12.3 Basic and Major Medical Coverage, Deductibles/Coinsurance/OOP
Key Takeaways
- Basic medical coverage pays first-dollar benefits with no deductible but low limits across hospital, surgical, and physician expenses.
- Major medical provides high overall limits with a deductible and coinsurance to cover catastrophic costs.
- A deductible is the amount the insured pays before benefits begin; coinsurance splits costs after the deductible.
- The out-of-pocket (OOP) maximum caps the insured's annual cost-sharing, after which the plan pays 100% of covered charges.
- Comprehensive major medical combines basic and major medical into one policy with a single deductible.
Basic and Major Medical Coverage
Traditional medical-expense insurance comes in two layers. Basic medical plans pay limited first-dollar benefits; major medical plans pay catastrophic costs after the insured satisfies a deductible. Modern comprehensive policies combine both, but the exam still tests the historical distinction.
Basic Medical Expense
Basic plans pay first-dollar benefits — there is no deductible — but each benefit has a relatively low maximum. The three classic basic coverages:
| Coverage | Pays for |
|---|---|
| Basic Hospital Expense | Room and board (a daily limit) plus miscellaneous hospital charges (labs, X-rays, drugs) |
| Basic Surgical Expense | Surgeon's fee, usually per a surgical schedule or a relative-value/UCR amount |
| Basic Physician (Medical) Expense | Non-surgical doctor visits in the hospital, with a per-visit and per-day cap |
Because limits are low, basic coverage alone leaves the insured exposed to large bills — which is exactly the gap major medical fills.
Major Medical
Major medical covers a broad range of services with high overall limits (often $1 million+ or unlimited under the ACA) to protect against catastrophic loss. Its defining cost-sharing features are the deductible, coinsurance, and the out-of-pocket maximum.
Two structures exist:
- Supplemental major medical — sits on top of a basic plan, picking up where basic limits stop (a "corridor deductible" may bridge the two).
- Comprehensive major medical — a single policy with one deductible covering both routine and catastrophic care; most common today.
Deductible, Coinsurance, and Copay
- Deductible — the dollar amount the insured pays each year before the plan begins to pay. May be per-person with a family deductible cap.
- Coinsurance — after the deductible, the insured and insurer split covered costs by percentage. An 80/20 plan means the insurer pays 80% and the insured pays 20%.
- Copayment — a flat fee per service (e.g., $30 per office visit), separate from coinsurance.
- Stop-loss / Out-of-pocket (OOP) maximum — once the insured's deductible plus coinsurance reaches this cap, the plan pays 100% of further covered charges for the year.
Worked Coinsurance Example
A comprehensive major medical plan has a $1,000 deductible, 80/20 coinsurance, and a $5,000 out-of-pocket maximum. The insured incurs $30,000 in covered charges.
- Insured pays the first $1,000 (deductible). Remaining = $29,000.
- Coinsurance on $29,000: insured's 20% = $5,800. But the OOP cap limits total insured spending.
- Insured cost-sharing so far = $1,000 deductible + coinsurance. The OOP max is $5,000, so once deductible + coinsurance reaches $5,000, the plan pays 100%.
- Coinsurance allowed before the cap: $5,000 − $1,000 = $4,000 → that covers 20% of $20,000.
- Insured total = $5,000. Insurer pays = $30,000 − $5,000 = $25,000.
Always apply the deductible first, then coinsurance, then stop at the OOP maximum.
Common Deductible Provisions and Traps
- Carryover provision — expenses applied to the deductible in the last three months of the year carry into the next year's deductible.
- Common accident provision — when several family members are injured in one accident, only one deductible applies.
- Coinsurance vs. copay confusion — coinsurance is a percentage; a copay is a flat dollar amount. Exam questions often pair them in the same plan and ask which applies to a specific service.
Trap: Some students forget that the OOP maximum usually includes the deductible and coinsurance but historically excluded premiums and (in older plans) copays. Under ACA-compliant plans, in-network deductibles, coinsurance, and copays all count toward the OOP max.
A major medical plan has a $500 deductible and 80/20 coinsurance with a $3,000 out-of-pocket maximum. The insured incurs $10,000 in covered charges. How much does the insured pay?
Which feature distinguishes basic medical expense coverage from major medical coverage?
Corridor Deductibles and Benefit Periods
When supplemental major medical layers on top of a basic plan, a corridor deductible bridges the gap: after basic benefits are exhausted, the insured pays a flat corridor amount (for example $500) before the supplemental major medical begins paying its coinsurance share. This prevents the two plans from overlapping at the seam.
Major medical also tracks costs over a defined benefit period, commonly a calendar year. Each new period resets the deductible and the out-of-pocket maximum. A restoration of benefits provision can reinstate a portion of the lifetime maximum after a period of no claims, though ACA-compliant plans cannot impose annual or lifetime dollar limits on essential health benefits.
| Provision | Effect on the insured |
|---|---|
| Corridor deductible | Flat amount paid between basic and supplemental major medical |
| Calendar-year deductible | Resets each January 1 |
| Restoration of benefits | Restores used lifetime maximum after a claim-free span |
Trap: A flat-dollar copay is not the same as coinsurance, and the deductible is satisfied before either applies. On exam math, always sequence deductible → coinsurance → stop at the out-of-pocket maximum, and confirm whether copays count toward that maximum.