Personal Finances CH 9

1. Health insurance is a form of protection that eases the financial burden people may experience as a result of someone’s death. FALSEHealth insurance protects from the financial burden as a result of illness or injury.
2. All group health insurance plans provide the same level of protection. FALSEGroup plans vary in the amount of protection they provide.
3. COBRA and The Health Insurance Portability and Accountability Act of 1007 have improved health insurance coverage options for individuals and families. TRUE
4. Surgical expense coverage for health insurance includes surgeon’s fees in a doctor’s office. TRUE
5. A deductible is the amount you must pay before benefits become payable by the insurance company. TRUE
6. Long-term care insurance is used to pay for a stay in a nursing home but not for help at home. FALSELong-term care insurance covers both a stay in a nursing home as well as help at home with daily living activities.
7. The copayment provision deals with the amount that someone will pay for a bill such as 20 percent coinsurance FALSEThe copayment is a flat fee that is paid every time you receive a covered service.
8. The benefit limits provision identifies the minimum benefits that will be paid for days spent in the hospital. FALSEThe benefit limits provision identifies the maximum benefits.
9. With a guaranteed renewable health insurance policy, the insurer is permitted to raise premiums for all members of a group. TRUE
10. A health insurance policy that pays you back for actual expenses is called an indemnity policy. FALSEA reimbursement policy pays you back for actual expenses.
11. A health insurance policy that pays you back for actual expenses is called a reimbursement policy. TRUE
12. Some policies consider the average fee for a service in a particular geographical area then use that amount to set a minimum payment for policyholders. FALSEThese ‘reasonable and customary’ charges are used to set the maximum coverage.
13. Blue Cross and Blue Shield are two types of HMOs. FALSEBlue Cross and Blue Shield are statewide organizations that provide health insurance.
14. A PPO is a type of managed care plan. TRUE
15. A PPO is another name for an HMO. FALSEAn HMO is a different plan than a PPO.
16. An employer self-funded health plan requires a low level of financial assets. FALSEAn inadequate level of financial assets can mean financial trouble for a self-funded employer.
17. A Flexible Spending Account is funded by an employer. FALSEEmployees contribute pretax dollars to an FSA account. The employer manages it.
18. A Health Reimbursement Account is an employer-funded plan. TRUE
19. FSAs, HRAs, and HSAs all provide tax advantages for health expenses. TRUE
20. If you have Medicare Part A and Medicare Part B, you should not need Medicare Part C. TRUE
21. Medicare typically covers routine checkups. FALSEMedicare excludes routine checkups, dental care, most immunizations, and more.
22. Medicare is offered to certain low-income individuals and families. FALSEMedicaid is offered to certain low-income individuals and families.
23. Disability income insurance covers your medical expenses when you are disabled. FALSEDisability income provides regular cash income when you are disabled.
24. A good disability income insurance plan will provide benefits if you cannot work at any job. FALSEA good plan considers your regular job, not any job.
25. The financial problems caused by death are greater than those caused by disability. FALSEDisabled persons lose their earning power but still have to meet living expenses. In addition, they often need to cover medical treatment and special care for their disabilities.
26. The definition for Disability is stricter for Social Security than for employer plans. TRUE
27. The period before you can receive benefits in a disability plan is called the probationary period. FALSEIt is called the elimination period.
28. A disability policy with a longer elimination period typically charges lower premiums than a policy with a short elimination period. TRUE
29. Disability income insurance policies are required to provide benefits for disabled policyholders until age 65. FALSESome policies are valid for only a few years; others are canceled when one turns 65, and others continue to pay for life.
30. The United States has the fifth highest per capita medical expenditures in the world. FALSEThe U.S. has the highest per capita medical expenditures of any country in the world.
31. Administrative costs in the United States consume half of the health care dollars spent. FALSEAdministrative costs consume nearly 26 percent of health care dollars.
32. Health care costs have decreased because of aging baby boomers using fewer health care services. FALSEHealth care costs have increased because baby boomers use more health care services.
33. What is the primary purpose of medical expense insurance? C. Pay medical costs for illness or injury.
34. Which of the following is correct? E.Most medical expense plans reimburse an individual for hospital stays, doctors’ visits and medications.
35. Most people receive health insurance from C. A plan offered by their employer
36. The Health Insurance Portability and Accountability Act of 1996 A.Sets federal standards to ensure that workers would not lose their health insurance if they changed jobs
37. Coordination of benefits (COB) applies to E. Combining two insurance policies issued for a married couple
38. Which of the following about individual health insurance policies is correct? E.They are available for the self-employed or others who are dissatisfied with the coverage that their group plan provides.
39. Which of the following about individual health insurance policies is NOT correct? D. All insurance companies that offer this type of policy are required to charge the same rates.
40. COBRA stands for C. Consolidated Omnibus Budget Reconciliation Act
41. The type of health insurance coverage that pays for some or all of the costs of room and board is C. Hospital expense
42. The type of health insurance coverage that may cover routine doctor visits, X-rays, and lab tests is D. Physician expense
43. The type of health insurance coverage that may cover a specific amount for an operation is B. Surgical expense
44. The type of health insurance coverage that takes up where basic health insurance coverage leaves off is E. Major medical expense
45. Fran is interested in purchasing health insurance that limits the total out-of-pocket amount that she will have to pay. She should consider a C. Stop-loss provision
46. Jenny wants health insurance that limits the amount that she must pay before the insurance starts paying benefits. She is concerned about a A. Deductible
47. Miguel is concerned that the health insurance option he is considering plays upon unrealistic fears. He is most concerned about E. Dread disease policy
48. Nancy is studying the health insurance plan options offered by her employer. She wants a policy that will have the insurance pay a percentage of her medical expenses. She should review the B. Coinsurance
49. The insurance that helps pay extensive hospital, surgical, medical, and other bills with a low deductible is known as a C. Comprehensive major medical policy
50. Which of the following is NOT a type of health insurance available to individuals or employees? D. Minor medical indemnity insurance
51. This health insurance provision lets your insurer make direct payments to your doctor or hospital. A. Assigned benefits
52. Which of the following is TRUE about long-term care insurance? C. The older you are when you enroll, the higher the annual premium.
53. This health insurance provision sets limits on the amount of repayment for certain services. D. Internal limits
54. A health insurance policy with this provision lists coverage in terms of services, not dollar amounts. E. Service benefits
55. Which of the following is INCORRECT about dread disease policies? B. Each policy covers a wide range of conditions
56. What is a typical copayment amount for individuals? B. $15 – $25.
57. A policy that pays you back for actual expenses is called B. A reimbursement plan
58. After you have reached a certain limit, the insurance company covers 100 percent of any additional cost. This is called B. Out-of-pocket limit
59. The set amount that you must pay toward medical expenses before the insurance company pays benefits is called C. Deductible
60. A health insurance policy that will cover only a fixed amount of an expense is called D. Internal limit
61. Brittany and Brandon are both charged $250 for an office visit to the same specialist. Brittany’s reimbursement policy has a deductible of $300. Once she has met the deductible, the policy will cover the full cost of her visits. Brandon’s indemnity policy will pay him $150, the maximum amount his plan provides for a visit to any specialist. Which of the following is correct? B Brittany will pay more because she must pay the entire bill since she has not met her deductible while . Brandon will have part of his bill paid by his policy.
62. A quality health insurance plan should do all of the following except E. Provide a lifetime maximum level of coverage of up to $50,000
63. Which of the following is NOT a private health care plan? D. MedicareMedicare is a government plan.
64. Blue Cross and Blue Shield are C. Hospital and medical service plans
65. Xavier’s employer offers a health plan that stresses preventative services and covers routine immunizations and checkups, screening programs, and diagnostic tests. What kind of plan does his employer offer? A. Health maintenance organization (HMO)
66. Yvonne’s employer offers a health plan that has a group of doctors and hospitals that agree to provide specified medical services to members at prearranged fees. This health plan offers some flexibility since members can either visit a physician from a list or go to their own doctors. What kind of plan does her employer offer? E. Preferred provider organization (PPO)
67. This type of plan combines features of HMOs and PPOs. It uses a network of participating physicians and medical professionals who have contracted to provide services for certain fees. What kind of plan does his employer offer? D. Point-of-service plan
68. Which of the following is most likely to use a health maintenance organization? B. A family with teenagers who need annual check-ups for sports at school
69. Who is most likely to use a home health care agency? D. An elderly neighbor
70. Anna contributes pre-tax dollars to an account managed by her employer for her health care expenses. If she does not spend all of her money by the end of the year, she may forfeit it. What kind of plan does she have? A. FSA
71. Monica’s employer offers a health insurance plan with a very high deductible. In addition, her employer provides a fund for her to spend specifically on health care. What kind of plan does she have? B. HRA
72. Jacob is concerned that his out-of-pocket health care expenses will be quite high, so he is considering adding contributions to a tax-free account that he can use with his high-deductible policy to cover catastrophic expenses. What kind of plan does he have? C. HSA
73. Individuals over the age of 65 who are eligible for federal government health plan coverage may also be interested in purchasing D. Medigap
74. Jack needs comprehensive medical coverage, however, his income is quite low. What plan should he investigate? C. Medicaid
75. Medicare covers D. Inpatient hospital care
76. A Medigap policy fills the gap between medical costs and payments from C. Medicare
77. Medicaid covers A. Lab servicesB. Skilled nursing and home health services C. Prescription drugsD. EyeglassesE. All of the above
78. Which of the following is INCORRECT? D. A bad disability policy pays you if you cannot work at your regular job.D – A GOOD policy pays you if cannot work at your regular job. A BAD policy will not pay unless you cannot work at any job.
79. All of the following are sources of disability income except A. Worker’s compensationB. Disability benefits from an employerC. Social securityD. Private income insurance programsE. All of the above are sources of disability income.
80. How much income is usually replaced with a private income insurance program for a disability? C. 40 – 60 percent, with some plans paying up to 75 percent
81. Katrina was injured in an accident at work. The benefits she will receive to cover part of her income will come from E. Worker’s compensation
82. Mark was severely injured and expects to be unable to work for at least 12 months. Because of his injury, he should expect to be eligible for disability income from D. Social Security
83. Cameron, age 25, sustained a debilitating hand injury and was unable to perform his job as a viola player in the local orchestra for 45 days. His employer has a disability income insurance policy that pays 70 percent of take-home pay with an elimination period of 60 days and coverage to age 65. Given this information, which of the following is true for Cameron? C.He will not be eligible for any disability income because his disability ended before the eliminationperiod ended.
84. Which of the following is true about the elimination period? E.Premiums for a plan with an elimination period of 90 days will be less than the premiums for a plan with an elimination period of 60 days.
85. Disability income insurance plans offer benefits A. For only a few yearsB. Until age 65C. For lifeD. All of the above are possibilities
86. If you are concerned that your disability insurer may try to cancel your coverage if your health becomes poor, you should look for a plan that offers D. Guaranteed renewability
87. Rising health costs are due to all except D. Baby boomers using fewer health care services
88. The average per employee cost for health care in 2008 was more than C. $8,000
89. How many people in the United States do not have health insurance? E. 48 million
90. Which of the following is NOT correct? B. Victims of accidents and crimes require less emergency medical services than in the past
91. Which of the following activities is NOT a step being taken to reduce health care costs? A. Community health education programs motivate people to take better care of themselvesB. Physicians encourage patients to pay cash for routine medical care and lab testsC. Programs to review health care fees are availableD.Community health planning can help achieve a better balance between health needs and health careresourcesE. All of the activities can reduce health care costs
92. Georgia has a health insurance policy that includes a deductible of $750 and a coinsurance of 20 percent. If her total bill is $2,750, how much will she be required to pay? D. $1150Her amount due = deductible + 20 percent (total bill – deductible) = $750 + 20% ($2,750 – $750) = $750 + 20% * $2000 = $750 + $400 = $1150
93. Georgia has a health insurance policy that includes a deductible of $750 and a coinsurance of 20 percent. If her total bill is $2,750, how much will her insurance pay? E. $1600The amount the insurance company will pay will be the total bill less the amount Georgia will pay. Her amount due = deductible + 20% (total bill – deductible) = $750 + 20% ($2,750 – $750) = $750 + 20% * $2000 = $750 + $400 = $1150.The amount the insurance company will pay = $2,750 – $1,150 = $1,600.
94. Larry has a health insurance policy that includes a deductible of $1,000 and a coinsurance of 20 percent. If his total bill is $4,000, how much will his insurance pay? D. $2,400
95. Peter has a health insurance policy that includes a deductible of $1,000, a coinsurance of 20 percent and a stop-loss of $5,000. If his total bill is $25,000, how much will he pay? C. $5,000Peter will either pay the calculated amount using the deductible and coinsurance OR the stop-loss amount, whichever is lower.Peter’s deductible = $1,000.His coinsurance = 20% (total bill – deductible) = 20% ($25,000 – $1,000) = 20% * $24,000 = $4,800. His total out-of-pocket = the deductible + coinsurance = $1,000 + $4,800 = $5,800. However, his stop- loss is $5,000. Therefore, the most Peter will pay is $5,000.
96. Sandy went to the doctor three times, each appointment cost $150. Her copayment was $20 per visit. How much was Sandy required to pay for her three visits? B. $60Each visit required a copayment of $20. Since she had three appointments, her total copay was 3 * $20 = $60.
97. Health insurance is an important type of protection for many people. What is the primary source of health insurance? What other options are available? Most people who have health insurance are covered under group plans, typically these are employer sponsored.People who do not have access to an employer-sponsored group insurance plan because they are self- employed and those who are dissatisfied with their coverage may have individual health insurance plans.Individuals who had a group plan through their employer before they were laid off may be eligible to keep their coverage through COBRA.
98. What is one difference between group health insurance and individual health insurance policies? Group: usually employer sponsored; available from the group (employer).Individual: often used by the self-employed or those who are dissatisfied with their group plan; available directly from the company of one’s choice.
99. Identify at least three types of health insurance policies. Policies include:• Basic health insurance includes hospital expense, surgical expense, and physician expense coverage • Hospital indemnity policies are used as a supplement to basic health or major medical policies• Dental expense insurance• Vision care insurance• Dread disease policies• Long-term care insurance
100. Georgia has a health insurance policy that includes a deductible of $750 and a coinsurance of 20 percent. If her total bill is $2,750, how much will she be required to pay? Her amount due = deductible + 20% (total bill – deductible) = $750 + 20% ($2,750 – $750) = $750 + 20% * $2000 = $750 + $400 = $1150
101. Georgia has a health insurance policy that includes a deductible of $750 and a coinsurance of 20 percent. If her total bill is $2,750, how much will her insurance pay? The amount the insurance company will pay will be the total bill less the amount Georgia will pay. Her amount due = deductible + 20% (total bill – deductible) = $750 + 20% ($2,750 – $750) = $750 + 20% * $2000 = $750 + $400 = $1150.The amount the insurance company will pay = $2,750 – $1,150 = $1,600.
102. Larry has a health insurance policy that includes a deductible of $1,000 and a coinsurance of 20 percent. If his total bill is $4,000, how much will his insurance pay? The amount the insurance company will pay will be the total bill less the amount Larry will pay. His amount due = deductible + 20% (total bill – deductible) = $1,000 + 20% ($4,000 – $1,000) = $1,000 + 20% * $3000 = $1,000 + $600 = $1,600.The amount the insurance company will pay = $4,000 – $1,600 = $2,400.
103. Peter has a health insurance policy that includes a deductible of $1,000, a coinsurance of 20 percent and a stop-loss of $5,000. If his total bill is $25,000, how much will he pay? Show all calculations and explain your answer. Peter will either pay the calculated amount using the deductible and coinsurance OR the stop-loss amount, whichever is lower.Peter’s deductible = $1,000.His coinsurance = 20% (total bill – deductible) = 20% ($25,000 – $1,000) = 20% * $24,000 = $4,800. His total out-of-pocket = the deductible + coinsurance = $1,000 + $4,800 = $5,800. However, his stop- loss is $5,000. Therefore, the most Peter will pay is $5,000.
104. Define two of the following provisions in a health insurance policy: a. Eligibilityb. Assigned benefitsc. Copaymentd. Benefit limitse. Exclusions and limitations Definitions are:a. Eligibility: the people covered by the policy must meet specified eligibility requirements, such as family relationship, and, for children, a certain age.b. Assigned benefits: insurers make direct payments to your doctor or hospital.c. Copayment: a flat fee that is paid every time you receive a covered service. The insurer pays the balance of the cost of the service.d. Benefit limits: the maximum benefits, either in terms of a dollar amount or in terms of number of days spent in the hospital.e. Exclusions and limitations: specifies services that the policy does not cover. It may include preexisting conditions, cosmetic surgery, or more.
105. Think about the benefits offered by health insurance policies and their trade-offs. Do you think that everyone should get the same benefits? Why or why not? Student answers will vary. Their evaluation should address the impact of some variables in different policies such as: deductibles, coinsurance, out-of-pocket limits, reasonable & customary charges and indemnity vs. reimbursement plans.
106. Explain two of the following: a. Private insurance companyb. Hospital and medical service plan c. HMOd. PPOe. Employer self-funded health plan Explanations follow:a. Private insurance company – provide mostly group health plans to employers. Premiums may be paid fully or partially by the employer.b. Hospital and medical service plan – Blue Cross and Blue Shield are statewide organizations. Coverage includes hospital care (Blue Cross) and surgical and medical services performed by physicians (Blue Shield).c. HMO – a health maintenance organization directly employs or contracts with selected physiciansand other medical professionals to provide health care services in exchange for fixed, prepaid monthly premium. The focus is on preventive services and plans typically include routine immunizations and checkups, screening programs, and diagnostic tests. Individuals usually are responsible for a small copayment for each covered service.d. PPO – a personal provider organization is a group of doctors and hospitals who agree to provide specified medical services to members at prearranged fees. Individuals who use PPOs usually do not need to pay a deductible and their copayments may be small. PPOs offer greater flexibility than HMOs by allowing the insured to visit a preferred provider or to go to their own physician.e. Employer self-funded health plan – a company runs its own insurance plan, collecting premiums from employees and paying medical benefits as needed. The expenses can exceed income from the premiums, so companies can experience some financial risk.
107. What is similar among FSAs, HRAs, and HSAs? All are plans that allow you to use pre-tax money to cover expenses.
108. What are the main differences between FSAs, HRAs, and HSAs? Although all three are plans that allow you to use pre-tax money to cover expenses, the money is funded differently and the balances are handled differently for the plans.More specifically, FSAs use employee pre-tax dollars in an account managed by the employer. Any money not used by the end of the year may be forfeited.HRAs are tied to high-deductible policies. They are funded using only employer money. Balances carry over from year to year as long as you work for that employer and can be invested in stocks, bonds, and mutual funds.HSAs allow you to contribute money to a tax-free account if you buy a high-deductible health insurance policy to cover catastrophic expenses.NOTE: The text has not been updated on page 285. It states “In 2007 up to 80 percent of U.S. employers are expected to offer”.
109. Medicare and Medicaid sound similar. Compare the two. Be certain to address eligibility and coverage of the two plans. Both are governmental programs.a. Eligibility: Medicare is available mainly to people over 65 or with disabilities. Medicaid is available to certain low-income individuals and families.b. Coverage: Medicare Part A covers hospital expenses and Part B covers medical expenses with a deductible and coinsurance. Certain expenses are not included under Medicare, so individuals may prefer to purchase a Medigap plan. Medicaid offers comprehensive coverage so that supplemental insurance is not needed.
110. Why is disability income insurance important? A disability can cause even greater financial problems than death. In addition to meeting daily living expenses, an injured or sick employee may also face medical treatment and special care. Disability income insurance can help offset some of the cash needs.
111. What is guaranteed renewability? Guaranteed renewability is a provision in a disability income insurance plan that guarantees coverage as long as you continue to pay your premiums. The plan will not be able to cancel your coverage simply because your health becomes poor.

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