9.2 Medical Expense Insurance (Basic and Major Medical)

Basic medical expense plans

The oldest model is basic medical expense, sold as separate first-dollar coverages with low or no deductibles but limited benefits. The three classic pieces are:

• Basic Hospital Expense — room and board up to a daily maximum for a set number of days, plus miscellaneous hospital charges (lab, drugs, supplies) up to a stated limit.
• Basic Surgical Expense — pays the surgeon according to a surgical schedule (a dollar value per procedure) or a relative value system that multiplies a procedure's unit value by a conversion factor.
• Basic Physicians (Medical) Expense — non-surgical doctor visits, often excluding the visit on the day surgery is performed.

Because basic plans pay first dollar but cap quickly, a large claim blows through the limits fast. That gap is exactly what major medical was designed to fill, and the two are frequently sold together as a supplemental (corridor) major medical stacked on top of base plans.

Major medical: deductibles, coinsurance, and out-of-pocket caps

Major medical provides high maximum benefits for catastrophic costs and uses cost-sharing to control utilization. The exam tests four levers:

• Deductible — the insured pays this first each year (or per claim). A family deductible is often satisfied when, e.g., three members meet individual deductibles. A carryover provision lets expenses in the last three months of the year count toward next year's deductible. A common accident provision charges only one deductible when several family members are hurt in the same accident.
• Coinsurance — after the deductible, insurer and insured split costs, commonly 80/20. The insured's share is capped by the out-of-pocket maximum.
• Stop-loss / out-of-pocket maximum — once the insured's coinsurance reaches this amount, the plan pays 100% of remaining covered charges.
• Lifetime/annual maximum — historically a ceiling on total benefits; modern comprehensive ACA-compliant plans remove annual and lifetime dollar limits on essential health benefits.

Worked example: the 80/20 plan with a stop-loss

Assume a $1,000 deductible, 80/20 coinsurance, and a $3,000 out-of-pocket maximum (deductible counts toward the OOP cap). The insured incurs $25,000 in covered charges.

Insured total = $3,000 (the OOP max). Insurer total = $22,000. The key trap: once the insured's deductible-plus-coinsurance equals the stop-loss, the plan pays everything else at 100%. Many candidates wrongly keep applying 20% to the whole $25,000 ($5,000), ignoring the cap.

A comprehensive major medical plan combines basic and major medical into one policy with a single deductible and coinsurance, which is why it has largely replaced the basic + supplemental stack.

Covered services, limits, and common exclusions

Medical expense plans define what is covered, what is limited, and what is flatly excluded — a frequent source of exam traps. Typically covered: inpatient hospital, surgery, physician visits, diagnostics, prescription drugs, and increasingly mental health and maternity. Often limited by inside maximums or higher cost-sharing: skilled nursing, durable medical equipment, and out-of-network care.

Classic exclusions the exam expects you to recognize include:

• Cosmetic surgery that is not medically necessary (reconstructive surgery after injury is usually covered).
• Experimental or investigational treatment.
• Losses covered by workers compensation (the non-occupational rule).
• Care received outside the policy's coverage area or after coverage terminates.
• Self-inflicted injury and, in some older policies, war or military service.

When a question describes a denied claim, identify whether the service was excluded, beyond an inside limit, or simply subject to the deductible and coinsurance — these lead to very different correct answers. A denial because care was elective cosmetic surgery is an exclusion; a reduced payment because the deductible was not met is normal cost-sharing, not a denial.

Deductible types and benefit triggers

Major medical deductibles come in several flavors the exam likes to contrast:

• Calendar-year (all-cause) deductible — satisfied once per year by accumulating covered expenses from any combination of claims; the most common modern form.
• Per-cause deductible — applies separately to each distinct illness or injury, so a person with two unrelated conditions meets two deductibles.
• Corridor deductible — used in supplemental major medical: a flat amount the insured pays in the "corridor" between where the basic plan's benefits stop and the major medical layer begins.
• Integrated deductible — the basic plan's benefits count toward the major medical deductible, so the insured only pays out of pocket if the deductible exceeds what basic covered.

Modern ACA-compliant comprehensive plans must cover essential health benefits, may not impose annual or lifetime dollar limits on them, may not exclude pre-existing conditions, and must cover preventive services with no cost-sharing.

They are sold in metal tiers — Bronze, Silver, Gold, and Platinum — that describe the plan's actuarial value (roughly the share of total covered costs the plan pays: about 60%, 70%, 80%, and 90% respectively). A Bronze plan has the lowest premium but the highest deductible and cost-sharing; a Platinum plan reverses that trade-off. Candidates should match a member's risk tolerance and expected utilization to the appropriate tier.

Finally, two related mechanisms control timing. A probationary (waiting) period is an initial span after the effective date during which sickness is not covered (accidents usually are), guarding against people buying coverage already sick. A pre-existing condition limitation temporarily excludes conditions treated before the effective date; ACA bars these in compliant major medical, but they still appear on disability income, some supplemental, and pre-ACA exam scenarios. Distinguish both from the elimination period in disability income, which is a deductible measured in days of disability rather than dollars.