12.3 Basic and Major Medical Coverage, Deductibles/Coinsurance/OOP

Medical expense insurance historically came in two layers — basic coverage with no deductible but limited benefits, and major medical coverage with a deductible but broad, high-limit protection. Modern comprehensive major medical combines both. The exam still tests the cost-sharing arithmetic: deductible, then coinsurance, then the out-of-pocket maximum.

Basic Medical Coverage

Basic medical plans pay first-dollar benefits (no deductible) but cap each benefit. Common pieces:

• Basic hospital expense — room, board, and miscellaneous hospital charges up to a daily/total limit.
• Basic surgical expense — pays surgeon fees per a surgical schedule or relative-value scale.
• Basic medical/physicians' expense — non-surgical doctor visits.

Because limits are low, basic coverage is often paired with a Supplementary (Superimposed) Major Medical plan that pays large expenses exceeding the basic limits, subject to a corridor deductible.

The Cost-Sharing Stack

After a claim, costs are shared in a fixed order:

Worked Coinsurance Example

Plan: $2,000 deductible, 80/20 coinsurance, $6,000 out-of-pocket maximum. The insured incurs $50,000 of covered charges.

1. Insured pays the $2,000 deductible first.
2. Remaining charges = $50,000 - $2,000 = $48,000.
3. Under 80/20, the insured's 20% share = 0.20 x $48,000 = $9,600.
4. But total insured cost-sharing is capped at the $6,000 OOP max. The insured has already paid $2,000 deductible, leaving $4,000 of coinsurance before the cap.
5. So the insured pays $2,000 + $4,000 = $6,000 total; the plan pays the rest — $44,000.

Trap: The deductible counts toward the OOP maximum. Once total cost-sharing hits the OOP max, coinsurance stops and the plan pays 100%.

Deductible Variations

• Calendar-year (all-cause) deductible — one deductible per year regardless of how many illnesses.
• Per-cause deductible — a separate deductible for each separate illness or accident.
• Family deductible / aggregate — combined family limit; once met, no further individual deductibles apply.
• Carryover provision — expenses applied to the deductible in the last three months of the year carry into the next year's deductible.
• Corridor deductible — applies between basic coverage and supplementary major medical.

Comprehensive Major Medical and Common Exclusions

Comprehensive major medical merges basic and supplementary coverage into one plan with a single deductible, one coinsurance percentage, and one out-of-pocket maximum. It covers a broad range of inpatient and outpatient services.

Typical exclusions the exam tests:

• Cosmetic surgery (unless reconstructive after injury).
• Care covered by Workers' Compensation or government programs.
• Experimental or investigational treatment.
• Services not medically necessary.

Trap: A benefit that is excluded is never covered, while a benefit subject to a limit is covered only up to a stated maximum. Exam questions exploit this difference.

Eligible vs. Covered Expenses

Coinsurance and the out-of-pocket maximum apply only to eligible (covered) expenses that fall within the plan's allowed amount. Charges above the plan's usual, customary, and reasonable (UCR) allowance, or for excluded services, are the insured's responsibility and do not count toward the OOP maximum. This is why an out-of-network bill can leave the insured owing more than the stated OOP cap — balance billing for the excess above UCR is not part of cost-sharing protection.

Stop-Loss and the Out-of-Pocket Maximum

The out-of-pocket maximum (stop-loss limit) caps the insured's annual cost-sharing; once reached, the plan pays 100% of covered expenses for the rest of the year. It protects against catastrophic bills and converts coinsurance into a finite exposure. ACA-compliant plans must include an OOP max. Distinguish the deductible (paid before benefits begin) from the OOP max (the ceiling on total insured cost), which includes the deductible, copays, and coinsurance.

Corridor and Integrated Deductibles

Older major-medical designs layered a basic plan (first-dollar coverage, no deductible) with a supplementary major medical plan that picked up larger costs after a corridor deductible between the two. A comprehensive major medical plan combines both into one with a single deductible and coinsurance. The exam may describe a 'corridor' deductible sitting between basic benefits and major medical; recognize it as the gap the insured bridges before major-medical coverage starts.

Deductible Types and the Family Deductible

Major medical plans use several deductible structures. A calendar-year (all-cause) deductible resets each January and applies to all covered expenses combined. A per-occurrence deductible applies separately to each illness or injury. A family deductible caps how many individual deductibles a family must satisfy (e.g., after any two or three members meet theirs, the family deductible is met for all). A carryover provision credits expenses incurred in the last three months of the year toward the next year's deductible.

Coordination of Benefits

When a person is covered by more than one plan, the coordination of benefits (COB) provision prevents collecting more than 100% of expenses (reinforcing indemnity). One plan is primary (pays first up to its limits) and the other secondary (pays remaining covered costs). The birthday rule typically determines which parent's plan is primary for a child: the plan of the parent whose birthday falls earlier in the calendar year. COB ensures total reimbursement never exceeds the actual expense.