Other provisions II: waiver of premium, exclusions, preexisting conditions, coinsurance, deductibles

Five provisions that decide what you actually pay

This lesson covers the second group of health policy provisions you need for the exam: waiver of premium, exclusions, preexisting conditions, deductibles and coinsurance. The first two control whether something is covered or whether premium is owed. The last three control how much of a covered loss the insured pays out of pocket.

Waiver of premium

A waiver of premium provision (often added by rider, and most common on disability income policies) says that if the insured becomes totally disabled, the insurer stops collecting premium for as long as the disability lasts, and the policy stays in force.

• It does not start on day one. The insured must first be disabled for a waiting period, commonly 90 days (three months) or six months.
• Once the waiting period is satisfied, most provisions refund the premiums paid during the waiting period and waive future premiums while the disability continues.
• When the insured recovers, premium payments resume.
• The benefit usually ends at a stated age, such as 60 or 65.

Exclusions

Exclusions are perils or services the policy will not cover at all, no matter how much premium is paid. Common health and disability exclusions include:

• War or act of war, and injury while on active military service
• Intentionally self-inflicted injury
• Cosmetic surgery, unless it is reconstructive surgery needed after an accident or a covered illness, or to correct a birth defect
• Occupational injury or sickness already covered by workers' compensation
• Care received in a government facility where the insured has no obligation to pay, such as a public clinic that provides the care free of charge
• Routine dental, vision and hearing care, and experimental or investigational treatment

Exclusions are different from limitations, which cover a service but restrict it (a cap on visits, for example), and from elimination periods, which delay benefits rather than deny them.

Preexisting conditions

A preexisting condition is a sickness or injury for which the insured received medical advice, diagnosis or treatment, or had symptoms, during a look-back period before the policy's effective date. Older policies excluded such conditions for a set period after issue.

• The time limit on certain defenses uniform provision caps this: after the policy has been in force two years, the insurer cannot deny a claim on the grounds that the condition existed before the policy, unless the condition was specifically excluded by name.
• For group plans, HIPAA limited exclusions to a six-month look-back and a maximum of 12 months (18 for late enrollees), reduced by prior creditable coverage.
• Under the Affordable Care Act, non-grandfathered major medical plans may not impose preexisting condition exclusions at all. You will still see them on products outside those rules, such as disability income and some limited-benefit coverage.

Deductibles

A deductible is the amount the insured pays for covered expenses before the insurer pays benefits for expenses subject to it. Some covered services, such as certain preventive screenings, are exempt from the deductible. It eliminates small claims and lowers premium: the higher the deductible, the lower the premium.

• Calendar-year deductible: met once per year. A carryover provision lets expenses in the last three months of a year count toward the next year's deductible.
• Per-cause deductible: applies separately to each illness or accident.
• Family deductible: once a set number of members (often two or three) meet their deductibles, the whole family is treated as having met it.
• Corridor deductible: in supplemental major medical, the amount the insured pays between the end of basic coverage and the start of major medical benefits.

Coinsurance

After the deductible, coinsurance splits each remaining covered dollar by percentage. In an 80/20 plan, the insurer pays 80 percent and the insured pays 20 percent. A copayment, by contrast, is a flat dollar amount per service, such as $30 per office visit.

Coinsurance is capped by the out-of-pocket maximum (the stop-loss limit). Once the insured's deductible plus coinsurance reaches that amount, the plan pays 100 percent of covered expenses for the rest of the period.

Worked example. A $10,000 covered bill, a $1,000 deductible, 80/20 coinsurance and a $5,000 out-of-pocket maximum. The insured pays the first $1,000. Of the remaining $9,000, the insurer pays 80 percent ($7,200) and the insured pays 20 percent ($1,800). The insured's total is $2,800, below the $5,000 cap, so the cap does not change anything this time.

The exam order to remember, for expenses subject to the deductible: deductible first, then coinsurance, until the out-of-pocket maximum, then the plan pays in full.