12.3 Basic and Major Medical Coverage, Deductibles/Coinsurance/OOP
Key Takeaways
- Basic medical pays first-dollar benefits with no deductible but low fixed limits; major medical adds a deductible, coinsurance, and a high overall maximum.
- A comprehensive major medical plan integrates basic and major medical under a single deductible and coinsurance.
- Common deductible structures include calendar-year, per-cause, family, and the corridor deductible bridging basic and major medical.
- Coinsurance shifts a percentage of post-deductible cost to the insured; the out-of-pocket maximum then caps that exposure.
- A stop-loss / out-of-pocket limit converts coinsurance to 100% plan payment once the insured's spending reaches the cap.
Basic Medical Expense Coverage
Basic medical expense plans (an older design still tested) pay first-dollar benefits — there is no deductible — but each benefit category carries a low scheduled limit. The three core basic coverages are:
| Basic coverage | What it pays |
|---|---|
| Hospital expense | Room and board (often a daily limit) plus miscellaneous hospital charges |
| Surgical expense | Surgeon's fee, often on a fee schedule or by relative value |
| Physician (medical) expense | Non-surgical doctor visits in the hospital |
Because limits are low, basic plans leave large gaps for catastrophic claims. They are frequently sold alongside or layered beneath a major medical plan to fill the first dollars of small claims.
Three methods are used to value a surgical benefit: a fixed fee schedule (a set dollar amount per listed procedure), the Relative Value method (each procedure receives a unit value multiplied by a dollar conversion factor), and a Usual, Customary, and Reasonable (UCR) standard that pays the prevailing charge for the area. UCR best protects the insured from balance billing because it tracks actual market charges rather than an outdated fixed schedule.
Major Medical and Comprehensive Plans
Major medical coverage is built for catastrophic costs. It features:
- A deductible the insured pays first;
- Coinsurance (commonly 80/20) on charges above the deductible;
- A high overall maximum (or, under the ACA, no annual/lifetime dollar limit on essential health benefits);
- A broad list of covered services.
Two designs appear on the exam:
- Supplementary (Superimposed) Major Medical — sits on top of a basic plan. After basic limits are exhausted, the insured pays a corridor deductible, then major medical takes over with coinsurance.
- Comprehensive Major Medical — combines basic and major medical into one plan with a single deductible and coinsurance. This is the dominant modern design.
Deductible Structures and the Corridor
| Deductible type | How it works |
|---|---|
| Calendar-year | Resets each January 1; all expenses accumulate toward one annual amount |
| Per-cause (per-occurrence) | Applies separately to each illness or injury |
| Family (aggregate) | Combined amount that, once met, satisfies the deductible for all members |
| Embedded | An individual cap within a family deductible |
| Corridor | A separate deductible the insured pays between exhausting basic benefits and major medical paying |
| Carryover | Expenses in the last quarter (Oct-Dec) can apply to next year's deductible |
Trap: A corridor deductible is unique to supplementary major medical — it bridges the basic plan and the major medical plan. Do not confuse it with the ordinary calendar-year deductible.
Tracing a Claim Through the Layers
Work claims in strict order: deductible first, then coinsurance, then test the out-of-pocket (stop-loss) maximum.
Worked Example
Covered charges (in-network): $30,000
Calendar-year deductible: $2,000
Coinsurance: 80% plan / 20% insured
Out-of-pocket maximum: $6,000
Step 1 Insured pays deductible: $2,000
Step 2 Remaining charges: $28,000
Step 3 Insured coinsurance 20% x 28,000: $5,600
Step 4 Running insured total: 2,000 + 5,600 = $7,600
Step 5 That exceeds the $6,000 OOP max,
so insured pays only: $6,000
Step 6 Insurer pays the rest: $24,000
The out-of-pocket maximum (stop-loss) is the insured's safety net: once spending hits the cap, the plan pays 100% of covered, in-network charges. Premiums, balance billing, and non-covered services never count toward the cap.
Common Exclusions and Limitations
Major medical is broad, but every plan lists exclusions — losses the plan will not pay. Knowing the standard list prevents claim-payment errors on the exam:
- Cosmetic surgery (unless to correct an accidental injury or congenital defect).
- Experimental or investigational treatment.
- Work-related injury or illness (covered by workers' compensation, not health insurance).
- Self-inflicted injury and, depending on the policy, injuries from war or while committing a felony.
- Care outside the United States and routine long-term custodial care.
Plans also impose internal limits such as a separate prescription deductible, mental-health visit caps (subject to mental-health parity rules), and waiting periods for specific services. Under the ACA, qualified plans must cover the ten essential health benefits and may not impose annual or lifetime dollar limits on them, so modern major-medical maximums are typically expressed as the out-of-pocket cap rather than a benefit ceiling.
Under a supplementary (superimposed) major medical plan, what is the purpose of the corridor deductible?
An insured has a $1,000 deductible, 80/20 coinsurance, and a $5,000 out-of-pocket maximum. Covered in-network charges total $40,000. How much does the insurer pay?