3.1 Basic and Major Medical Expense Plans

Medical expense insurance is the backbone of accident and health coverage. The exam draws a sharp line between basic medical expense plans and major medical plans, and you must know how each is structured, how they combine, and how duplicate coverage is coordinated.

Basic Medical Expense Plans

Basic medical expense plans cover the cost of routine hospital, surgical, and physician services. They are characterized by first-dollar coverage — the insured pays no deductible before benefits begin — and by defined benefit limits tied to specific services. A hospital plan might pay a fixed daily room rate (for example, up to a stated semiprivate room amount) for a capped number of days, while a surgical plan pays a surgical schedule amount keyed to the complexity of the procedure. Physicians' visits are commonly reimbursed as "usual, customary, and reasonable" (UCR) charges up to a schedule.

Because benefits are capped and tied to specific services, basic plans are not designed for catastrophic claims. They also typically reimburse the provider or the insured on an indemnity basis — a set dollar amount per service rather than a percentage of a negotiated rate.

Major Medical Plans

Major medical plans provide broad protection against the high cost of serious or prolonged illness. Unlike basic plans, major medical is built around three cost-sharing features that the exam tests heavily:

1. Deductible — A fixed dollar amount the insured must pay each year before the insurer shares costs. Deductibles commonly range from a few hundred to several thousand dollars; family plans may use an aggregate or embedded deductible structure.
2. Coinsurance — After the deductible, the insured and insurer split covered charges by a percentage, such as 80/20, where the insurer pays 80% and the insured pays 20%.
3. Stop-loss / out-of-pocket maximum — Once the insured's share of covered charges (coinsurance plus deductible, in many plans) reaches the stop-loss limit, the insurer pays 100% of remaining covered charges for the rest of the policy year. This is the catastrophic protection that basic plans lack.

Major medical also commonly includes a carry-over provision, which lets deductible expenses incurred in the last three months of a calendar year apply toward the next year's deductible, and a family deductible cap that limits the total deductible a family must meet.

Comprehensive vs. Supplementary Major Medical

The exam distinguishes two ways basic and major medical are combined:

• Comprehensive major medical — A single contract that folds basic hospital, surgical, and physician benefits together with broad major medical coverage under one deductible and one set of coinsurance. This is the dominant form in the modern market.
• Supplementary major medical — Major medical is layered on top of an existing basic plan. The basic plan pays first up to its limits; the major medical deductible is then reduced by the amounts the basic plan paid (a "deductible credit" or "corridor deductible" concept), and major medical picks up the excess.

Hospital and Surgical Policies

Standalone hospital policies pay a stated daily room benefit for a limited number of days plus miscellaneous hospital services. Surgical policies pay according to a surgical schedule that lists maximum benefits for listed procedures. These are older forms of basic medical expense coverage; today they are most often sold as supplements rather than primary protection.

Coordination of Benefits (COB)

When a person is covered under two or more group health plans — for example, through their own employer and a spouse's employer — coordination of benefits (COB) prevents duplicate recovery. The plans follow an established order:

• The plan covering the person as an employee pays before the plan covering the person as a dependent.
• For dependent children, the plan of the parent whose birthday falls earlier in the calendar year is primary (the "birthday rule"), absent a court decree.
• The primary plan pays its normal benefits first; the secondary plan pays up to, but not more than, the remaining allowed charges so that combined payments never exceed 100% of the covered expense.

COB is mandatory for group plans under NAIC model rules and is a frequent exam topic.

Common Exclusions

Medical expense plans, basic and major medical alike, share a standard set of exclusions. Expect to recognize these:

• Cosmetic or reconstructive surgery (unless required due to accidental injury or congenital defect)
• Experimental or investigational treatments
• Self-inflicted injuries
• War or act of war losses
• Routine vision and dental care (usually covered under separate policies)
• Custodial or rest care
• Pre-existing conditions (subject to ACA market reforms when applicable)

Exclusions narrow the promise of broad coverage and are routinely tested by scenario questions.

Key Takeaways

• Basic medical expense = first-dollar, narrow, capped benefits; major medical = broad, deductible/coinsurance, stop-loss catastrophic protection.
• Comprehensive merges both in one contract; supplementary stacks major medical above a separate basic plan.
• COB orders payment so two group plans never pay more than 100% of allowed charges.
• Common exclusions — cosmetic, experimental, war, self-inflicted, routine vision/dental — narrow coverage in both plan types.