Insurance World

1. Health Savings Accounts (HSA)

This is a strategy where the employer buys a health plan with a large deductible. Typically, these are groups that are coming from a plan with a very low deductible. Since the higher deductible plans are usually much less money, the money saved is used to put into the employee’s “Health Savings Account.” The money in this account is used by the employee to pay qualified medical expenses. If it’s not used, the money rolls over to the next year. The money belongs to the employee, even if they leave the company.

2. Health Reimbursement Arrangements (HRA)

This is very similar to the HSA above but a portion of the qualified medical expenses not covered by the insurance is “pledged” by the employer, that is, the employer only spends the money, if there is a portion of the bill not paid by the insurance. This would be more favorable to the employer since on an HSA the money goes to the employee, whether there are claims or not. The problem with HRAs is that there are very few carriers that offer them right now.

3. Medical Reimbursement Accounts

This is very similar to HRAs above and extremely flexible. It’s otherwise known as partial self-funding. Employer buys a larger deductible and if the employee uses up that deductible, the employer pays all or a portion of it, depending on how a pre-arranged agreement is written. This goes for other expenses not paid by the insurance. The idea is that the employer self insures the typically smaller expenses with their own cash, (presumably, the savings in premium dollars from going to a higher deductible.) The downside to this is that many carriers prohibit the use of this strategy with their plans. It can be very effective but make sure you use an experienced third party administrator as there may be some legal and tax documentation required. Otherwise known as Section 105.

4. Kaiser.

More and more groups are moving to Kaiser. It is typically, benefit for benefit, less money than just about every other plan. Kaiser is spending billions on the future and their quality control is promising.

5. Offering Blue Cross and Kaiser side by side. Blue Cross has a new program where only five employees need to enroll with Blue Cross. The rest can be with Kaiser. This is a ground breaking opportunity in flexibility.

6. Blue Cross Elect. Blue Cross has a portfolio called Elect with 16 plans in it comprised of HMOs, PPOs, and an EPO plan. Each of these plans is priced from low premiums up to a much higher premium.

The beauty of this program is that Blue Cross allows the employer to “define” how much premium they are willing to pay towards an employee’s cost. For example, Blue Cross offers a $10, $20, $25, $30, $35, and a $40 copay PPO plan. The $10 plan is the most expensive of this group.

After viewing all of the premiums for the various plans, the employer can establish, arbitrarily, which plan they are willing to pay, say the employee only premium for. In this case, let’s say it’s the $25 copay plan. The employee can buy the $25 copay plan and it doesn’t cost them anything. However, if they want the more expensive $10 copay plan, the employer would payroll deduct the difference in premium costs.

Let’s say they have dependents they want to cover but the employer only wants to pay for the employee only. The employee could take the lesser expensive $40 copay plan, and use a little bit of the savings to help them with the costs of adding their dependents.

This has been a highly successful program because it gives the employees a greater number of choices, helping the employees be more definitive in their costs and needs, and at the same time, allows the employer to more efficiently define their costs.

This information is time sensitive and can change at anytime. If you have a question or need more information, please contact me at mail@thestrategyguide.com. –Todd Rich

Todd Rich is an expert on California Small Group Health Insurance Plans and has written four books on the subject. To learn more about Todd and his books, please visit www.TheStrategyGuide.com/ezines

Recent stories in the press have again lambasted the insurers over critical illness insurance. The core problem is that a critical illness claim is not as straightforward as, for example, a claim under life insurance. With life insurance it’s going to be hard for the insurance company to argue that you’re not dead!

By their very nature, critical illness claims are much more complicated. The insurer will need to satisfy itself that the claim is validated in three key areas before it meets the claim: -

Has the illness been correctly diagnosed?

Is the confirmed illness included in the schedule of insured critical illnesses covered by the policy?

Did the policyholder fully disclose their medical history and current state of health on their original application form?

On the first point, it’s obviously in the policyholder’s interest to verify the medical diagnosis - so there’s rarely ever any conflict between the insurance company and the policyholder on that issue. It’s the next two areas which the insurer needs to validate, where conflicts seem arise.

With constant development in the medical knowledge, from time to time there can be some situations where validation falls into a grey area – a policyholder will argue that their specific illness is insured whereas the insurer will argue that it isn’t. Insurance companies are aware of this problem and they often change the wording in their policies in an attempt to clarify the scope of the cover and eliminate areas for dispute. Nevertheless, disputes do happen all too frequently and sparks fly when a policyholder thinks his illness is covered but the insurer disagrees.

A case in point comes before the Courts shortly. Mr Hawkins from Staffordshire is suing Scottish Provident for Ј400,000 under the terms of his critical illness policy. Basically, his medical advisers believe his illness is insured whereas the insurers’ medical advisers disagree. If the Court find in favour of Mr Hawkins the press will have a field day - and the critical illness insurers will suffer further bad press they can sorely afford.

Another summons, filed recently in the High Court and again involving Scottish Provident, highlights the problem when an insurer considers that a claimant mislead them on his or her original application form. Our understanding is that if an applicant omits relevant information or provides misleading information on their application from, this amounts to obtaining insurance on false pretences. This summons has been issued on behalf of Thomas Welch from London who is suing Scottish Provident for Ј206,800. The issue goes back to 2000 when, a few years after first starting his critical illness policy, Mr Welch received confirmation that he was suffering from testicular cancer. The insurer refused the claim because of “non-disclosure alleging that Mr Welch had not been honest about his smoking habit. He does admit that he did smoke earlier in his life but is resolute in saying that he had long since given up when he applied for critical illness insurance. As such, Mr Welch believes that he did complete the application honestly.

We assume that the case will centre upon whether Mr Welch accurately answered the smoking questions on his application. Most insurers define “a smoker” as someone who has smoked, or has otherwise used, nicotine products within the previous 5 years. (Some insurance companies adopt a 1year cut off.) If Mr Welch had indeed smoked during the specified years, he would have been obliged to disclose such information on the application and the insurer would have priced his insurance accordingly. In this context, it is relevant to note that smokers are charged as much as 65% more for critical illness over than non-smokers. We anticipate that Mr Welch’s lawyers will argue either that he did not smoke during the period in question or he omitted the smoking information by pure oversight and in any event, his past smoking is not irrelevant to his testicular cancer. Interesting issues and we’ll let you know the outcome.

Mr Hawkins case is fundamentally different. It illustrates the problems that can arise if policy documents imprecisely describe an illness or if the technical diagnosis of an illness provides the scope for medical professionals to disagree. Either way the issues are entirely outside the policyholders control at a distressing time for them and their families and we must appreciate their anguish. The long-term solution must lie in improving the medical definitions within the policy. It is probable that this will result in more medical jargon that the average man in the street will find difficult to understand - but perhaps that is preferable to what Mr Hawkins is going through.

Mr Welch’s court case must stand as a clear reminder to everybody that applications for insurance must always be totally accurate and completed in good faith. We recognise that in some cases this may still leave room for dispute (and Mr Welch’s case may be an example), but if an applicant fails to complete the forms accurately, they are taking the great risk and any claim they make could be rejected.

Rightly or wrongly, the newspapers have a history of giving the insurance companies a hard time, casting them as heartless big business. This serves to reinforce the public’s feeling that insurance companies are devious and not to be trusted - especially it seems, in respect of critical illness insurance. This view is reinforced by the fact that around 20-25% of critical illness claims are rejected (although this rejection rate does vary between insurers). This issue is something that insurers must come to grips with – it’s bad for clients and undermines confidence in insurance - and that must be bad for the development of the insurance industry.

In fact to put no finer point on it, it’s a tragedy. As many as 1 in 6 women and 1 in 5 men will be diagnosed with a critical illness before their normal retirement age*. As such, critical illness insurance is vastly important for the protection of family finances. The problems we have highlighted are obviously contributing to a situation where almost everybody needs critical illness insurance, but fewer and fewer of us are taking it up.

(* Source: Munich Re.)