9.2 Medical Expense Insurance (Basic and Major Medical)
Key Takeaways
- Basic medical expense pays first-dollar but with low, hard limits; major medical adds deductible, coinsurance, and high maximums.
- A corridor deductible bridges the gap between exhausted basic benefits and supplementary major medical coverage.
- The stop-loss/out-of-pocket maximum makes the plan pay 100% of covered charges for the rest of the year.
- Benefits are limited to usual, customary, and reasonable (UCR) charges; excess can be balance-billed.
- Workers' compensation injuries are a classic medical-expense exclusion.
The Two Historical Building Blocks
Traditional medical expense insurance evolved in two layers. Basic medical expense policies paid first-dollar benefits for narrow categories with low limits and usually no deductible. Major medical added broad coverage with high limits, a deductible, and coinsurance to handle catastrophic costs. Modern comprehensive major medical merges both into a single plan. Understanding the historical split explains exam terms like first-dollar coverage, corridor deductible, and supplementary major medical.
Basic Medical Expense Categories
Basic plans were typically sold as separate, limited coverages:
- Basic hospital expense — pays room-and-board (a flat daily benefit for a set number of days) plus miscellaneous hospital charges (lab, X-ray, drugs) up to a multiple of the room rate.
- Basic surgical expense — pays surgeon fees per a surgical schedule (a dollar amount assigned to each procedure) or on a relative value basis using a conversion factor.
- Basic medical (physicians') — pays for non-surgical doctor visits, often capped per visit and per year.
The defining feature: low or no deductible, first-dollar payment, but hard dollar limits that leave large gaps for serious illness.
Major Medical Features and the Corridor Deductible
Major medical covers a comprehensive list of services subject to a deductible, coinsurance, and a high or unlimited lifetime maximum. Two structures appear on exams:
| Type | How it works |
|---|---|
| Comprehensive major medical | One integrated plan: single deductible, then coinsurance to the out-of-pocket cap |
| Supplementary major medical | Sits on top of a basic plan; a corridor deductible applies between where basic benefits end and major medical begins |
The corridor deductible is the gap the insured must cross after exhausting basic benefits before the supplementary major medical layer starts paying. Deductible variations include the carryover provision (expenses in the last three months of the year apply to next year's deductible) and the common accident provision (one deductible for all family members injured in the same accident).
Surgical Schedules vs Relative Value
Basic surgical benefits are paid one of two ways. A surgical schedule assigns a fixed dollar amount to each procedure (e.g., $1,200 for an appendectomy). A relative value schedule assigns each procedure a number of units; the benefit equals units times a dollar conversion factor. A procedure rated at 80 units with a $20 conversion factor pays $1,600. Relative value adjusts for inflation because only the conversion factor changes. Practice the units-times-conversion-factor calculation.
An insured has a basic hospital plan plus a supplementary major medical plan. After basic benefits are exhausted, the insured must satisfy an additional dollar amount before the major medical layer pays. What is this amount called?
Stop-Loss, Lifetime Limits, and Eligible Expenses
The stop-loss (out-of-pocket maximum) caps the insured's coinsurance exposure. Once reached, the plan pays 100% of remaining covered charges for the year. Under the ACA, plans cannot impose annual or lifetime dollar limits on essential health benefits, and the out-of-pocket maximum on essential benefits is capped by federal indexing. Pre-ACA major medical commonly carried a $1 million or $2 million lifetime maximum.
Covered charges are usually limited to usual, customary, and reasonable (UCR) amounts — the prevailing fee for a service in a geographic area. A provider charging above UCR can balance-bill the insured for the excess.
Common Exclusions
Even comprehensive plans exclude or limit certain items. Watch for these on the exam:
- Cosmetic surgery (unless reconstructive after injury or covered illness)
- Care covered by workers' compensation
- Experimental or investigational treatment
- Care furnished by a government facility at no charge
- Self-inflicted injuries (subject to state and ACA constraints)
Trap: Workers' compensation is the classic exclusion — occupational injuries are the employer's liability, so the health plan does not duplicate that coverage. A question describing an on-the-job injury is testing this exclusion.
ACA Essential Health Benefits and Metal Tiers
Individual and small-group ACA plans must cover ten essential health benefits, including ambulatory care, emergency services, hospitalization, maternity and newborn care, mental health and substance-use treatment, prescription drugs, rehabilitative services, laboratory services, preventive/wellness services, and pediatric care. Plans are sold in four metal tiers defined by actuarial value — the share of total covered costs the plan pays on average:
| Tier | Plan pays (approx.) | Insured pays |
|---|---|---|
| Bronze | 60% | 40% |
| Silver | 70% | 30% |
| Gold | 80% | 20% |
| Platinum | 90% | 10% |
Higher metal tiers carry higher premiums but lower cost-sharing. Preventive services must be covered at 100% with no cost-sharing in-network.
A surgeon charges $6,000 for a procedure, but the UCR amount in the area is $4,500. The major medical plan pays based on UCR after the deductible is met. Which statement is correct?
Coinsurance and the Stop-Loss Feature
Major medical pairs a deductible with coinsurance (e.g., 80/20) and a stop-loss (out-of-pocket maximum) that caps the insured's coinsurance exposure. Once the insured's coinsurance payments reach the stop-loss, the plan pays 100% of covered charges for the rest of the year.
| Term | Who pays |
|---|---|
| Deductible | Insured first, before plan pays |
| Coinsurance | Shared percentage after deductible |
| Stop-loss | Plan pays 100% beyond this point |
Trap: a corridor deductible is a separate deductible that applies between basic coverage and major medical in older supplementary major-medical designs — not the same as the plan's main deductible.
Common Exclusions and Pre-Existing Conditions
Major medical historically excluded pre-existing conditions for a limited look-back/exclusion window, but the ACA prohibits pre-existing-condition exclusions in compliant plans. Typical remaining exclusions include cosmetic surgery, experimental treatment, work-related injuries (covered by workers' comp), and care covered by another government program.
Trap: under the ACA, an ACA-compliant individual or group major-medical plan may not deny or limit coverage for a pre-existing condition — a sharp change from pre-2014 practice. Short-term and indemnity plans are not ACA-compliant and may still exclude pre-existing conditions, which is a frequent distinction tested.