9.2 Medical Expense Insurance (Basic and Major Medical)

Basic Medical Expense Coverage

Basic medical expense plans pay first-dollar benefits — there is no deductible — but they cover only specific categories at limited amounts. The three classic basic coverages are:

• Basic Hospital Expense — room and board (often a flat daily amount for a set number of days) plus miscellaneous hospital charges.
• Basic Surgical Expense — surgeon's fees paid per a surgical schedule (a relative-value list) or a reasonable-and-customary amount.
• Basic Physician (Medical) Expense — non-surgical doctor visits, often capped per visit and per number of visits.

Because limits are low and many services are excluded, basic plans alone leave large gaps. They were historically sold alongside a supplemental major medical policy.

Major Medical Expense Coverage

Major medical was designed to cover catastrophic costs. Its hallmarks are a deductible, coinsurance, high overall maximum benefits, and a broad list of covered services (hospital, surgical, physician, drugs, therapy, durable medical equipment).

Supplemental vs. Comprehensive

A supplemental major medical policy sits on top of a basic plan and uses a corridor deductible — a flat deductible that applies only after the basic benefits are exhausted but before major medical pays. A comprehensive major medical policy combines basic and major medical into one contract with a single integrated deductible, eliminating the corridor.

Deductible Provisions to Memorize

• Flat deductible — a fixed dollar amount applied each benefit period.
• Corridor deductible — applies between exhausted basic benefits and the start of major medical payments.
• Integrated deductible — a single deductible used in comprehensive plans.
• Carryover provision — expenses applied to the deductible in the last three months of the year (Oct–Dec) carry over to satisfy the next year's deductible.
• Common accident provision — when several family members are injured in the same accident, only one deductible applies.

Key Point: The carryover provision is a frequent exam trap — only expenses in the final three months of the year carry into the next year's deductible.

Coordination of Benefits (COB)

When a person is covered by two group plans, COB rules prevent total recovery above 100% of covered charges. One plan is primary (pays first as if no other coverage existed) and the other is secondary (pays the balance up to its limits). The plan covering the person as an employee is primary over the plan covering them as a dependent. For children of two working parents, the birthday rule applies: the plan of the parent whose birthday falls earlier in the calendar year is primary.

COB Worked Example

An insured incurs $1,000 in covered charges. The primary plan pays 80% = $800. The secondary plan, which would have paid $750 on its own, pays only the remaining $200 — never more than the unpaid balance. The insured collects exactly $1,000, not $1,550.

Reasonable and Customary (R&C)

Major medical plans reimburse providers up to a reasonable and customary charge — the prevailing fee for a given procedure in a geographic area. If a provider bills above R&C, the excess is the insured's responsibility and does not count toward the deductible or coinsurance limits. This is distinct from in-network negotiated rates discussed under managed care.

Stop-Loss / Out-of-Pocket Maximum

The stop-loss feature caps the insured's coinsurance liability. Once the insured's coinsurance payments reach the stop-loss limit, the plan pays 100% of remaining covered charges for the year. This protects against open-ended catastrophic exposure and is the major-medical equivalent of the ACA out-of-pocket maximum.

Basic vs. Major Medical and the Worked Coinsurance Path

Historically, basic medical plans paid first-dollar benefits with no deductible but low, separate limits for hospital, surgical, and physician charges. Major medical layered on a large overall maximum, a single deductible, and coinsurance to cover catastrophic costs. A comprehensive major medical plan fuses both into one contract with one deductible and one coinsurance schedule - the structure most modern plans use.

Stop-Loss and the Corridor Deductible

The coinsurance (stop-loss) limit is the point at which the insured's coinsurance share stops and the plan pays 100%. A corridor deductible is an extra deductible that bridges a basic plan and a supplementary major-medical layer.

Worked Numeric

A comprehensive plan has a $1,000 deductible and 80/20 coinsurance with a $3,000 coinsurance stop-loss. On a $25,000 claim: the insured pays the $1,000 deductible, then 20% of the next dollars until the $3,000 coinsurance cap is reached (at $15,000 of post-deductible charges), so the insured pays $1,000 + $3,000 = $4,000 and the plan covers the remaining $21,000. Knowing where the stop-loss caps the insured's share is the most-tested major-medical calculation.

Common Exclusions and Mandated Benefits

Medical-expense plans typically exclude care covered by workers' compensation, cosmetic surgery, experimental treatment, and (on limited plans) certain self-inflicted injuries. ACA-compliant plans, however, must cover the essential health benefits and may not impose lifetime or annual dollar maximums on those benefits, a sharp break from the old major-medical caps.

Deductible Types You Must Distinguish

• Calendar-year (per-person) deductible - resets each January and applies per insured.
• Family deductible - a cap so that once the family aggregate is met, no further individual deductibles apply.
• Carryover provision - expenses incurred in the last months of one year may count toward the next year's deductible.
• Common-accident provision - one deductible applies when several family members are injured in the same accident.

Worked Numeric: Family Deductible

A plan has a $1,500 individual and $3,000 family deductible. If three family members each incur $1,500 of charges, the family meets the $3,000 aggregate after the second person, so the third member's deductible is waived and the plan begins paying coinsurance on that person immediately. Knowing how individual and family deductibles interact is a common application-style exam item.