9.2 Medical Expense Insurance (Basic and Major Medical)

Medical Expense Insurance

Medical expense insurance reimburses the cost of treating sickness and injury. Historically it came in two layers: basic medical (limited, first-dollar coverage with few or no deductibles) and major medical (broad, high-limit coverage built on cost-sharing). The exam still tests both, plus the comprehensive plan that merges them.

Basic medical expense coverage

Basic plans paid scheduled or limited amounts for specific services and typically had no deductible — "first-dollar" coverage — but low limits that exhausted quickly. The classic trio:

• Basic hospital expense — room and board (often a per-day limit for a set number of days) plus miscellaneous hospital charges.
• Basic surgical expense — surgeon fees paid by a surgical schedule (a dollar amount per listed procedure) or a relative-value/conversion-factor method.
• Basic medical (physician) expense — non-surgical doctor visits, often capped per visit and per number of visits.

Trap: basic plans pay first dollars but run out fast; they were designed to be paired with major medical to cover the gap above basic limits.

Major medical cost-sharing terms

Major medical introduces the cost-sharing structure tested most heavily on the exam:

A corridor deductible sits between basic and major medical coverage in a supplementary major medical design. An integrated deductible lets the larger of the basic benefit or a stated amount satisfy the major medical deductible. Comprehensive major medical combines basic and major medical into one policy with a single deductible and coinsurance.

Worked claim calculation

Apply terms in the correct order: deductible first, then coinsurance, then check the out-of-pocket maximum.

Plan: $1,000 annual deductible, 80/20 coinsurance, $5,000 out-of-pocket maximum. Covered charges: $26,000.

1. Insured pays the $1,000 deductible. Remaining covered = $26,000 − $1,000 = $25,000.
2. Coinsurance on the remaining $25,000: insured 20% = $5,000; plan 80% = $20,000.
3. Insured cost-sharing so far = $1,000 + $5,000 = $6,000 — but the out-of-pocket maximum is $5,000.

Because cost-sharing hit the stop-loss, the insured pays only $5,000 total; the plan pays the rest. Many plans define the deductible as counting toward the out-of-pocket max, so the order and the cap both matter. The exam often gives charges small enough that the OOP cap is never reached — read carefully whether the cap applies.

Common provisions and exclusions

• Preexisting conditions — conditions present before coverage; ACA prohibits preexisting-condition exclusions on compliant plans, but the concept is still tested for non-ACA products (e.g., short-term and supplemental).
• Usual, customary, and reasonable (UCR) — reimbursement is limited to the prevailing charge for the service in the geographic area; charges above UCR may be the insured's responsibility on out-of-network claims.
• Coordination of benefits (COB) — when a person has two group plans, the primary plan pays first up to its limit and the secondary plan may pay the balance so total reimbursement does not exceed 100% of the loss. The birthday rule decides which parent's plan is primary for a child (the parent whose birthday — month/day — falls earlier in the year).

Deductible Types and Stop-Loss

Major-medical plans layer several cost-sharing structures the exam tests by name:

• Calendar-year (all-cause) deductible — one annual deductible across all claims, resetting each January.
• Per-occurrence deductible — a separate deductible for each distinct illness or injury.
• Family deductible / common accident provision — one deductible applies when multiple family members are injured in the same accident.
• Carryover provision — expenses incurred in the last three months of the year that count toward the deductible carry into the next year.
• Stop-loss (out-of-pocket maximum) — once the insured's coinsurance reaches the cap, the plan pays 100% of remaining covered charges.

Worked claim with stop-loss: A plan has a $1,000 deductible, 80/20 coinsurance, and a $5,000 out-of-pocket maximum. The insured incurs $40,000 in covered charges. Insured pays the $1,000 deductible, then 20% of the next $20,000 ($4,000) — reaching the $5,000 OOP max. After that the plan pays 100%. So the insured's total cost is $5,000 and the plan pays $35,000. Reaching the stop-loss before the coinsurance "runs forever" is the key exam mechanic.

Basic vs. Major Medical and Coinsurance Logic

Basic medical plans pay first-dollar benefits (often no deductible) but only up to scheduled limits for specific services (hospital, surgical, physician). Major medical layers broad coverage with a deductible, coinsurance, and out-of-pocket maximum. A comprehensive major medical plan combines both into one contract; a supplementary major medical plan sits on top of a basic plan and uses a corridor deductible to bridge where basic benefits end.

Worked corridor example: Basic plan pays the first $2,000. A $500 corridor deductible then applies before supplementary major medical begins paying at 80/20. On a $12,000 claim: basic pays $2,000; the insured satisfies the $500 corridor; major medical pays 80% of the remaining $9,500 = $7,600; the insured's coinsurance is $1,900 plus the $500 corridor. Layering basic + corridor + coinsurance correctly is the tested mechanic.