Accident and health basics: perils, types of losses…

Two perils: accident and sickness

Accident and health insurance (also called health insurance or disability insurance on the exam) covers losses caused by two perils.

Accident: an unforeseen, unintended, unexpected event that causes bodily injury. The insured did not plan or expect the event.
Sickness: illness or disease. Disability income policies, and other policies that may still limit pre-existing conditions, traditionally cover sickness that first manifests, or is first treated, after the policy takes effect. Comprehensive major medical coverage under the Affordable Care Act cannot exclude pre-existing conditions.

Accident coverage is narrower and cheaper than sickness coverage, because most claims come from illness, not injury.

Policies define "accident" in one of two ways, and the difference matters at claim time.

Accidental means (the narrower definition): both the cause and the result must be unintended. If you deliberately jump off a wall and break your ankle, the result was unexpected but the cause (the jump) was intentional, so there is no coverage.
Accidental bodily injury, also called accidental results (the broader definition): only the result must be unintended. The same broken ankle is covered.

Modern policies almost always use the accidental bodily injury (results) test, which favours the insured.

A health loss shows up as one of a handful of financial problems, and each has its own type of coverage.

Loss of income from disability: disability income insurance replaces part of earnings when injury or sickness keeps the insured from working. It pays a periodic benefit (usually monthly) after an elimination period.
Medical expense: hospital, surgical, physician and major medical coverage pays the cost of care. Benefits are paid on a reimbursement basis, a service basis (care provided directly, as in an HMO), or an indemnity basis (a fixed amount per day or per procedure, regardless of actual cost).
Dental expense: covers preventive, basic and major dental care, usually separate from medical coverage.
Long-term care expense: covers extended custodial, intermediate or skilled care when the insured cannot perform activities of daily living or has a cognitive impairment.
Accidental death and dismemberment (AD&D): pays a stated principal sum for accidental death and a scheduled share of it for loss of limbs or sight. New York's individual accident and health statute treats these benefits differently when they ride on a life policy: a life contract whose only accident and health provisions add benefits for accidental death, dismemberment or loss of sight is outside § 3216.

Remember the pairing: disability income pays for lost earnings, medical expense pays for the bills.

Exam questions sort health insurance three ways.

Individual versus group: an individual policy is bought by one person (and family) and is underwritten on that person. A group policy is a single master contract issued to an employer or association; members get certificates, and the group, not the individual, is underwritten. Individual major medical coverage under the Affordable Care Act cannot be underwritten on health status.
Private versus government: private plans are sold by insurers, HMOs and similar carriers. Government programs include Medicare (age 65 and over, and certain disabled people), Medicaid (needs-based, run jointly by federal and state government) and Social Security disability. Workers' compensation (job-related injury and illness) is required by state law, but employers usually fund it through a private insurer, a state insurance fund or self-insurance.
Limited versus comprehensive: a limited policy covers only specified accidents, diseases or benefit amounts (hospital indemnity, specified disease, accident-only, travel accident). A comprehensive major medical policy covers a broad range of medical expenses with high maximums. Limited policies must be clearly labelled as limited so buyers do not mistake them for full coverage.

Health policies exclude losses that are uninsurable, covered elsewhere, or within the insured's control. Know these:

War or act of war, because war losses are catastrophic and cannot be pooled, and injury during military service, because the government provides care for service members.
Intentionally self-inflicted injury and attempted suicide, on accident-only and other limited policies. Comprehensive medical coverage generally cannot refuse to treat an injury because it resulted from a mental health condition.
Injury while committing a felony or engaged in an illegal occupation.
Aviation, except as a fare-paying passenger on a scheduled airline.
Work-related injury or illness covered by workers' compensation, on non-occupational policies.
Cosmetic surgery, except to repair injury or a congenital defect.
Experimental or investigational treatment, subject to appeal rights.
Care received in government facilities at no cost to the insured, such as a Veterans Administration hospital.
Pre-existing conditions, on limited and disability policies. Comprehensive major medical coverage under the Affordable Care Act can no longer exclude them.

Exclusions narrow what the insuring clause promises. If the cause of loss is excluded, nothing is paid, however serious the loss.