9.2 Medical Expense Insurance (Basic and Major Medical)

Medical expense insurance pays the cost of treating sickness and injury. Historically it developed in layers, and the exam tests each layer's scope and limitations. The three classic categories are basic medical expense, major medical, and comprehensive major medical.

Basic Medical Expense Insurance

Basic plans provide first-dollar coverage — little or no deductible — but with limited benefit amounts and a narrow scope. Each benefit is usually scheduled or capped. The three traditional basic coverages are:

Trap: basic plans pay from the first dollar but run out of benefits quickly because of low limits. They do not protect against catastrophic costs.

Major Medical Insurance

Major medical fills the gap basic plans leave: it provides broad coverage with high maximum limits for catastrophic expenses, using a deductible and coinsurance to control cost. Key features:

• Large lifetime or annual maximums (high limits).
• A deductible the insured satisfies before benefits begin.
• Coinsurance (commonly 80/20) sharing costs above the deductible.
• A stop-loss / out-of-pocket maximum beyond which the plan pays 100%.

Supplemental vs. Comprehensive Major Medical

Supplemental major medical sits on top of a basic plan, picking up where basic benefits exhaust. Comprehensive major medical combines basic-style first-dollar features with major-medical catastrophic protection in a single policy — typically one deductible and one coinsurance percentage applied broadly. On the exam, comprehensive = "one integrated plan" while supplemental = "layered on a separate basic plan."

Deductible Mechanics and the Corridor Deductible

Major medical exams love deductible variations:

• Calendar-year (all-cause) — one deductible per year regardless of number of illnesses; resets January 1.
• Per-cause — a separate deductible for each separate illness/accident.
• Carryover provision — expenses incurred in the last 3 months of the year that are applied to that year's deductible also carry over to satisfy next year's deductible.
• Corridor deductible — used in supplemental major medical; a deductible applied between the exhaustion of basic benefits and the start of major medical benefits.
• Family deductible (common accident provision) — if several family members are injured in one accident, only one deductible applies.

Worked Numeric

Comprehensive plan: $2,000 deductible, 80/20 coinsurance, $6,000 out-of-pocket max. A family member incurs $50,000 in covered charges.

1. Insured pays $2,000 deductible.
2. 20% of remaining $48,000 = $9,600, but capped by the $6,000 stop-loss.
3. Insured pays $6,000 total (deductible counts toward it); plan pays $44,000.

Specialized and Limited Medical Coverages

Beyond the basic/major-medical framework, the exam tests several narrow products that pay differently:

• Hospital indemnity (hospital confinement) insurance — pays a fixed dollar amount per day of hospitalization (e.g., $300/day) regardless of actual charges. It is supplemental, not primary medical coverage, and benefits go to the insured, not the provider.
• Surgical schedule / relative value — a basic surgical plan lists either a flat dollar amount per procedure (schedule) or assigns units that are multiplied by a conversion factor to set the benefit (relative value).
• Dread disease / critical illness — pays a lump sum on diagnosis of a named condition (cancer, heart attack, stroke).
• Prescription drug, dental, and vision — often riders or stand-alone limited plans.

Trap: hospital indemnity pays a fixed benefit that the insured can use for any purpose; it does not coordinate with actual bills, so it can be carried alongside a major medical plan.

The distinction the exam rewards is reimbursement vs. valued (indemnity). Major medical is a reimbursement contract — it pays the actual covered expense (subject to deductible/coinsurance). Hospital indemnity, critical illness, and accident benefit policies are valued contracts — they pay a stated amount on a defined event regardless of cost. Because valued benefits are not tied to expense, COB does not apply to them and the insured may collect them in addition to a reimbursement plan.

Coordination of Benefits (COB)

When a person is covered by two group plans, the Coordination of Benefits provision prevents the insured from collecting more than 100% of the actual expense. One plan is primary (pays first as if no other coverage existed) and the other is secondary (pays the remaining allowable expense, up to its own limits).

The order of benefit determination rules:

1. The plan covering the person as an employee/insured is primary over the plan covering them as a dependent.
2. For a child covered under both parents, the birthday rule applies — the plan of the parent whose birthday falls earlier in the calendar year (month/day, not year of birth) is primary.

Worked Numeric: COB

A $4,000 covered bill. The primary plan (80% after a $200 deductible) pays 80% of $3,800 = $3,040. The secondary plan covers the remaining allowable expense — here the $960 balance — but never more than it would have paid alone, and total reimbursement may not exceed the $4,000 actual cost.

Trap: the birthday rule uses the parent's month and day, not who is older; and COB never lets the insured profit from a loss.