9.2 Medical Expense Insurance (Basic, Major Medical)

Medical expense insurance reimburses the cost of hospital, surgical, and physician services. The exam organizes this coverage historically into basic plans (first-dollar, limited) and major medical plans (broad, with deductibles and coinsurance), then tests how the two combine into a comprehensive plan. Even though most consumers now buy managed care, examiners still test these traditional structures because the cost-sharing language carries forward.

Basic Medical Expense Coverage

Basic plans pay on a first-dollar basis - usually no deductible - but cap benefits with internal limits. The three classic basic coverages are:

• Basic Hospital Expense - pays room and board up to a daily maximum for a stated number of days, plus miscellaneous hospital charges (lab, X-ray, drugs) up to a separate limit.
• Basic Surgical Expense - pays for surgeon's fees, often using a surgical schedule (a dollar amount assigned to each procedure) or a relative value approach.
• Basic Physician's (Medical) Expense - pays for non-surgical doctor visits, sometimes excluding the first visit.

Because basic plans have low internal caps, a serious illness quickly exhausts them - the reason major medical exists.

A defining feature of basic plans is that they are first-dollar coverage: the insured pays no deductible, so even a minor claim is reimbursed up to the scheduled limit. The trade-off is the low ceiling. For example, a basic hospital plan paying $400/day for 30 days covers only $12,000 of room and board; a two-week stay in an intensive care unit can easily exceed that, leaving the insured exposed precisely when costs are highest. Examiners use this gap to set up the need for major medical layered on top.

Major Medical Coverage

Major medical fills the gap left by basic plans, offering high lifetime or annual maximums, a single deductible, and coinsurance across a broad range of services.

Supplemental vs. Comprehensive Major Medical

• Supplemental major medical sits on top of a basic plan: the basic plan pays first to its limits, then the supplemental layer covers the excess subject to its own deductible and coinsurance. The gap between where basic ends and major medical begins is the corridor deductible.
• Comprehensive major medical combines basic and major medical into a single policy with one deductible and one coinsurance percentage - the most common traditional design and the one examiners emphasize.

Stop-Loss / Out-of-Pocket Limit

Major medical includes a stop-loss (out-of-pocket maximum). After the insured's coinsurance contributions reach the stop-loss figure, the plan pays 100% of remaining eligible expenses for the year - protecting against catastrophic coinsurance accumulation.

Watch the difference between lifetime and annual maximums. The ACA prohibits lifetime and annual dollar limits on essential health benefits for compliant plans, so a question describing a $1 million lifetime cap on hospital care is usually testing a pre-ACA design or a non-compliant excepted-benefit product. Stop-loss should not be confused with the deductible: the deductible is what the insured pays before coverage begins, while stop-loss is the ceiling beyond which the insured pays nothing more.

Worked Numeric: Corridor Deductible

An insured has a basic plan paying up to $3,000 of hospital charges and a supplemental major medical plan with a $500 corridor deductible and 80/20 coinsurance. A hospital bill is $13,000.

1. Basic plan pays its $3,000 limit first.
2. Remaining = $13,000 - $3,000 = $10,000.
3. Insured satisfies the $500 corridor deductible: remaining = $9,500.
4. Major medical pays 80% of $9,500 = $7,600; insured's 20% = $1,900.
5. Insurer total = $3,000 (basic) + $7,600 = $10,600; insured pays $500 + $1,900 = $2,400.

Common Provisions and Traps

• Coordination of Benefits (COB) prevents collecting more than 100% when a person has two plans.
• The primary plan pays first to its limits; the secondary plan may pay the balance up to its own allowable amount.
• Birthday rule - for a child covered by both parents, the plan of the parent whose birthday falls earlier in the calendar year is primary.

Additional cost provisions every candidate must know:

• Usual, customary, and reasonable (UCR) caps reimbursement at prevailing area charges; amounts above UCR are the insured's responsibility.
• Exclusions typically include cosmetic surgery, experimental treatment, war, self-inflicted injury, and care covered by workers' compensation.
• Pre-existing conditions historically allowed exclusion of conditions treated before the effective date; the ACA prohibits these exclusions on compliant plans, though excepted-benefit products may still apply them.

Worked Numeric: COB

Plan A (primary) allows and pays $8,000 of a $9,000 bill. Plan B (secondary) would have allowed $8,500. Plan B pays the gap up to its allowable: $8,500 - $8,000 = $500. The insured's net cost is $9,000 - $8,000 - $500 = $500. No plan pays more than its allowable, and total payments never exceed the bill.

Finally, examiners test the time limit on certain defenses (incontestability) and the order of payment when Medicare or another government program is involved. For working-age individuals with employer coverage, the group plan is generally primary and Medicare secondary; the relationship reverses for many retirees. These coordination rules ensure the member is made whole once but never profits from holding two policies - the anti-duplication principle that underlies all of medical expense coverage.