Health Maintenance Organizations
  • Commercial Insurance
  • Blue Cross & Blue Shield
  • Social Security Disability Income

Health & Accident Insurance

Basic Concepts of Health Insurance

The two perils that are covered in health insurance are accident and sickness (illness or disease). Health insurance, sometimes called Medical Insurance refers to the broad field of insurance plans that provide protection against the financial consequences of illness, accidents, injury & disability. The goal is to restore the insured to the same financial condition as that which existed prior to the loss (principle of indemnity). Coverage is provided by commercial insurers, self-funded plans, and prepayment plans such as Health Maintenance Organizations (HMOs).

In addition, many individuals receive health coverage through public or government-sponsored health consumers, a critically important type of insurance that provides financial insurance (i.e., Medicaid, Medicare, or military health care). There are three distinct categories of health coverage within the broad field of health insurance: medical, surgical and hospital expense insurance, disability income insurance, accidental death and dismemberment insurance. 

Health & Accident

Medical expense insurance provides a financial protection against the cost of medical care by reimbursing the insured, fully or in part, for these cost. These are called Reimbursement Plans. It includes many kinds of plans that cover hospital care, surgical expenses, physician expenses, medical treatment programs, outpatient care, and the like of these.

Medical Supplement Insurance & long-term care insurance, two type of health insurance coverage designed for the elderly, are also examples of medical expense insurance plans.

Disability Income Insurance

Disability Income is also referred to as Loss Of Income, Loss Of Time or Income Replacement Policy, is designed to provide a replacement income when wages are lost due to a disability. It does not cover the medical expenses associated with a disability. Rather, it provides the insured with a guaranteed flow of periodic income payments wither weekly or monthly when disabled.

Accidental Death & Dismemberment Insurance

Accidental Death and Dismemberment Insurance, commonly referred to as a AD&D Insurance, is the purest form of Accident Insurance. It provides the insured with a lump-sum benefit amount in the event of accidental death or dismemberment under accidental circumstances. Typically, AD&D coverage is a part of group insurance plans.

Within each of the previous three categories are many forms and variations of coverage that have evolved to meet unique insurance needs. Even the type of health insurance provider can make a difference in the basic makeup of any of these kinds of coverages. 


As is the case with life insurance, health insurance is available to individuals and families through individual or group plans, and policies. This also includes blanket and franchise policies. In addition, short term policies (In Term Coverage), also known as Term Policies, Short-term Medical or (Period of Time policies) can be purchased on an interim basis when in between jobs or waiting for a new policy to start.

Once policy is expired it may not be renewed. Individual health insurance is issued by commercial insurers and service organizations as contracts between the insured and the company. Though all companies have standard policies for the coverages they offer, most allow individuals to select various options or benefit levels that will most precisely meet their needs. Individual health contracts require an application and the proposed insured usually must provide evidence of insurability. Once issued, the policy has an "effective date" which is the health insurance coverage start date.

Group Health Insurance, also issued by commercial insurers and service organizations, provides coverage under a master contract to members of a specified group. Like group life, group health plans are available to emplyers, trade and professional associations, labor unions, credit unions, and other organizations. Insurance is extended to individuals in the group through the master contract. This normally does not require individual underwriting nor evidence of insurability. The employer or the association is the policyowner and is responsible for premium payments. The employer or the association is the policyowner and is responsible for premium payments. The employer may pay the entire premium or may require some contribution from each member to cover the insurance cost. Generally speaking, the provisions and coverages of group health insurance contracts are more liberal than individual health contracts.

  • Group Policies have lower administrative charges than an individual life policy because there is only a single billing per employer, per month.

Health Insurance is provided through state and federal government programs. At the state level, Medicaid is available to low income persons who meet financial tests, persons with limited assets, insufficient income, those receiving welfare benefits, and those in need who are blind, aged, disabled, or under twenty-one years of age. The federal government offers health insurance protection through Medicare and OASDI disability provisions, components of the Social Security System.

A Proper Health Insurance Program

What is a "Proper" Health insurance Program? That question cannot be answered without first addressing several preliminary issues..

  •  Is the insurance intended for an individual, family, or a business? 
  • Is coverage currently available from a group plan or social insurance program?
  • How willing is the policyowner to assume some responsibility for medical care expenses (though policy deductibles and coinsurance) in exchange for reduced premiums?

These and other questions must first be answered before reaching a conclusion as to the "right" Health Insurance Program.

Individual Needs For Health Insurance

At one time it was acceptable to expect one´s family to provide support when illness or disability struck. Those days are now long past. Today, we all must prepare for and assume the responsibility of covering the cost of medical care. Unless one is independently wealthy, the prospect of covering costs out-of-pocket is not an attractive one. 

The loss of one´s health can have wide-ranging consequences. Not only does the cost of medical care come with a high price tag, but the loss of income that often accompanies a disabling illness or injury can compound the devastating effects of the health loss. Current demographics, which show that most families have both parents working, emphasize the need to consider both parents income needs when designing a complete health insurance program. 


Though closely related to life insurance in purpose, health insurance differs from life insurance several important ways. A review of the distinguishing characteristics of health insurance will set the stage for more in-depth discussion to follow in later chapters.

Renewability Provisions

Life Insurance (particularly whole life insurance) and annuities are characterized by their permanence. These policies cannot be cancelled by the insurer unless the policyowner fails to make a required premium payment. Even term life policies are guaranteed effective for the duration of the term, as long as premiums are paid. However, Health Insurance is not as permanent in nature. Health Insurance Policies may contain any one of a wide range of renewability provisions, which define the rights of the insurer to cancel the policy at different points during the life of the policy. There are five principal renewability classifications: 

  • cancellable, optionally renewable, conditionally renewable, guaranteed renewable & noncancelable. 

Generally speaking, the more advantageous the renewability provisions to the insured, the more expensive the coverage.

Every individual or blanket family hospitalization policy, except group plans, covering less than 10 persons, must be renewable at the point of the policyholder unless sufficient notice of nonrenewal, generally, 30 days is given to the policyholder in writing by the insurer.

Premium Factors

Like life insurance, Health Insurance is funded by the regular payment of premiums. Unlike life insurance, there are relatively few payment options available with a health policy. For example, health policies do not offer any sort of limited payment option, as one would find with a 10-year pay or paid-up at 65 policy. Health insurance policies are paid for on a year-by-year basis. Except for the noncancelable type of policy cited previously, health insurance premium rates are subject to periodic increases. Health premiums can be paid under one of several different payment modes, including annual, semiannual, quarterly, and monthly. Monthly premiums are often paid through some form of preauthorized check method, by which the insurer automatically obtains the premium directly from the policyholder's checking account.

There are various factors that enter into premium calculations for health insurance. These include interest, expense, type of benefits, and morbidity. Morbidity is the expected incidence of sickness or disability within a given age group during a given period of time. It is to health insurance what mortality is to life insurance. Other health insurance premium factors are claims experience, age, sex, and occupation of the insured.

Participating Vs Nonparticipating Policies

Health insurance policies may be written on wither a participating or nonparticipating basis. Most individual health insurance is issued on a non-participating basis. Group health insurance is generally participating and provides for dividends or experience rating.

Group health plans issued by mutual companies usually provide for dividends, while stock companies frequently issue experience-rated planes. A group policy that is experience-rated may make premium reductions retroactive for 12 months. Premium increases for such policies are not retroactive. Experience-rated refunds may be contingent upon renewal.

Cost-accumulated formulas are complex and very from insurer to insurer. The two major factors that influence whether or not dividends or experience-rated refunds are payable are expenses and claims costs of the insurer. If these cost items are less than anticipated, the group policyowner benefits by receiving a dividend or refund credit. If expenses and claim costs are higher than expected, the group policyowner may not qualify for a dividend or refund credit.

Cost Sharing

Cost sharing is a general term for the share of costs for service that a plan or health insurer covers that you must pay out of your own pocket, sometimes called out-of-pocket costs. Some examples of cost sharing are copayments, deductibles, and coinsurance. Other costs, including premiums and penalties you may have to pay or the cost of care a plan does not cover usually are not considered cost sharing.

Out-Of-Pocket Maximum

The out-of-pocket maximum is the most an insured has to pay for covered services in a plan year. After they spend this amount of deductibles, copayments, and coinsurance, their health plan pays 100% of the costs of covered benefits.

The out-of-pocket limit does not include monthly premiums. It also does not include money spent for services the plan does not cover.


The role of the health insurance claims examiner differs somewhat from that of life insurance claims examiner. In the case of life insurance, most claims are fairly well defined-the amount of insurance coverage is readily determined by the policy and benefits are payable if the insured has died. With health insurance, the claims process is not as clearly defined.

Medical expense insurance, for example, is typically based on a contract of reimbursement, meaning that the benefit an insured receives is not fixed but instead is dependent on the amount of the loss. Its purpose is to reimburse the insured for the amount of loss sustained, within limits and are normally exempt from income taxes. This is in contrast to life insurance, AD&D, and disability income insurance that are all valued contracts, which pay the amount stated in the contract if a defined event, such as death or disability occur. The health claims examiner must also decide if a loss has actually occurred. This is especially challenging in disability income cases, where a subject assessment of "disabled" can create misunderstandings.

Assignment Of Benefits

An Assignment of benefits to the health provider makes accident and health insurance clam handling more convenient to the insured.


Reserves are set aside by an insurance company and designated for the payment of future claims, this is called unpaid claim reserve. Also, part of each premium is designated for the reserves, this is called unearned premium reserve.


Subrogation is the right for an insurer to pursue a third party that caused an insurance loss to the insured. This is done as a means of recovering the amount of the claim paid to the insured for the loss.

Loss of Coverage

Loss of minimum essential coverage usually counts as a qualifying event that triggers a special enrollment period. If someone loses their plan, they will have a chance to enroll in a new plan, wither on or off the marketplace exchange.

Events That May Terminate Insurance Plan

  • Your insurer leaves the market place
  • You leave your job (group health)
  • Divorce or Legal separation
  • Death
  • A special Enrollment Period (SEP) begins 60 days before your plan's termination date, so it's possible to get a new ACA compliant plan without gap in coverage.

Uses of Health Insurance

Individuals need to have a comprehensive health insurance plan in place to insure against the financial consequences of illness or disability. Similarly, health insurance also is necessary to protect a business against the risk it faces, including losses due to a key employee's death or disability. Businesses also commonly offer health insurance as part of an employee benefits program.

Medical Expense Insurance Needs

While it is difficult to measure the importance of one type of insurance over another, it is fair to presume that a health insurance program must begin with an adequate amount of medical expense insurance. Without proper protection devoted to these potential costs, even the most basic medical care can quickly exhaust an individual's savings. A catastrophic claim can spell financial disaster. At one time, most medical policies were a basic medical expense type.

Today, it is more common to find most Americans covered under some form of a major medical policy or a service plan such as an HMO. If the policyowner can afford the cost, an ideal policy is a combination plan in which a basic plan is enhanced by a supplementary major medical plan. 

Under this approach, the insured obtains the "first dollar" benefits of the basic plan and also has the expansive protection offered by the major medical plan. Most policyowners are concerned with the cost of their health insurance and find that some financial sacrifice may be required. 

For example, an individual major medical plan with $100 individual deductible is going to cost more than a comparable plan with $500 deductible A plan with an 80/20 coinsurance provision will cost more than a comparable plan with 75/25 coinsurance provision. The question the policyowner must answer is, "Am I willing to assume more of the cost risk of possible future claims in exchange for the definite cost savings offered by a plan with a higher deductible or coinsurance limit?"

Disability Income Insurance Needs

The importance of protecting one's earnings is sometimes overlooked in the insurance needs analysis process - a regrettable fact for the many people who become disabled every year. Any sound financial planning for an individual and family should include disability income protection. Those who do not purchase disability income protection, whether from an individual policy or a group plan, are utilizing self-insurance as the alternative. Moreover, Americans too often assume that Social Security will provide the income necessary to survive if disability strikes. This is an unfortunate assumption. Not only is the definition of "disabled" to qualify for Social Security benefits extremely narrow, but there is no assurance that the benefits will meet the disabled person's needs. Social Security disability income should only be viewed as a possible source of income to augment a personal plan. Whether the personal plan is based on a group or individual policy, it should be regrated as the primary source of income if earnings are lost due to disability.

Policyowners can control the premium cost of a disability income plan by electing a longer elimination period than might otherwise be desired. The length of the benefit period also has a direct impact on the premium. Because of the favorable tax treatment given to individually funded disability income policies, a plan that provides about 60% of pre-disability gross earnings can be considered sufficient. This is because disability income benefits are income tax-free if the individual insured paid the premiums. An individual who earns $3,000 a month may only take home $2,000 after taxes. Consequently, a disability plan that provides a monthly tax-free benefit of $1,800 would likely be sufficient. However, if an insured has a substantial amount of additional income, then federal income tax will be imposed on some of the benefits received.

To discourage malingering and false claims for disability, an insurer sets limits on the amount of benefits an insured can collect from two disability policies with the same insurer. In the case of group disability income plans, the group member has little choice as to the level of benefits provided. The Plan Document must have a Schedule of Benefits that identifies what the participant will receive if  disabled. If both parents in a family are actively employed, then disability income must be considered for each. If each parent's income is indispensable for the financial support of the family, then it is safe to assume that the loss of either income would present a financial problem.

Group Vs Individual Coverage

More Americans are protected under a group medical expense policy than an individual policy. The benefit to the group member (even assuming the plan is contributory) is the significantly less out-of-pocket cost than a comparable individual plan. The Group Plan participant can take comfort in knowing that even if he should terminate employment, continued coverage is guaranteed through the conversion privilege built into every group health policy. As we have learned, a group health plan can consist of medical insurance, disability income insurance, accidental death and dismemberment insurance-alone or in any combination. It is not uncommon to find all of these coverage included in a single group insurance plan. An employer is responsible for choosing which benefits are available for employees, applying for coverage, providing the underwriter with any necessary information, and paying premiums under a group plan. Benefit provisions may also be available to differentiate a group plan for a certain group of employees. For example, an employer can give more benefits for older employees. By providing its employees with a plan for health insurance, an employer derives a number of benefits:

  • The plan contributes to employee morale and productivity.
  • The plan enables the employer to provide a needed benefit that employees would otherwise have to pay for with personal after-tax dollars (this helps hold down demands for wage increases).
  • The plan places the employer in a competitive position for hiring and retaining employees.
  • The employer can obtain tax deduction for the cost of contributing to the plan.
  • The plan enhances the employer's image in both public and employee relations.

Cafeteria Plans

Many times, employer-provided health insurance benefits are part of a cafeteria plan. As its name implies, cafeteria plans are benefit arrangements in which employees can pick and choose from a menu of benefits, thus tailoring their benefits package to their specific needs.

Employees can select the benefits they value or need and forgo those of lesser importance to them. The employer allocates a certain amount of money to each employee to "buy" the benefits they desire. If the cost of the benefits exceeds the allocation, the employee may contribute the balance on a pretax basis (contribution is not subjected to any taxes) Without a Section 125 Plan in place, the contribution would be considered taxable income to the employee. Taxation of cafeteria plans is regulated by Section 125 of the Internal Revenue Code, thus sometimes cafeteria plans are referred to as a Section 125 plan.

  • An S-Corp owner with a greater than 2% share is INELIGIBLE to participate in a Section 125 Plan. The types of flexible benefits usually available under a cafeteria plan include medical coverage, accidental death and dismemberment insurance, short-term and long-term disability, life insurance, and dependent care. Some plans provide for "choices within the choices": an employee may have the option of selecting from various levels of medical plans or choosing from among a variety of HMOs.

Rarely is an entire group rejected on the basis of one bad risk, unless the group is very small. The underwriter reviews a number of factors to determine whether or not the group should be accepted. In spite of the many differences between types of groups, there are certain general groups of underwriting considerations.

General Groups of Underwriting Considerations

General groups of underwriting considerations are applicable to all or most types of groups, such as:

  • Reason for the group's existence (purchasing group insurance must be incidental to the group's formation, not the reason for it)
  • Stability of the group (underwriters want to see a group of stable workers without an excessive amount of "turnover")
  • Persistency of the group (groups that change insurers every year do not represent a good risk)
  • Method of determining benefits (it must be by a schedule or method that prevents individual selection of benefits)
  • How eligibility is determined (insurers want to see a sickness-related probationary period, for example, to reduce adverse selection)
  • Source of premium payments, whether contributory or noncontributory (noncontributory plans are preferred because they require 100% participation, which helps spread the risk and reduces adverse selection)
  • Prior claims experience of the group
  • Size and composition of the group
  • Industry or business with which the group is associated (hazardous industries are typified by higher-than-standard mortality and morbidity rates)

Group health insurance, like individual insurance, can be tailored to meet employer's needs. By its vary nature, however, group insurance has several features that set it apart from individual plans, including the nature of the contract, the cost of the plan, the form of premium payments, and eligibility requirements.

Nature Of Group Health Insurance

Like group life, group health is a plan of insurance that an employer (or other eligible group sponsors) provides for its employees. The contract for coverage (also known as Certificate of Coverage) is between the insurance company and the employer. A master policy is issued to the employer (master policyowner). The individual insureds covered by the policy are not given separate policies. Instead, they receive certificates of insurance and an outline or booklet that describes their benefits, list of beneficiaries, and the insured's name. Generally speaking, the benefits provided under a group health plan are more extensive than those provided under an individual health plan. Group health plans typically have higher benefit maximums and lower deductibles. The limited period of time during which all members may sign up for a group plan is called the enrollment period. A new employee must sign an enrollment card during the open enrollment period.

  • The period of time during which a new employee is ineligible for  group Health insurance coverage is called the probation period.

Characteristics of Group Health Insurance

The characteristics of a group health insurance are similar to those of group life. These include eligibility standards for groups and for individuals within the groups, method of premium payments (contributory versus noncontributory), lower cost, predetermined benefits, underwriting practices, conversion privileges, and preexisting conditions provisions.

Administrative Capability

To be eligible to participate in group healthcare plans, an employer must demonstrate that it is administratively capable of providing the contribution it promises and can properly manage the healthcare programs.

Eligible Groups

To qualify for group health coverage, the group must be a natural group. This means that it must have been formed for some reason other than to obtain insurance. Qualifying groups include employers, labor unions, trade associations (associations in the same industry), credit-debtor groups, multiple employer trusts (employers in the same industry), lodges, and the like.

"Negotiated trusteeships", sometimes referred to as Taft-Hartley Trusts, are formed as a result of collective bargaining of benefits between a union of employees and their employer. Employers are prohibited from paying funds directly to a labor union for the purpose of providing group health insurance to its members. Therefore, payments by an employer may be made to a trust fund created to pay for the member's group health insurance.

State laws specify the minimum number of persons to be covered under a group policy. One state may stipulate 15 persons as a minimum number, while another state may require a minimum of 10, Ten lives is the most typical minimum requirement. Temporary employees are typically not eligible for coverage in a group health policy.

Group Coverage Provision

Group coverage provisions are designed to describe eligibility, eligibility period, minimum number of employee participation, benefits, limitations, qualifications, and master policyowner responsibilities.

  • An employer may differentiate the benefits under a group policy for certain employee groups, as long as, the benefits are fair to the insurance company. For example, an employer may offer more benefits to employees who have reached a certain position or salary levels.
  • The employee may not discriminate against individuals within a specific group.

Predetermined Benefits

Another characteristic of group health plans is that the benefits provided to individual insureds are predetermined by the employer in conjunction with the insurer's benefit schedules and coverage limits. For example, group disability benefits are tied to a position or earnings schedule, as are accidental death and dismemberment benefits.

Individual Eligibility

Like group life, group health plans commonly impose a set of eligibility requirements that must be met before an individual member is eligible to participate in the Group Plan. It is common to find the following requirements:

  • Minimum of one to three months employment service, full-time employment status, and working people age 65 or over generally must be offered the same health benefits offered to younger employees.

Eligibility Period

If coverage is not elected within 30 or 31 days, future coverage will be selected on individual bases rather than group basis and coverage will only be available after a physical examination is done.

  • Eligibility period helps reduce adverse selection

Contributory Vs Noncontributory

Group health plans may be contributory or noncontributory. If the employer pays the entire premium, the plan is noncontributory. If the employees share a portion of the premium, it is contributory. Most noncontributory group health plans require 100% participation by eligible members, whereas contributory group health plans often require participation by 75% of eligible members. The reason for these minimum participation requirements is to protect the insurer against adverse selection and to keep administrative expenses in line with coverage units. If the participation percentage for contributory and noncontributory plans drop, coverage may be terminated.

Lower Costs

Benefit for benefit, the cost of insurance an individual has under a group health plan is less than the cost of insurance under an individual plan. This is because the administrative and selling expenses involved with group plans are far less. Some of the factors that help determine group health insurance premiums are:

  • The size of the group
  • The claims experience with previous insurers
  • The ages of group members.

Premium Rating

Group health plans rating factors are:

  • Average  age of the group; the higher the Avg. age the higher the premiums
  • Waiting period for disability benefits; the shorter the waiting period the higher the premiums
  • Disability benefits indemnity period; the higher the indemnity period the higher premiums{Occupation; the more hazardous the employee's occupation the higher the premiums

Funding of Group Insurance

During the past decade employers have considered benefit funding methods as an alternative to the conventional or traditional fully insured group health insurance policy. The traditional form of group insurance is characterized by an employee paying premiums and an insurer paying claims. The reason why employers have been looking for alternatives to the traditional group plan is to reduce the cost of health insurance coverage and improve cash flow. Since the cost of medical care has increased during the past twenty years, the cost to provide adequate coverage for employees has increased as well.

Modified fully insured plans: There are several types of alternative funding methods that are regarded as modifications of traditionally fully insured plans since an insurer has the ultimate responsibility for paying all benefits promised under the contract. Generally, most insurers permit only medium and large employers to use these modifications. Some of the more common types of modified fully insured plans include but are not limited to:

  • Premium-delay arrangements: allows the employer to defer the payment of premiums beyond the normal 30-dayt grace period. Most of these arrangements lengthen this grace period to 60 or 90 days.
  • Reserve reduction arrangements the employer is permitted to reattained an amount of the annual premium that is equal to the claim reserve.
  • Respective premium arrangement: Under this plan, the insurer agrees to collect a provisional premium but may collect additional premium or make a premium refund at the end of the year based on the actual income losses.

Shared funding arrangement: This allows the employer to self-fund health care expenses up to a certain limit. The employer can select a deductible and pay covered expenses for any individual incurring claims up to that maximum, at which point the insurer assumes the risk.

Minimum Premium Arrangement: This plan allows the employer to self-insure the normal and expected claims up to a given amount and the insurer funds only excess amounts.

501 (c)(9) TRUST: This is a funding vehicle for the employee benefits that are offered to members. Contributions made to the trust are tax-deductible as if they were paid to an insurer as a premium. The trust must provide eligible benefits only and its sole purpose must be to provide benefits to its members or their beneficiaries. Finally, the trust must be controlled by:

  1. Its Membership
  2. An Independent Trustee [bank]
  3. A Fiduciary on behalf of the members

Self Funding Arrangement: Large employers may elect to fully self-fund a plan. Characteristically, in a fully self-insured plan, the employer is responsible for paying claims, administering the plan and bearing the risk that actual claims will exceed those expected. The major problem with self-funding medical expense coverage is the severity of claims. Small and medium size employers will shy away from self-funding although many small employers will self-fund basic medical expense benefits and insure major medical benefits with an insurer. Larger employers with thousands of employees are more apt to engage in self-funding.

ASO contracts: Known as an Administration Service Only (ASO) contract, this plan stipulates that the employer purchases specific administrative services from an insurer or from an independent third-party administrator (TPA). These services usually include the administration of claims but could also include participation drug cards, COBRA administration and employee communications.

  • Self-funded plans commonly used the services of an insurance company to act as a third-party administrator of the plan. Insurers may provide such services without responsibility for claims payment under an Administrative Service Only (ASO) contract.

Conversion Privilege

Group health plans that provide medical expense coverage universally contain a conversion privilege for individual insureds. This allows them to convert their group certificate to an individual medical expense policy with the sum insurer, if and when they leave their employment. Insurers are permitted to evaluate the individual and charge the appropriate premium, be it a standard rate or substandard rate.

However, an employee must make application for a converted policy within a given period of time (usually 31 days) depending on the state. During this time, the individual remains insured under the group plan whether or not a conversion ultimately take place. Conversion privileges generally are reserved for those who were active in the group plan during the preceding three months.

The conversion privilege is available to terminated employees. Termination of employment includes an employee who is laid-off or who leaves a job voluntarily, but not those who are fired "for cause".

Excess Benefits

A converted group health plan may not include benefits in excess to those benefits offered under the converted health plan.

  • If health benefits are too high over-utilization of the plan may result.

[HIPAA]  Health Insurance Portability and Accountability Act

HIPAA provides the ability to transfer and continue health insurance coverage for millions of American workers and their families when they change or lose their jobs. The HIPAA Privacy Rule provides federal protection for an individual's health information and gives patients an array of rights with respect to that individually identifiable health information. In addition,

HIPAA Requirements

  • HIPAA requires employers with 20 or more employees to allow former employees to continue benefits under the employer's group health insurance. It states that group health coverage must not use health status, medical condition and history, genetic information, disability and claims  experience as criteria for coverage. It also limits the ability of a new employer plan to exclude coverage for preexisting conditions.
  • HIPAA imposes requirements on health care providers with respect to disclosure of protected health information. Notice of information practices must be given to a policyholder at least every three years.
  • When an insured individual leaves an employer and immediately beings working for a new company that offers group health insurance, the individual is eligible for coverage upon hire.
  • HIPAA states that a group health policy renewal can be denied when participation or contribution rules have been violated.
  • HIPAA provides that the 10% excise tax for early withdrawal from IRAs will not apply to the extent a withdrawal is used for medical expenses that exceed 10% of the individual's adjusted gross income as of 2019.
  • HIPAA states that multiple-employer plans and multiple-employer welfare arrangements must be guaranteed renewable unless for fraud or intentional misrepresentation.
  • HIPAA rules apply to all types of group health plans EXCEPT Disability Income Plans.

Pre-Existing Conditions

HIPAA has changed the rules governing preexisting conditions for all group health plans (excluding disability income). HIPAA portability rules allow individuals who change from one group medical plan to another to reduce or eliminate any pre-existing conditions excluded under the new plan. The individual is therefore eligible for coverage upon hire.

Pre-existing conditions, under HIPAA, are defined as health issuer that existed, were treated, or diagnosed within 6 months prior to employment. An enrollee's pre-existing conditions for a health benefit plan may be excluded for up to 12 months (18 months for late enrollees). A late enrollee is an individual who elects coverage after the initial eligibility period.

In relation to group health insurance, portability means transferring from one health plan to another. This usually happens due to job change or your employer changing insurance companies.

Creditable Coverage

Under HIPAA, an individual's waiting period for pre-existing conditions is reduced when he or she has creditable coverage. Creditable coverage is previous coverage of another group or individual health plan when there has not been a break in coverage of 63 days. The 63-day period begins when the individual's previous coverage ended. It ends when coverage under your plan begins, or, if earlier, when your group's waiting period for eligibility begins.

Other Group Health Insurance Coverages

All of the types of health insurance coverages discussed in this text (medical expenses, disability income, and accidental death and dismemberment) are available for group plans.

  • Group health insurance contracts providing coverage for employees in more than one state are usually controlled by the laws of the state where the master contract is issued.

Some of these specified coverages, such as vision and dental care, are available only on a group basis. A group bases medical expense plan can combine two or more of these coverages or it may consist of only one type of coverage, such as hospital expense only.

  • Working people age 65 or over generally must be offered the same accident and health benefit offered to younger employees.

DENTAL Coverage

Dental care coverage is an indemnity coverage plan generally written on a group basis, on a stand-alone basis or covered under a medical expense plan and is subject to a deductible, called an integrated deductible. Dental plans may be either scheduled or nonscheduled.

Scheduled plans are also known as basic plans. Generally, they do not contain a deductible or coinsurance amounts and provide first-dollar coverage. On the other hand,  nonscheduled plans are also known as comprehensive plans and are the most common type of dental plan. These plans pay benefits on a usual, customary and reasonable basis (UCR). In addition, nonscheduled plans include deductibles and coinsurance unlike a scheduled plan.

  • A nonscheduled plan is also known as usual, customary and reasonable plan or usual and prevailing plan

Dental plans are designed to cover diagnostic and preventive services. Dental preventive services are available through comprehensive dental plans. This type of plan encourage preventive dental care by offering routine dental services, such as annual checkups and teeth cleaning without having to meet a deductible or coinsurance.

Examples of diagnostic services include:

  • Oral Surgery: Coverage for tooth extractions & additional surgical treatment of injuries, diseases or jaw defects.
  • Endodontics: Root canals or treatment for diseases of the dental pulp within teeth.
  • Restorative: These include filings, crowns and other producers that restore natural function of teeth.
  • Prosthodontics: This benefit provides for the replacement of missing teeth or artificial devices such as bridgework or dentures.
  • Periodontics: Gum surrounding disease care and teeth tissue support.
  • Pediatric Dentistry: Preventive / Restorative services for children & adolescents.
  • Oral Pathology: Tissue Biopsy.

Many standard plans include coverage for routine care and other benefits may be added for an additional premium. Generally, the coinsurance amounts are 80% for Basic Services and 50% for Major Services and the policy usually includes deductibles. Although some policies will cover routine cleaning and visitation, exams, x-rays, protective fluoride treatment, preventive care and local anesthetics at 100%, dental insurance plans generally limit the number of such services each year.

Dental plans may also include limitations on benefits such as a calendar year maximum of $2,500 or a lifetime maximum coverage limit of $2,000 for orthodontics. Most dental plans also require a review of suggested treatment to ensure that it is reasonable and necessary. This is referred to as the predetermination of benefits requirement, pre-certification or prior authorization. If services are not pre-certified, coverage is still provided. However, the dentist and the insured will not know the exact benefits to be paid.

All dental plans include limitations, exclusions and predetermination of benefits, which are all listed under a closed list. A closed list will define all covered procedures and services. If a service is not listed under a closed list, then it is not covered.

Other common exclusions involve:

  • Cosmetic procedures unless due to an accident
  • Services furnished by governmental agencies
  • Treatment provided that would be covered by worker's Compensation
  • Duplicate dentures or the replacement of lost or stolen dentures
  • Oral hygiene instructions or like training
  • Exotic procedures, such as splinting and restoring occlusion
  • Prosthetic Appliances Replacement, such as retainers is excluded for 5 years after the benefits are paid [5 years/use].
  • Dental plans may also include limitations on benefits for dental emergency services offered outside the network area.

Because of the nature of dental plans mentioned above, no matter what type of dental plan is involved the insurer continues to be way of adverse selection. Therefore, in some cases, insurers impose more stringent underwriting process for dental plans to minimize adverse selection.

For example, some insurers limit or reduce benefits or exclude them for a specific period following late enrollments. Other insurers include longer than usual probationary periods, offer low coinsurance for optional benefits or gradually increase coinsurance every year. Other insurers may also include a prior approval for high cost treatments.

Vision Coverage

Vision care coverage usually pays for reasonable and customary charges incurred during eye exams by ophthalmologists and optometrists. Expenses for the fitting, other corrective items, or cost of contact lenses or eye glasses often are partially covered. Vision care coverage plans usually exclude safety lenses, prescription sunglasses, plastic lenses, upgrades of frames, benefits for necessary eye surgery or treatment sunglasses, plastic lenses, upgrades of frames, benefits for necessary eye surgery or treatment for eye diseases. The latter two exclusions are covered by a medical expense plan. In addition, coverage for LASIK surgery is normally excluded, depending on the plan.

Hearing Aid Coverage

Some private health care plans cover the costs of audiologic tests, a hearing aid evaluation, and even partial or full coverage of a hearing aid.

Group Basic Medical Expense

The three standard forms of basic medical expense (insurance-hospital, surgical, and physicians expenses) are available for group insurance. In addition, a number of newer coverages have been developed in recent years, including dental and vision care, prescription drugs, home health care, extended care facilities, diagnostic x rays, and laboratory services.

Group Major Medical Plans

Like individual major medical plans, group major medical plans may be offered as a single, extensive plan (comprehensive major medical) or superimposed over a group basic plan (supplemental major medical). Participants are usually required to satisfy an initial deductible with comprehensive plans and either a corridor or an integrated deductible with supplemental plans.

Benefits provided by a group major medical plan are usually more extensive than those of individual plans.

For example, it is not uncommon to find group plans that offer individual benefit maximums of $1 million. Others do not set any maximum benefit limits. Also, deductibles are usually lower for group plans, typically ranging from $25 to $500, whereas deductibles for individual policies can be $1,000 or more. There are two other characteristics of group expense plans that distinguish them from individual plans. These are the coordination of benefits provision and the treatment of maternity benefits.

Coordination of Benefits

The purpose of the Coordination Of Benefits (COB) provision, found only in group health plans, is to avoid duplication of benefit payments and over insurance when an individual is covered under more than one group health plan. The provision limits the total amount of claims paid from tall insurers covering the patient to no more than the total allowable medical expenses.

The COB provision establishes which plan is the primary plan, or the plan that is responsible for providing the full benefit amounts as it specifies. Once the primary plan has paid its full promised benefit, the insured may submit the claim to the secondary provider for any additional benefits payable. In no case, however, will the total amount the insured receives exceed the costs incurred or the total maximum benefits available under all plans.

Coordinating benefits is appropriate for married couples when each is covered by an employer group plan. For example, John and Cindy, a young married couple, each are participants in their own company's health plan and are also covered as dependents under their spouse's plan. John's plan would specify that it is the primary plan for John. Cindy's plan would specify that it is the primary plan for Cindy. John's plan would be her secondary plan. For dependent children coverage the plan of the parent whose birthday comes first during the calendar year is primary; the other parent's plan is secondary. Coordinating benefits is also needed for workers with Medicare. Workers 65 or older with an employer group health plan receive primary coverage from that group plan. Medicare provides secondary coverage on all claims except work-related injuries and illnesses.

However, sometimes, group plan benefits are reduced to the extent that benefits are payable under Medicare for the same expenses in a Medicare carve-out. This means that, if applicable, Medicare pays first and then the group plan pays a portion of the medical expenses.

Wellness Programs

The majority of large employers that offer health benefits today also offer at least some wellness programs in an effort to promote employee health and productivity and reduce health related costs. Workplace wellness programs vary in the services and activities they include, but typically focus on participant's problems such as drug abuse or stress. Other incentives include gym membership, stop-smoking programs & weight management programs. Although typically offered through the workplace, wellness programs can be offered by insurance plans directly to their enrollees.

COBRA Continuation of Benefits

Participants in group medical expense plans are protected by a federal law that guarantees a continuation of their group coverage if their employment is terminated for reasons other than gross misconduct. Practically speaking, the law protects employees who are laid-off but not those who are fired "for cause".

The law also does not protect those who failed to pay the required premium and those who are covered by other hospital, surgical or medical coverage for individuals in a group plan. This law, known as the Consolidated Omnibus Budget Reconciliation Act of 1985 (i.e., COBRA), requires employers with 20 or more employees to continue group medical expense coverage for terminated workers (as well as their spouses, divorced spouses, and dependent children) for up to 18 months (or 36 months, in some situations) following termination. The employer must provide the employee with a written notification of the continuation privilege. Some important points about this law should be noted. It is not the same as the policy conversion privilege by which an employee may convert a group certificate to an individual policy.

However, HIPAA requires that the group insurance carrier must offer an individual plan after COBRA has expired. COBRA permits the terminated employee to elect to continue the group coverage within 60 days of termination. The benefits under COBRA continuation coverage will end if the employer terminates all group health plans.

The following events would qualify for extended and converted medical expense coverage under COBRA for a terminated employee:

  • Employment is terminated (for other than gross misconduct): 18 months of continued coverage (or up to 29 months if disabled)
  • Employee's hours are reduced (resulting in termination from the plan): 18 months of continued coverage (or up to 29 months if disabled)
  • Employee dies:  36 months of continued coverage for dependents
  • Dependent child no longer qualifies as "dependent child" under the plan: 36 months of continued coverage
  • Employee becomes eligible for Medicare: 36 months of continued coverage
  • Employee divorces or legally separates: 36 months of continued coverage for former spouse. Former spouses may be eligible to convert to an individual policy, as long, as the ex-spouse des not re-marry before exercising conversion privileges
  • Continued insurance coverage under COBRA must be paid for by the ex-employee

Insured's dependents are not required to prove insurability when they exercise their continuation or conversion privileges.

The law does not require the employer to pay the cost of the continued group coverage. The terminated employee or surviving dependents are responsible to pay the premium, which may be up to 102% of the premium that would otherwise be charged. (The additional 2% is allowed to cover the insurer's administrative expenses.) The schedule of benefits will be same during the continuation period as under the group plan.

  • Common exclusions to continuation of group coverage includes: dental, vision care and prescription drug benefits
  • An employee is eligible to convert to an individual health policy within 180 days after the continuation privilege expires.

The Employee Retirement Income Security Act (ERISA)

The Employee Retirement Income Security Act (ERISA) of 1974 was intended to bring about equality in pension plans. The act's fiduciary standards benefit plan participants and beneficiaries. The act spells out the contributions that may be made to such plans as well as the benefits they may offer. ERISA requires stringent reporting and disclosure requirements for establishing and maintaining both group health insurance and other qualified plans. Annual financial reports must be filed with the IRS. Plan descriptions must be filed with the Department of Labor.

Group Disability Income Plans

Group disability income plans differ from individual plans in a number of ways. Individual plans usually specify a flat income amount, based on the person's earnings, determined at the time the policy is purchased. In contrast, group plans usually specify benefits in the terms of a percentage of the individual's earnings. In addition, large group disability income policy does not have medical underwriting. However, like individual plans, group disability can include short-term" and "long term" are different for group and individual.

Group short-term disability plans are characterized by maximum benefit periods of rather short duration, such as 13 or 26 weeks. Benefits are typically paid weekly and range from 50% to 100% of the individual's income.

Group long term disability plans provide for maximum benefit periods of more than two years, occasionally extending to the insured's retirement age. Benefit amounts are usually limited to about 60% of the participant's income. If an employer provides both a short-term plan and long-term plan, the long-term plan typically begins paying benefits only after the short-term benefits cease. 

Often, long-term plans use an "own occupation" definition of total disability for the first year or two of disability and then switch to an "any occupation" definition. Most group disability plans require the employee to have a minimum period of service, such as 30 to 90 days, before he is eligible for coverage. In addition, most group plans include provisions making their benefits supplemental to workers compensation benefits, so that total benefits received do not exceed a specified percentage of regular earnings. In some cases, group disability plans actually limit coverage to nonoccupational disabilities because occupational disabilities normally qualify for workers compensation benefits.

  • Military personnel must have the right to reinstate their disability group coverage upon release from active military duty

Group Health Plan Termination

No employer or fiduciary managing a group life or health plan may willfully refuse to pay premiums in order to cause the cancellation or nonrenewal of the plan. The employer or fiduciary must provide a 45 days notice of termination of the plan to all those covered and receiving benefits In case the group health plan terminates, employees may convert to an individual health plan without evidence of insurability or a medical exam.

Offsets for Payments

Group disability benefits are generally coordinated with or decreased by disability income received from government plans, pensions or other forms of social insurance such as Social Security disability or Workers Compensation. Individual disability income policies generally pay the monthly income benefit in addition to any income derived from other sources.

Group AD&D

Accidental death and dismemberment insurance is a very popular type of group coverage, frequently offered in conjunction with group life insurance plans. It may also be provided as a separate policy, in which case it is normally paid for entirely by the employee. Such employee-pay-all plans are called voluntary group AD&D because plan participation is voluntary.

Benefits may be provided for both occupational and nonoccupational losses or for nonoccupational losses only. Voluntary group AD&D typically provides benefits for both types of losses. Like individual AD&D, group AD&D pays a principal sum upon the insured's accidental death (or loss of any two body members). A capital sum is payable upon the accidental loos of one body member. Some group AD&D plans specify a higher death benefit if the insured dies while on company business. Group AD&D, unlike group life and group medical, normally does not include a conversion privilege.

Blanket Health Plans

Blanket health insurance is issued to cover a group or association who may be exposed to the same risks, but the composition of the group (individuals within the group) are constantly changing. Examples of blanket health insurance include a common carried (such as an airline or a bus company) to cover its passengers, a school to cover its students, an employer to cover employees with exceptionally hazardous working conditions, a volunteer fire department to cover its firefighters, or other similar groups.

As with other group insurance, the group (or association) is the policy owner, the insured is the group member (employee, passenger, student, etc.) and individual underwriting is not required. Unlike other group insurance, individual applications are not required nor are certificates of coverage issued. Benefits under blanket insurance policies are paid to the person insured, or to his designated beneficiary, or to his estate, except that if the person insured is a minor, such benefits may be payable to his parent, guardian, or other person actually supporting him.

Student Health Plans

Colleges and universities may offer a health insurance coverage to its enrolled students. Some colleges and universities may even extend coverage for a period of time after graduation.

Franchise Health Plans

Franchise health plans, sometime called wholesale plans, provide health insurance coverage to members of an association or professional society to cover a group of people that do not qualify for true group insurance. Individual policies are issued to individual members and the association or society simply reserves as the sponsor for the plan. Some characteristics of the franchise health plan include:

  • It is available for very small groups
  • Each individual must complete a health application separately and each must receive a policy
  • Premium rates are usually discounted
  • Offer medical, hospital, surgical and disability benefits
  • Can be contributory or non-contributory

Credit Accident & Plans

Credit accident and health plans or also known as credit insurance are designed to help the insured pay off a loan in the event they are disabled due to an accident or sickness only. If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payments due. Credit insurance can be written as an individual credit health insurance policy or it can be written under a group policy. Group credit insurance, however, requires a minimum number of debtors every year; this number is different depending on state laws.

  • Both individual and group credit insurance are similar to individual and group health policies in terms of underwriting process, selection, and proof of insurability
  • Any payments made by this type of plan must be used to relieve the debtor (borrower) of making monthly payments if a disability occur
  • Premiums may be paid in fully by the creditor, in full by the debtor, or shared by both
  • The maximum amount of coverage may not exceed the amount of the indebtedness
  • Coverage will decrease as the loan is being paid
  • If a loan is closed the debtor must receive a notice of proposed insurance by the creditor
  • A creditor may not purchase insurance on a debtor without permission
  • Once indebtedness is incurred a Certificate Of Authority must be delivered within 30 days.
  • Credit Life Plans

    Credit life insurance plans protect a lender against the premature death of a borrower before the latter party has the opportunity to pay off a debt. The amount of like insurance on the life of the borrower cannot exceed the amount of the borrowed funds. Decreasing term life insurance is generally used to provide such coverage. The lender or creditor is the policyowner, pays the premium, and is the beneficiary.

    Non-occupational Health Plans

    A policy that does not cover injuries sustained while at work, because those injuries are covered by workers compensation.

    Health Savings Accounts (HSAs)

    The Medicare Prescription Drug and Modernization Act of 2003 established a new way for consumers to pay for medical expenses: health care savings accounts (HSAs). An HSA is a taxed-favored vehicle for accumulating funds to cover medical expenses.


    Those under age 65 are eligible to establish and contribute to HSAs if they have a qualified high-deductible health plan.

    Contribution Limits

    Annual contributions of up to 100% of an individual's health plan deductible can be made to an HSA. Individuals who are 55 to 65 years old can make an additional catch-up contribution.

    Tax Treatment

    The owner decides which type of investment is used in the HSA and earnings grow tax-free. The owner can also make tax-free withdrawals to cover current and future qualified health care costs. Qualified health care expenses include amounts paid for:

  • Doctors fees, prescription and nonprescription medicines
  • Necessary hospital services not paid for by insurance
  • Retiree health insurance premiums
  • Medicare expenses (but not Medigap)
  • Qualified long-term care services
  • COBRA coverage
  • Another major type of health insurance coverage is accidental death and dismemberment (AD&D) insurance. It pays benefits in the event of a fatal accident or if dismemberment results from an accidental injury. Although the circumstances under which benefits are paid are somewhat limited, it is a widely used form of insurance protection and often is attached as a rider on a basic life or health insurance policy. AD&D policies are widely used in group insurance plans as well.

    Nature of AD&D Policies

    Accidental death and dismemberment insurance is the primary form of pure accident coverage. As such, it serves a somewhat limited purpose: it provides a stated lump-sum benefit in the event of accidental death or in the event of loss of body members due to accidental injury, this would include loss of hands or feet or the loss of sight in one or both eyes. ("Loss of Body Member" is typically defined as actual severance from the body, though it may include loss of use, depending on the policy.) Separate benefit hospital, surgical, and other medical expenses are generally not included in AD&D policies, although some may pay a medical reimbursement benefit up to a stated amount.

    AD&D Benefits

    AD&D policy pays a specified benefit to the insured in the event of accidental death or dismemberment due to accidental injury only, it is necessary for the policy to make distinctions between these two contingencies and to define the benefits accordingly. Consequently, AD&D policies make benefits payable in two forms of payment.

  • Principal Sum. The principal sum under an AD&D policy is the amount payable for a death benefit as a result of an accident. It is the amount of insurance purchased- $10,000, $25,000, $50,000, $100,000, or more. The principal sum represents the maximum amount the policy will pay.
  • Capital Sum. Another form of payment payable under an AD&D policy is the amount payable for the accidental loss of sight or accidental dismemberment, or the capital sum.  It is a specified amount, usually expressed as a percentage of the principal sum, which varies according to the severity of the injury. For example, the benefit for the loss of one foot or one hand is typically 50% of the principal sum. The benefit for the loss of one arm or one leg is usually 2/3 of the principal sum. The most extreme losses (such as both feet or sight in both eyes) generally qualify for payment of the full benefit, which is 100% of the principal sum.
  • Let's say, for example, Kevin has an accidental death and dismemberment policy that pays $50,000 for accidental loss of life and the same for accidental loss of two limbs or the sight in both eyes. Thus, $50,000 is the policy's principal sum. The same policy pas $25,000 for accidental loss of one eyes or dismemberment of one limb.  Therefore,  $25,000 is the policy's Capital Sum. 

    Some AD&D policies provide for payment of Multiple Indemnity (double, triple, or even quadruple) the principal sum if the insured dies under specified circumstances. A double payment is referred to as double indemnity. If thee times the principal sum is payable, it is called "Triple Indemnity". However, do not let these terms confuse you. AD&D policies, because they pay a stated benefit, are Valued Contracts & NOT contracts of indemnity.

    the same beneficiary designations are available for the policyholder as found in a Life Insurance Plan

    Accidental Means Vs Accidental Results

    An insurance policy that provides benefits in the event of injury due to accident must define "accident". In all cases, an accident is "External & Violent", but accidental death and dismemberment policies (like disability income policies) make a distinction between injuries due to accidental means and those due to accidental results (or its sometimes referred to as "accidental bodily injury").

    By way of review, the policies that base their benefit payments on accidental means require that both the cause and the result of an accident must be unintentional. Policies that use the less restrictive accidental result (or "accidental bodily injury") definition stipulated that only the injury resulting from an accident must be unintentional.

    If Ted, the insured under an AD&D policy, intentionally jumps from the roof of his house after fixing his antenna (instead of climbing down the ladder) and so severely injures his leg that it must be amputated, he would be paid the appropriate percentage of the capital sum only if his policy used the "results" definition. If his policy used the "means" definition, no benefit would be payable because Ted intentionally performed the action (i.e., the jump) that resulted in the injury.

    Most States Require that policies that provide any form of accident benefit, as do AD&D policies, base the definition of "accident" on the results definition, not the means definition.

    Accidental Death Time Limits

    Most policies include a restriction that the insured must die within 90 days of the accident in order for the additional death benefit to be paid. However, some states may allow the payment to the death benefit even after the 90 day period has elapsed if the insured suffered from total and continuous disability between the time of the accident and death.

    Other Forms of AD&D

    Accidental death and dismemberment coverage is made available in a variety of ways. It can be purchased by individuals as a single policy or it may be part of an individual disability income policy. Quite typically, however, it is an aspect of a group insurance plan (either group life or group health) or it may in and of itself constitute a group plan. Usually, AD&D benefits are payable whether the injury resulted on or off the job.

    By their very nature, AD&D policies are somewhat narrow, providing benefits only in the event of death or dismemberment due to an accident. There is another type of AD&D coverage, even more narrow in scope, which provides protection against accidental death or dismemberment only in the event of certain specified accidents. These are limited risk policies and special risk policies.

    Limited Risk Policies

    Limited risk policies set forth a specific risk and provide benefits to cover death or dismemberment due to that risk. For example, an aviation policy provides benefits for accidental death or dismemberment if death or injury result from an aviation accident during a specified trip. 

    An automobile policy provides benefits for accidental death or injury while riding in a car. Travel accident covers most kinds of travel accidents by airplanes or bus lines, but only for a specified period of time, such as one year.

    Special Risk Policies

    A distinction should be made between limited risk and special risk policies. A special risk policy covers unusual hazards normally not covered under ordinary accident and Health Insurance. An actress who insures her legs for $1 million or a pilot test-flying an experimental airplane who obtains a policy covering his life while flying that particular plane are both purchasing special risk policies. However, a traveler who purchases an accident policy at the airport to provide coverage while she is a passenger on a commercial airlines flight is purchasing a limited risk policy.

    Health Insurance Exchange

    The health insurance exchange is a federal website that allows consumers to check their eligibility for government assistance programs, compare individual and small group health insurance plans, and link consumers to insurers for he purchase of health insurance. The federal government uses the term health insurance "marketplace" instead of "Exchange". For small employers, the Small Business Health Options Program (SHOP) exchange or marketplace is open to employers with 50 or fewer full-time equivalent employees.

    Federal Health Care Reform 

    PPACA [Patient Protection & Affordable Care Act] makes it mandatory for health insurance carriers to provide a summary of benefits, coverage explanation, definitions, format required, pre-existing conditions, dependent continuation, and emergency care coverages

    Pregnancy Discrimination Act

    The Pregnancy Discrimination Act of 1978 is an amendment to the Civil Rights Act of 1964 designed to "prohibit sex discrimination on the basis of pregnancy". The Pregnancy Discrimination Act requires that employers treat pregnancy in the manner as a disability for any other medical reason. All of the following guidelines apply:

    • When medical benefits are offered, pregnancy must be covered the same as other illnesses
    • Pregnancy must be treated the same as any other type of disability for purpose of sick-leave plans
    • Complications arising from abortion are covered ONLY if the life of the woman is endangered

    Age Discrimination in Employment Act (ADEA)

    The ADEA applies to employers with twenty or more employees and affects employees age 40 and older. This Act stipulates that, with some exceptions, compulsory retirement is not allowed. Therefore, employee benefits must continue for older workers, although reductions in benefits are allowed, However, if an employee age 65 or older continues to work, they must still be offered coverage under the group plan even though the cost may be greater than those for younger employees. The ADEA also applies to group disability and group medical expense coverage.

    The Americans With Disabilities Act (ADA)

    The ADA affords similar protections against discrimination to Americans with disabilities as the Civil Rights Act of 1964, which made discrimination based on race, religion, sex, national origin and other characters illegal. This determination of whatever any particular condition is considered a disability is made on a case by case basis. However, the law specifically forbids exclusions for AIDS, deafness, cancer, muscular dystrophy and kidney disease.

    Tax Treatment of Individual Health Plans

    • Individual disability income premiums are not tax-deductible and benefits received are tax-free.
    • Individual medical expense plans premiums may be included in unreimbursed medical expenses (i.e., and be tax-deductible if those expenses exceed 10%, as of 2019 of the insured's adjusted gross income). In the previous years, premiums were tax-deductible if those expenses exceed 75%. Benefits under individual medical expense plans are received tax-free.

    Tax Treatment of Group Health Plans

    As an incentive for employers to provide health insurance benefits to their employees, the federal government grants favorable tax treatment to group plans.

    Tax of Group Health Premiums

    Employers are entitled to take a tax deduction for premium contributions they make to a group health plans, as long as the contributions represent an "ordinary and necessary business expense". By the same token, individual participants do not include employer contributions made on their behalf as part of their taxable income. AS a general rule, individual premium contributions to a group health plan are not tax deductible. The deduction is limited to the amount exceeding 10% of adjusted gross income as of 2019. Any premiums the individual contributes for group disability or group AD&D coverage are NOT considered qualifying medical expenses when determining this excess.

    Taxation Group Health Benefits

    Any benefits an individual receives under a medical expense plan re not considered taxable income because they are provided to cover losses the individual incurred. It is a somewhat different story with disability income plans. Disability benefit payments that are attributed to employee contributions are not taxable, but benefit payments that are attributed to employer contributions are taxable.

    Nondiscrimination Rules

    These rules apply to employee benefit plans that provide retirement benefits. Their purpose is to deny favorable tax treatment to plans that do not provide equitable benefits to a large cross section of employees. Since the plans are not provided for a large number of employees, contributions to the plan will not be tax-deductible. This means that the owners and officers of a firm cannot receive tax favored benefits if a plan is designed primarily for them and not for other employees.

    Tax Treatment of Death Proceeds

    Federal income taxes will not likely be applied to death benefits paid to the named beneficiary of an insured under a health insurance policy. However, the proceeds may be included as part of the insured's taxable estate for estate tax purposes.

    Important Notes

    • Credit Accident & Heath Plans are designed to help pay off existing loans during periods of disability.
    • Coordination of Benefits allows the secondary payor To Reduce their Benefit Payments so that no more than 100% of the claim is paid.
    • The purpose of the Coordination of Benefits provision in group accident and health plans is to Avoid Overpayment Claims. This is archived by identifying primary and secondary insurers. Allowing the secondary payor to reduce their benefit payments so that no more than 100% of the claim is paid.
    • A form of Business Disability Insurance that is designed To Cover the Actual Costs of Continuing to do Business while an insured business owner is disabled is called a Business Overhead Expense Policy. 
    • Fully Contributory Group Plans require the employee to pay all premium cost, therefore, any benefits received by covered employees are received tax-free. 
    • Group Disability Benefits are Tax Free to the insured when premiums are paid by the recipient.
    • A Conversion takes place when an insured individual changes his or her Group Health Insurance to an Individual policy with the same insurer at the termination of employment.
    • Contributions to an HSA may be pre-taxed under Section 125 Cafeteria Plan. Without a Section 125 Plan in place, it would be considered taxable income to the employee.
    • 100% of health costs paid by sole proprietors is tax deductible. 
    • An employer is issued a Group Medical Insurance Policy. This Single Contract is known as Master Policy.
    • Lasik Surgery is a common exclusion with Vision Plans.
    • The 2 Perils in Health Insurance are Accident & sickness.
    • The rights of the insurer to cover payment made to the insured from the negligent party is called Subrogation.
    • Disability insurance Benefits from a Group Policy paid for by an Employer is considered Taxable Income.
    • Inf an individual continues to work after the age of 65 and keeps the group plan, primary coverage comes from the group insurance plan and Medicare is considered a Second Payer.
    • A Health Savings Account (HSA) owner cannot control how much his employer will contribute.
    • A person covered by an Individual Health Plan is issued a Policy.
    • Employees covered by an employer health plan are issued an Insurance Certificate.
    • An employer would be a possible applicant and contract policyholder of a Singular Master contract or Master Policy for Group Health Benefits.
    • A person covered by an Individual Health Plan is issued a policy.
    • Key Person coverage provides cash flow to help companies move forward and maintain a profit in the event that a Key Employee becomes disabled. The Employer is the policyowner and pays premiums that are NOT Tax-Deductible. Benefits, however, are received tax-free to the employer.
    • At employee termination, COBRA requires that the benefits must be the same and the premium cannot exceed 102%.
    • The COBRA [Consolidated Omnibus Budget Reconciliation Act] of 1985 allows an employee to continue group medical insurance by Self-Paying the Premiums after employment has been terminated.
    • Under HIPAA, the employee's new Group Health Plan will verify Creditable Coverage so that the employee's waiting period for coverage of a preexisting condition can be reduced under the new employer's health plan.
    • HIPAA considers a person's health claim information as "individual identifiable health information".
    • Under HIPAA, a group health plan may not impose a pre-existing condition exclusion if the person has had credited medical coverage for at least 12 months as long as the person had no more than 63 days with no coverage.
    • According to HIPAA [Health Insurance Portability & Accountability Act], a group health policy renewal can e denied when participation or contribution rules have been violated. 

    Health Insurance Providers

    Commercial Insurance Providers

    Health insurance may be written by a number of commercial insurers. The list includes: life insurance companies, casualty insurance companies and monoline companies which specialize in on or more types of medical expense and disability income insurance.

    Commercial Insurance companies function on the reimbursement approach.

    • The Right of Assignment built into most commercial policies lets policyowners assign benefit payments from the insurer directly to the health care provider, this relieving the policyowner of first having to pay the medical provider.

    Service Providers

    Service providers offer benefits to subscribers in return for the payment of a premium. Benefits are in the form of services provided by hospitals and physicians in the plan.

    Blue Cross & Blue shield

    Blue Cross and Blue shield are the dominant health insurers of the United State. The nation's Blue Cross and Blue shield plans are loosely affiliated through the national blue Cross and Blue Shield association but are independently managed. The Blue provide the majority of their benefits on  a service basis rather than on a reimbursement basis. This means that the insurer pays the provider directly for the medical treatment given to the subscriber, instead of reimbursing the insured.

    • As participating providers, the doctors and hospital contractually agree to specific costs for the medical services provided to subscribers [members of the Blue Cross & Blue Shield]
    • Organizations operate as nonprofits. Plans are called prepaid plans because the subscribers pay a set fee (usually each month) for medical services covered under the plan.

    Health Maintenance Organizations

    A health maintenance organization, or HMO, is another type of organization offering comprehensive prepaid health care services to its subscribing members. HMOs are distinguished by the fact that they are not only financial health care services for their subscribers on a prepayment basis, but they also organize and deliver these health services at its own local health care facilities.

    "Subscribers" pay a fixed periodic fee to the HMO (as opposed to paying for services only when needed)  and are provided with broad range of health services, from routine doctor visits to emergency and hospital care. Health care services are normally rendered only by physicians and hospitals (providers) who participate in the Organization (HMO).

    When the HMO is represented by a group of physicians who are salaried employees and work out of the HMO's facility, this is known as a closed panel (sometimes called a STAFF model HMO). The payments given to a physician for each member of an HMO assigned assigned to them is called "Capitation."

    For non-emergency situations in a closed network plan, a subscriber may be required to pay up to 100% of the billed amount if a health provider is chosen outside of the network.

    Health Maintenance Organizations function on an individual or independent practice association (IPA) basis, which is characterized by network of physicians who work out of their own facilities and participate in the HMO on a part-time basis. This is also know as an OPEN PANEL.

    HMOs [Stressing Preventive Care]

    HMOs may be self-contained and self-funded based on dues or feed from their subscribers. They may also contract for excess insurance or administrative services provided by insurance companies. In fact, Health Maintenance Organizations are sponsored by Insurance companies

    • Employers with 25 or more employees to offer enrollment in an HMO if they provide health care benefits for their workers.
    • Hospital care under a typical HMO plan includes services such as hospitalization, in-hospital lab work and X-rays, inpatient laboratory services, and inpatient mental health care.
    • HMO's often require subscribers to select a primary care physician, which is a doctor who provides all care for a particular member and controls all referrals for specialized care, and in some cases, hospital care. If need for emergency health services arises for an enrollee of a HMO using a gatekeeper system, the enrollee should proceed directly to the neatest emergency room.
    • With HMO prescription drug plans, drugs are usually dispensed through participating pharmacies.
    • An in-house pharmacy is typically available to enrollees in a staff model.

    Preferred Provider Organizations

    Another type of health insurance provider is the Preferred Provider Organization, or PPO. A preferred provider organization is a collection of health care providers such as physicians, hospitals and clinics who offer their services to certain groups at prearranged discount prices. In return, the group refers its members to the preferred providers for health care services.

    Unlike HMOs, preferred provider organizations usually operate on a fee for-service-rendered basis, not on a prepaid basis. Members of the PPO select from among the preferred providers for needed services. In contrast to HMOs, PPOs provide a wider choice of physicians. PPO health care providers are normally in private practice.

    They have agreed to offer their services to the group and its members at fees that are typically less than what they normally charge. In return, the group refers its members to the PPO and the providers broaden their patient/service base. If service is obtained outside the PPO, benefits are reduced and costs increase.

    Ambulatory Care

    Ambulatory Care is a personal health care consultation, treatment, or intervention using advanced medical technology or procedures delivered on an outpatient basis. Designed to handle:

    1. Outpatient Surgery
    2. Routine Physicals
    3. Immunizations

    Government Insurance Programs

    Government provides insurance for many reasons. The primary reasons include:

    • To meet social needs
    • To make insurance available for certain groups
    • To encourage economic development


    The federally administered Medicare program took effect in 1966. Its purpose is to provide hospital and medical expense insurance protection to those age 65 and older. It also provides insurance protection to any individual who suffers from chronic kidney disease or to those who have been receiving Social Security Disability benefits for at least 25 months.

    • Medicare Part A (hospital Insurance) covers inpatient care in hospitals and skilled nursing facilities, and it covers care provided in a hospice and some care provided at home, Part A cover drugs administrated as part of inpatient treatment.

    Social Security Administration enrollment for the Medicare program provides information about Medicare to the public. All parts of the Medicare program (except for public information and enrollment) are administered by The Center of Medicare and Medicaid Services.

    The day the insured enters a hospital is the first day of Medicare Plan A benefit period. Skilled nursing facility expenses are covered by Medicare Part A, but ONLY if the insured was hospitalized shortly before entering the facility, it will cover a maximum of 100 days per benefit period in a skilled nursing facility (days 1-20 will pay 100%, days 21-100 will pay a flat dollar amount per day). The lifetime maximum for inpatient psychiatric care under Part A Medicare is 190 days. The primary source of funding for Part A is Federal payroll and self-employment taxes.

    All Physicians who agree to accept assignment on ALL Medicare claims are called "Participating Providers".  The difference between the physician's actual charges and Medicare's approved amount is called  "Excess Charge".

    Dental Care is not covered under Medicare.

    • Medicare Part B (Medical Insurance) provides medical insurance for required doctor's services, outpatient supplies and many services not covered by Part A.

    Open enrollment Period for Medicare Part B is January 1 through March 31. When becoming eligible for Medicare an individual can enroll in a Part C Medicare Advantage Plan & Part D Plan (Prescription Drug Coverage). Falling below the federal poverty level is a not qualifying event for Medicare

    Social Security Disability Income

    Social Security provides services other than survivorship and retirement benefits. In addition to Medicare, the federal government also provides disability related benefits through the Social Security OASDI program.

    To be eligible for Social Security Disability benefits, you need to be fully insured, in which you need at least one quarter of coverage for each calendar year after turning 21 years old. The minimum number of credits needed is 6. To be fully insured on a payment basis, 40 quarter credits are required - at this point you are fully insured for Social Security Disability benefits whether you continue to work or not. The maximum benefits an insured may receive is equal to 100% of the insured's Primary Insurance Amount (PIA). One of the requirements is that the individual must be so mentally or physically disabled that he cannot perform any substantial gainful work. The impairment must be expected to last at leas 12 months or result in an early death.

    Five month waiting period is required before an individual will qualify for benefits, during which time he/she must remain disabled. The worker's spouse and dependent children are entitled to an income benefit which is a percentage of the worker's primary insurance amount.


    Medicaid is Title XIX of the Social Security Act, added to the Social Security Program in 1965. It's purpose is to provide matching federal funds to states for their medical public assistance plans to help needy persons, regardless of age.

    • Medicaid benefits are generally payable to low income individuals who are blind, disabled, or under 21 years of age.
    • The benefits may be applied to Medicare Deductibles and copayment requirements

    Medicaid is financed by both Federal and State governments, under Medicaid, "financial need" is an eligibility requirement for the payment of nursing home expenses.


    TRI-CARE is a federal government accident and health plan which provides accident and heath coverage to military families.

    Federal Employees Health Benefits Program

    Federal Employees Health Benefits (REHB) Program is a system of "managed competition" through which employee health benefits are provided to civilian government employees and annuitants of the united State government. There are two types of plans that participate in the FEHB program: fee-for service plans and Health Maintenance Organizations (prepaid).

    State Worker's Compensation Programs

    Workers compensation benefits generally compensate employees for lost wages and medical expenses due to occupational accidents. All states have worker's compensation laws, which were enacted to provide mandatory benefits to employees for work-related injuries, illness, or death.

    Employers are responsible for providing worker's compensation benefits to

    Alternative Methods - Providing Health insurance


    Many self insurance plans are administered by insurance companies or other organizations that are paid a fee for handling the paperwork and processing the claims. When an outside organization provides these functions, it is called an administrative-services-only (ASO) or third-party administrator (TPA) arrangement.

    • To bolster a self-insured plan, some groups adopt a minimum premium plan (MPP). These plans are designed to insure against a certain level of large, unpredictable losses, above and beyond the self-insured level. As the name implies, MPPs are available for a fraction of the insurer's normal premium.

    Multiple Employer Trusts

    A method of marketing group benefits to employers who have a small number of employees is the multiple employer trust (MET). They are usually in the same industry group. METS can provide a single type of insurance (e.g., Health Insurance) or a wide range of coverages (e.g., Life, Medical Expense, and Disability Income Insurance) ,

    An employer who wants to get coverage for employees from a MET must first become a member of the trust by subscribing to it. A MET may either provide benefits on a self-funded basis or fund benefits with a contract purchased from an insurance company, in the latter case, the trust (rather than the subscribing employers) is the master insurance contract holder.

    Participants are issued a joined agreement (document which an individual is admitted as a member and bound to the terms of membership).

    The employer's premium payments are directed to a trust from which the plan's benefits and claims are paid. These trusts are also called 501(c)(9) trusts after the relevant section on the Internal Revenue Code. 

    • Self-Insured Plans are common to multiple employer trusts (METs) or multiple employer welfare arrangements (MEWAs). They are also common in cases where the insured group is small, with relatively healthy members and few claims.
    • Self-Funded Plans commonly use the services of an insurance company to act as a third-party administrator of the plan. Insurers may provide such services without responsibility for claims payment under an Administrative Services Only (ASO) contract

    Multiple Employer Welfare Arrangements

    Multiple Employer Welfare Arrangement (MEWA) is a type of MET. It consists of small employers who have joined to provide health benefits for their employees, often on a self-insured basis. They are tax-exempt entities.

    Employees covered by MEWA are required by law to have an employment related common bond.

    Important Notes

    • A medical provider that accepts Medicare Assignment must accept payment based upon a defined Medicare schedule as payment in full.
    • Medicaid is a Government-funded program designed to provide health care to poverty stricken people.
    • Medicare Part A (Hospital Insurance) covers inpatient care in hospitals and skilled nursing facilities, and it covers care provided in a hospice and some care provided at home.  Part A will cover a maximum of 100 days per benefit period in a skilled nursing facility [otherwise it will not pay for medical benefits].
    • Medicare Part B pays 80% of most doctor's services [charges], outpatient treatments, and durable medical equipment (like oxygen or wheelchairs). It is funded by General Tax Revenue & Premiums. The enrollment period for Medicare Plan B is January 1 through March 31. Also known as Medical Insurance.
    • Most people will become eligible for "Medicare Part C Advantage Plan" when attaining the age of 65.
    • If you are eligible for Medicare because of kidney failure and are also covered by a Group Health Plan, your group plan will pay first on your hospital and medical bills for 30 months. During this time, Medicare pays second.
    • An Accident & Health Policy that provides reimbursement benefits makes them payable to the insured. However, the right to assignment is built into most commercial insurance policies that allows policyowners to assign benefit payments from the insurer directly to the health care provider.
    • When Comparing an HMO to a PPO, the PPO [Preferred Provider Organization] gives a greater choice of providers. When the PPO insured goes out-of-network the insurer will pay a reduced amount.
    • The Federal Employees Benefit Plan consists of 2 types of Health Plans for Federal Civilian Employees, Fee-for-service & Prepaid.
    • A Group HMO provides health care services from a central facility, most often found in larger cities.
    • A Multiple Employer Welfare Association [MEWA] consists of small employers who have joined to provide health benefits for their employees.
    • A person covered under a Blue Cross Blue Shield plan is referred to as Subscriber.

    * 1935 Social Security Act : Created to provide for United States citizens general welfare who are 65 years of age and older. The Act was enacted by the Senate & House of Representatives of the United States to enable individual states to make more adequate provisions for furnishing financial assistance to the aged, blind, dependent and crippled children, maternal and child welfare, publish health and to establish more adequate provisions for the administration of their unemployment compensation laws,

    * 1868 Paul v. Virginia : This case, which the U.S. Supreme Court decided, involved one state's attempt to regulate an insurance company domiciled in another state.

    * 1944 U. States v. SEUA : In the Southeastern Underwriters Association case, the Supreme Court ruled that the insurance industry is subject to a series of Federal Laws, many of which conflicted with existing state laws. As such, insurance is a form of interstate commerce to be regulated by the federal government.

    * 1945 McCarran-Ferguson Act : This law made it clear that the states continued regulation of insurance was in the publics best interest. However, it also made possible the application of federal antitrust laws to the extent that [The insurance business] is not regulated by state law.

    * 1958 Intervention by the FTC : In 1958 the Supreme Court held that the McCarran Ferguson Act disallowed such supervision by the FTC, a federal agency. Additional attempts have been made by the FTC to force further Federal Control, but none have been successful.

    * 1959 Intervention by the SEC : The Supreme Court ruled that Federal securities laws applied to insurers that issued variable annuities and, thus, required these insurers to conform to both SEC and state regulations. The SEC regulated variable life insurance.

    * 1868 Paul v. Virginia : This case, which the U.S. Supreme Court decided, involved one state's attempt to regulate an insurance company domiciled in another state.

    * 1970 Fair Credit Reporting Act : Requires fair and accurate reporting of information about consumers, including applications for insurance. Insurers must inform applicants about Any Investigations that are being made upon completion of the application.

    * 1994 U. States Code (USC) Section 1033 & 1034.
    According to 18 U.S.C. 1033 & 1034 : It is a criminal offense for an individual who has been convicted of a felony involving dishonesty or breach of trust to willfully engage or participate (in any capacity) in the business of insurance without first obtaining a "Letter of Written Consent to Engage in the Business of Insurance" from the regulating insurance department of the individual's state of resistance.

    * 1999 Financial Services Modernization Act. :  In 1999 Congress passed the Financial Services Modernization Act, which repealed the Glass Steagall Act. Under this new legislation, commercial banks, investment banks, retail brokerages and insurance companies can now enter each other's lines of business.

    * 2001 Uniting & Strengthening America by Providing Appropriate Tools Required to Intercept & Obstruct Terrorism Act. : The Patriot Act, which amends the Bank Secrecy Act (BSA), was adopted in response to the September 11, 2001, terrorist attacks. The Patriot Act is intended to strengthen U.S. measures to prevent, detect, and deter terrorists and their funding. The act also aims to prosecute international money laundering and the financing of terrorism. These efforts include anti-money laundering (AML) tools that impact the banking, financial, and investment communities.

    * 2003 Do Not Call Implementation Act. : The Do Not Call Registry allows consumers to include their phone numbers on the list to which telemarketers cannot make solicitation calls.

    * 2010 Patient Protection & Affordable Care Act (PPACA) : Often shortened to the Affordable Care Act (ACA), it represents one of the most significant regulatory overhauls and expansions of health insurance coverage in U.S. history.

    Personal Notes From: Michigan Pre-licensing Education - Life, Accident and Health Insurance course has been approved by the Michigan Department of Financial Services as meeting the mandatory 20-hour requirement for Life and 20-hour Requirement for Health | XCEL Solutions LLC. Provider ID#: 0950 Course ID#: 60731/60732

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