9.2 Medical Expense Insurance (Basic and Major Medical)

Medical Expense Insurance: Basic and Major Medical

Medical expense insurance pays for the costs of treating sickness and injury. Historically it evolved from narrow basic plans into broad major medical, then into today's comprehensive and managed-care designs. The exam still tests the classic structures because the cost-sharing vocabulary carries forward to every modern plan.

Basic Medical Expense Plans

Basic plans are first-dollar coverage — they pay from the first dollar of a covered expense with no deductible, but they cap benefits and cover only specific services. The three traditional pieces are:

• Basic hospital expense — room and board (a stated daily limit) plus miscellaneous hospital charges (lab, drugs, supplies), typically limited to a fixed number of days.
• Basic surgical expense — pays for surgeon fees, often via a surgical schedule (a dollar amount per listed procedure) or a relative-value/usual-and-customary basis.
• Basic medical (physicians') expense — non-surgical doctor visits, usually limited per visit and per number of visits.

The weakness of basic coverage is that low caps leave large bills uncovered, which is why major medical was layered on top.

Major Medical Plans

Major medical provides broad coverage with high maximum limits for catastrophic costs. It introduces the cost-sharing features that dominate the exam:

• Deductible — the amount the insured pays before the plan pays. Variations: flat/calendar-year, per-occurrence, family deductible, and the carry-over provision (expenses in the last 3 months of the year apply to next year's deductible).
• Coinsurance — the percentage split after the deductible, e.g., 80/20 (insurer 80%, insured 20%).
• Out-of-pocket maximum (stop-loss) — the cap on the insured's coinsurance share; once reached the plan pays 100%.
• Corridor/integrated deductibles distinguish supplementary major medical (sits above a basic plan) from comprehensive major medical (a single plan combining basic + major medical features under one deductible).

Two plan designs: Supplementary major medical layers over a basic plan, often with a corridor deductible between them. Comprehensive major medical is a single integrated policy.

Worked Cost-Sharing Example

A comprehensive major medical plan has a $1,000 deductible, 80/20 coinsurance, and a $3,000 out-of-pocket maximum. The insured incurs $26,000 in covered charges in one year. How much does the insured pay?

The raw coinsurance share ($5,000) exceeds the stop-loss, so the insured's total is capped at the $3,000 out-of-pocket maximum and the plan pays the rest at 100%. Trap: candidates forget the OOP cap and answer $6,000 ($1,000 + $5,000). Always check whether the deductible counts toward the OOP max (under ACA it generally does).

Deductible Variations and Provisions

Deductibles come in several tested forms. A flat (calendar-year) deductible resets each year. A per-occurrence deductible applies to each separate illness or injury. A family deductible caps the total a household must satisfy (e.g., an aggregate amount, or after two or three members meet individual deductibles). The carry-over provision lets eligible expenses incurred in the last three months of the year apply toward the next year's deductible, sparing the insured from satisfying two deductibles in quick succession.

The common accident provision waives separate deductibles when several family members are injured in the same accident — only one deductible applies. A stop-loss (out-of-pocket) limit protects against catastrophic coinsurance; once met, the plan pays 100% of remaining covered charges for the year.

Stop-loss, corridor, and supplemental major medical

The out-of-pocket maximum (stop-loss) caps what an insured pays in a year; once reached, the plan pays 100% of further covered expenses. A worked sequence on a $1,000-deductible, 80/20 plan with a $3,000 stop-loss: the insured pays the first $1,000 (deductible), then 20% coinsurance on subsequent bills until the additional coinsurance reaches the stop-loss, after which the plan pays everything.

Older designs distinguished a basic plan (first-dollar coverage, no deductible, low limits) layered under a supplementary major medical policy that picked up where basic limits stopped — the gap between them was bridged by a corridor deductible. A comprehensive major medical plan merges both into one contract with a single deductible and coinsurance. The exam tests whether you can place a given dollar of expense in the correct cost-sharing bucket and recognize that first-dollar, no-deductible coverage signals a basic plan.

Common medical-expense provisions

Medical expense plans share several recurring features the exam expects you to define. A deductible is the amount the insured pays before benefits begin; a family deductible caps the number of individual deductibles a household must satisfy. Coinsurance splits covered costs (commonly 80/20) after the deductible, while a copayment is a flat dollar charge per service.

A carryover provision lets expenses incurred in the last months of one year count toward the next year's deductible, and a common-accident provision requires only one deductible when several family members are hurt in the same event. Recognizing these terms — and distinguishing a fixed copay from percentage coinsurance — resolves most basic medical-expense questions without computation.