Major medical insurance is a form of health care coverage that provides benefits for most types of medical expenses that may be incurred. Offering more complete coverage with fewer gaps, major medical insurance covers a much broader range of medical expenses - including those incurred both in and out of the hospital - with generally higher individual benefits and policy maximum limits. These more extensive medical insurance policies are divided into two general groups: comprehensive major medical insurance, in which the traditional basic coverages and essentially any other type of medical expense are combined into a single comprehensive policy; and supplemental major medical insurance, in which coverage begins with a traditional basic policy that pays first, with the major medical coverage added to pick up expenses left uncovered by the initial basic policy. Let's look at each of these groups and examine how the generally operate.
Comprehensive Major Medical
Most major medical policies begin paying benefits after the deductible is satisfied. The policy's deductible is considered satisfied as long as the insured individual can show evidence of having incurred and paid the necessary covered expense. There are essentially two classes of comprehensive major medical plans: those that provide first dollar coverage, and those that do not. With first dollar coverage, as soon as covered medical expenses are incurred, the policy immediately begins to pay benefits. Consequently, policies with first dollar coverage effectively have a deductible amount of zero. Without first dollar coverage, the insured must first pay out-of-pocket a specified deductible amount, and when that amount of incurred covered expenses has been paid, the policy will then begin to pay benefits.
As an example, let's assume that before Mr. A's major medical policy will pay anything, he must pay the first $400 of medical expenses each year. Mr. A does not have first dollar coverage; in other words, he must pay a deductible. Conversely, as soon as Mr. B was hospitalized with an acute illness, his major medical policy began paying for his expenses. He, therefore, does have first dollar coverage, and incurs no deductible.
Another important feature of major medical coverage is the concept of coinsurance, which is the sharing between the insurance company and the insured of any covered expenses that exceed the deductible amount. (In some regions, this is also known as percentage participation.) The insurer always carries the bulk of these expenses, usually paying 80% while the insured is responsible for the remaining 20%. Other proportions (as stipulated in the particular policy) may also be used, such as 75/25. Coinsurance works in this manner: Ms. C's major medical policy has a $200 deductible and 80/20 coinsurance. She incurs covered medical expenses totaling $1,200. Ms. C must first pay the $200 deductible. This leaves $1,000 of expenses to be shared on an 80%/20% basis, she being responsible for the lower amount, or an additional $200. The insurance company must pay $800 of remaining $1,000 (the 80% share). Ms. C, therefore, has to pay $400 of the total $1,200.
It should be mentioned that, in some policies, certain types of medical expenses are not subject to the deductible, while others are. It's not unusual, for instance, that the deductible be waived for initial hospital or surgical expenses up to a specified amount; say, for example, the first $5,000 of such expenses. In this case, the insured would pay no deductible (in essence receiving first dollar coverage on the first $5,000 of hospital and surgical expenses), but would then be required to pay the deductible amount before his or her major medical policy covered any further expenses. After satisfaction of the deductible, the insurer and the insured would share in paying the remaining expenses on an 80/20 allotment (or whatever percentage the policy states).
Most major medical policies today also include a stop-loss limit (or out-of-pocket limit), which is a dollar amount beyond which the insured no longer has to participate in the payment of covered expenses. After the insured's total deductible and coinsurance payments reach that amount, the insurance company picks up the entirety of any further covered expenses, up to a stated maximum benefit amount. Lifetime maximum benefit limits on current health care policies may range from $100,000 to $2 million, with some policies even having unlimited benefits. And just as the maximum benefit amount can vary considerably, so can the stop-loss limit, depending upon the individual policy and insurer.
Supplemental Major Medical
When a supplemental major medical policy is used, it typically backs up and enhances a basic policy that usually includes hospital, surgical and medical coverage along with an additional policy covering the broader range of medical expenses. Generally, the basic plan will pay covered expenses with no deductible, up to the policy's limit. Above that limit, the supplemental policy kicks in, operating in exactly the same manner as a comprehensive policy that does not provide first dollar coverage. In simpler terms, after the basic policy's limits are reached, the insured must pay a deductible, after which the supplemental major medical coverage begins to pay. Since the deductible actually occurs between the basic and supplemental policies, it's often referred to as a corridor deductible. Like the comprehensive major medical plan, a supplemental policy is likely to include a stop-loss limit and a maximum lifetime benefit limit.
Types of deductibles
There are a number of ways that deductibles can be administered in major medical policies. Some plans have a per-cause (injury or illness) deductible, while others may use an all-cause deductible. With a per-cause deductible, the insured pays one deductible for all expenses incurred from the same illness or injury. The benefit period for each "cause" (or occurrence) begins when the deductible for that particular injury or illness has been satisfied, and may run for one- to two years. Here's how it works: suppose that Ms. D suffered a major illness early in the year from which she continued to incur medical expenses through July. Then, in September, she was injured in an automobile accident that hospitalized her for two weeks. In addition to being quite unfortunate, Ms. D had to pay a separate deductible for each of these incidents because her policy has a per-cause deductible.
On the other hand, had Ms. D's policy contained instead an all-cause deductible (which is also known as a "cumulative" or "calendar year" deductible), her incurred covered expenses for any number of occurrences (whether differing or incidences of the same type) would have been accumulated to meet the deductible during a single calendar year. Once enough covered expenses were been paid by the insured to meet the stated deductible, all other covered charges during the remainder of the calendar year would have been paid according to the coinsurance schedule.
Policies that cover entire families usually have a family deductible rather than deductibles that apply to each individual. For example, although a policy's individual-person deductible is, say, $200, the family deductible amount might be $400. Thus, even a family with six members would pay no more than a total of $400 in deductible expenses, as opposed to the $1,200 that would be required if every member had to meet the $200 individual deductible.
The time during which benefits are paid, known as the benefit periods, are generally dependent upon the deductible and any internal limits that may be included in the major medical policy. For instance, when a deductible amount has to be paid, the policy's benefit period could begin either on the first day of the illness (or accident) or on the date that the insured satisfies the full deductible (if this is later than the date of the occurrence), and may extend for up to two years. In other cases, the benefit period ceases at the end of the calendar year and begins anew with a new deductible.
Internal limits are benefit limitations placed on specific coverages within the major medical policy. For example, the policy might limit both the hospital room and board benefit and the number of days that benefits will be paid. In such a case, the benefit period for room and board would be the number of days that have been specified as the limit. Other examples of internal limits might be restrictions placed on convalescent care days, mental health care, the number of X-rays per claim, etc.
All major medical policies, whether comprehensive or supplemental, provide a wide range of benefits. The precise services covered may vary somewhat from policy to policy, but most major medical plans include coverage for many of the following services and procedures:
- Hospital inpatient room and board including intensive and cardiac care
- Hospital medical and surgical services and supplies
- Physicians' diagnostic, medical, and surgical services
- Other medical practitioners' services
- Nursing services including private duty service outside the hospital
- Anesthesia and anesthesiologist services
- Outpatient services
- Ambulance service to and from a hospital
- X-rays and other diagnostic and laboratory tests
- Radiological and other types of therapy
- Prescription drugs
- Blood and blood plasma
- Oxygen and its administration
- Dental services resulting from injury to natural teeth
- Convalescent nursing home care
- Home health care services
- Initial purchase of prosthetic devices
- Casts, splints, trusses, braces, and crutches
- Rental of durable medical equipment (DME) such as hospital-type beds and wheelchairs.