Types of Health Policies — practice questions

19% of the exam ≈16 real questions 22 free questions here

Disability income, medical expense plans, HMOs and PPOs, Medicare supplements, long-term care and limited policies: 16 of the 85 scored questions on the 2-40, the biggest general-knowledge section.

Where people lose points

• Business overhead expense pays the business's rent and salaries, never the owner's own income.
• An HMO uses a gatekeeper and in-network care; a PPO still pays out of network, at a lower level.
• An HSA needs a qualifying high-deductible health plan; an FSA does not and is use-it-or-lose-it.
• A Medicare supplement fills gaps in Original Medicare; Medicare Advantage replaces it.

Questions and answers, explained

All 10 questions above, with the correct answer and why it is correct. Everything here is on types of health policies.

1. A surgeon injures her hand and can no longer perform surgery, but she accepts a full-time position teaching at a medical school. Under which definition of total disability would her individual disability income policy pay full benefits?

   • AAny occupation
   • BOwn occupationCorrect
   • CPresumptive disability
   • DPartial disability

   Why: The own-occupation definition pays benefits when the insured cannot perform the substantial duties of his or her OWN occupation, even if the insured works in a different field. The any-occupation definition is stricter: it would deny benefits because she can work in another occupation suited to her education and training. Presumptive disability applies only to specified losses such as sight, speech, or limbs. (Outline V.A)

   Reference Outline V.A (Disability income - individual)

2. Under a key employee disability income policy, which party receives the policy benefits when the key employee becomes disabled?

   • AThe business that employs the key personCorrect
   • BThe key employee
   • CThe key employee's spouse or estate
   • DThe benefits are split equally between the business and the employee

   Why: In key employee (key person) disability insurance, the business is the applicant, premium payer, and beneficiary, while the key employee is the insured. Benefits reimburse the business for lost revenue and the cost of finding and training a replacement. The employee receives nothing directly under this policy — that is what makes choice B the classic misconception. (Outline V.A)

   Reference Outline V.A (Key employee)

3. An insured with a $100,000 AD&D policy loses the sight in one eye in a covered accident. What will the policy most likely pay?

   • AThe full $100,000 principal sum stated on the policy’s schedule page
   • BA capital sum equal to a stated percentage of the principal sumCorrect
   • CNothing — an AD&D policy pays only for accidental death
   • DA monthly disability income benefit while he recovers

   Why: Loss of sight in one eye is a single dismemberment loss, so the policy pays the capital sum — commonly 50% of the principal sum. The full principal sum (A) is reserved for accidental death or specified multiple losses. AD&D covers dismemberment as well as death, so C is wrong, and it never pays income benefits (D). (Outline V.B)

   Reference Outline V.B (AD&D)

4. Which feature distinguishes a preferred provider organization (PPO) plan from a traditional HMO?

   • AMembers may receive covered care from out-of-network providers, at a higher out-of-pocket costCorrect
   • BMembers must choose a gatekeeper primary care physician who controls all referrals
   • CProviders are paid by capitation regardless of the services performed
   • DThe plan contracts with no providers and pays every provider the same amount

   Why: A PPO contracts with a network of providers at discounted fee-for-service rates, but members keep the freedom to go out of network in exchange for higher deductibles and coinsurance. Gatekeeper referral requirements (B) and capitation payment (C) are HMO characteristics, not PPO features. (Outline V.C)

   Reference Outline V.C (PPOs)

5. Carlos, age 66, has retired and enrolled in Medicare Parts A and B. He wants to continue making contributions to the health savings account (HSA) he opened while working. Which factor now disqualifies him from making new HSA contributions?

   • ABeing older than 65 by itself
   • BHaving no earned income after retirement
   • CHaving a large existing HSA balance
   • DBeing enrolled in MedicareCorrect

   Why: To contribute to an HSA, an individual must be covered by a qualifying high-deductible health plan, have no other first-dollar coverage, not be enrolled in Medicare, and not be claimed as a dependent. Enrollment in Medicare ends eligibility for new contributions — age alone does not, and unlike an IRA, an HSA does not require earned income. Carlos may still spend his existing HSA balance tax free on qualified medical expenses. (Outline V.C)

   Reference Outline V.C (HDHPs and HSAs)

6. In Florida, a Medicare supplement policyholder may return the policy for a full refund of premium within how many days after receiving it?

   • A10 days
   • B14 days
   • C21 days
   • D30 daysCorrect

   Why: Florida requires a 30-day free-look period on Medicare supplement policies: the policyholder may return the policy within 30 days after receiving it for a full refund of any premium paid, refunded directly to the person who paid it (s. 627.674, F.S.). The 14-day figure is Florida's life insurance free look — a common point of confusion. Florida long-term care policies also carry a 30-day free look. (Outline V.D)

   Reference Outline V.D; s. 627.674, F.S.

7. The Florida Health Insurance Coverage Continuation Act (Florida's "mini-COBRA") extends group continuation rights to employees whose employers are too small for federal COBRA. It generally applies to employers with:

   • A20 or more employees
   • BFewer than 20 employeesCorrect
   • CMore than 50 employees
   • DAny number of employees, but coverage lasts only 6 months

   Why: Florida's continuation law fills the gap below federal COBRA: it applies to small employers with fewer than 20 employees and allows qualified beneficiaries to continue group coverage for up to 18 months, paying up to 115% of the applicable premium (s. 627.6692, F.S.). The beneficiary must notify the carrier within 63 days of the qualifying event. Federal COBRA — choice A — is the rule for employers with 20 or more employees. (Outline V.E)

   Reference Outline V.E; s. 627.6692, F.S.

8. A policy pays the insured a fixed dollar amount for each day of hospital confinement, paid directly to the insured regardless of the actual medical expenses incurred or any other coverage in force. This is a:

   • ABasic hospital expense policy
   • BMajor medical policy
   • CCritical illness policy
   • DHospital indemnity policyCorrect

   Why: A hospital indemnity (hospital confinement indemnity) policy pays a flat per-day benefit directly to the insured during hospitalization, independent of actual charges — it is an indemnity supplement, not expense reimbursement. A basic hospital expense policy (A) reimburses actual room-and-board charges up to a limit, and a critical illness policy (C) pays a lump sum upon diagnosis of a specified illness such as cancer, heart attack, or stroke. (Outline V.G)

   Reference Outline V.G (Hospital indemnity; critical illness)

9. An insurer's underwriting guidelines limit individual disability income coverage to 60% of an applicant's gross EARNED income. The applicant reports a $90,000 annual salary plus $12,000 of annual dividend and interest income. What is the largest monthly benefit the insurer will approve?

   • A$4,500Correct
   • B$5,100
   • C$6,000
   • D$7,500

   Why: Only earned income counts: $90,000 x 60% = $54,000 per year, or $4,500 per month. Choice B wrongly adds the $12,000 of investment income ($102,000 x 60% / 12 = $5,100), which continues during a disability and therefore is excluded from the replacement calculation. Insurers cap replacement below 100% so the insured retains a financial incentive to return to work. (Outline V.A)

   Reference Outline V.A (Benefit amount and issue limits)

10. An insured becomes totally disabled on March 1 under a disability income policy with a 60-day elimination period. Benefits accrue monthly and are paid at the end of each benefit month. When should the insured expect the FIRST benefit payment?

    • AApproximately March 31
    • BApproximately April 30
    • CApproximately May 30Correct
    • DApproximately June 30

    Why: The 60-day elimination period runs from March 1 to about April 29, and no benefits accrue during it. Benefits then accrue for a full month and are paid in arrears, so the first check arrives near the end of May. Choice B is the classic error: April 30 is only the day the elimination period ends, at which point nothing has yet been earned. (Outline V.A)

    Reference Outline V.A (Elimination period)

Drill other domains

• Policy Provisions, Clauses and Riders (18%)
• Social Insurance (7%)
• Other Insurance Concepts (6%)
• Field Underwriting Procedures (9%)
• Florida Statutes and Rules Common to All Lines (23%)
• Florida Statutes — Health Insurance (18%)

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