12.3 Basic and Major Medical Coverage, Deductibles/Coinsurance/OOP

Basic and Major Medical Coverage, Deductibles/Coinsurance/OOP

Traditional medical expense insurance comes in two historical layers the exam still tests: basic medical expense and major medical expense. Understanding the difference clarifies why deductibles and coinsurance behave the way they do.

Basic medical expense plans pay specific, limited benefits on a first-dollar basis—meaning usually no deductible—but each benefit has a low dollar cap. The three classic basic benefits are hospital expense, surgical expense (often paid by a surgical schedule or relative-value scale), and physicians' (medical) expense for non-surgical doctor visits. Because limits are low, a serious illness quickly exhausts basic coverage.

Major Medical Fills the Gap

Major medical expense insurance provides broad, high-limit coverage for catastrophic costs, using deductibles, coinsurance, and a stop-loss (out-of-pocket maximum) to control cost. Two structures appear on the exam:

• Supplemental major medical — sits on top of a basic plan, picking up after basic limits are exhausted, often with a corridor deductible between the two layers.
• Comprehensive major medical — combines basic and major medical into a single plan with one deductible and one coinsurance provision.

The corridor deductible is a special amount the insured pays in the gap after basic benefits end but before supplemental major medical begins.

Deductible Mechanics

The calendar-year deductible is the most common modern form: once satisfied, no further deductible applies for the rest of that year regardless of how many separate illnesses occur.

Worked Out-of-Pocket Example

A comprehensive major medical plan has a $2,000 calendar-year deductible, 75/25 coinsurance, and a $6,000 out-of-pocket maximum. The insured has covered charges of $30,000.

1. Insured pays the $2,000 deductible. Remaining: $28,000.
2. Coinsurance share: 25% of $28,000 = $7,000. But the insured has already paid $2,000, so adding the full $7,000 would total $9,000.
3. The out-of-pocket maximum caps total insured spending at $6,000. After the $2,000 deductible, only $4,000 more of coinsurance accrues before the cap is hit.
4. The plan then pays 100% of the remaining charges. Insured total: $6,000; insurer total: $24,000.

Exclusions and Limitations

Medical expense plans exclude or limit certain items. Common ones:

• Pre-existing conditions — historically excluded for a waiting period, but ACA-compliant plans cannot exclude pre-existing conditions.
• Cosmetic surgery, except to correct an accidental injury or congenital defect.
• Experimental or investigational treatment.
• Workers' compensation losses (covered by another system).
• Eligible (essential) benefits under the ACA must be covered: ambulatory, emergency, hospitalization, maternity, mental health, prescription drugs, rehabilitation, lab, preventive, and pediatric services.

Surgical Schedules and Usual, Customary, and Reasonable

Basic surgical benefits are paid one of two ways. A surgical schedule assigns a fixed dollar amount to each procedure; if the schedule lists $1,200 for an appendectomy, that is all the plan pays regardless of the actual bill. A relative value scale assigns unit points to each procedure and multiplies them by a conversion factor.

Major medical, by contrast, reimburses on a Usual, Customary, and Reasonable (UCR) basis—the prevailing fee charged by similar providers in the same geographic area. If a surgeon charges above the UCR amount, the excess is not a covered expense and does not count toward the deductible or out-of-pocket maximum, a frequent exam trap that increases the insured's real cost beyond the stated coinsurance share.

Tying the Cost-Share Sequence Together

Always apply medical-expense math in the same order:

1. Reduce charges to covered, UCR-eligible amounts (drop excess and excluded items).
2. Subtract the deductible.
3. Apply coinsurance to the remainder.
4. Stop the insured's payments at the out-of-pocket maximum, then the plan pays 100%.

Watch for plans where the deductible does count toward the out-of-pocket cap (ACA-compliant plans) versus older plans where coinsurance alone counts. Also note that copays for office visits or drugs may or may not count toward the deductible depending on plan design; the exam will state the rule, so read the fact pattern rather than assuming.