Medical Insurance FAQ

What are the principal benefits of medical expense insurance coverage?

Medical expense insurance is broadly classified comprehensive physician, hospital, and perscriptions drug bnefits.

Major medical insurance plans apply a deductible to initial expenses, generally ranging from $500 to $10,000 per calendar year. After the deductible is satisfied, major medical plans typically reimburse 80 percent of eligible expenses and requires the insured to pay 20 percent coinsurance until an out-of-pocket maximum is reached, after which the plan pays 100 percent of the cost for the balance of the calendar year.  Current major medical plans usually pay an unlimited lifetime maximum benefit per person while older plan designs may pay a limited lifetime benefit.

Medical insurance plans typically cover a broad list of medical expenditures, including preventive care, hospital expense, surgical expense, physician services, private duty nursing, diagnostic X-ray and laboratory services, prescription drug expense, artificial limbs and organs, ambulance services, and many other types of medical expenses when prescribed by a physician.

What types of expenditures are commonly excluded under major medical expense plans?

Although major medical plans typically provide very broad coverage, a number of exclusions will apply. Common exclusions include medical expenditures arising from: (1) convalescent or custodial care; (2) cosmetic surgery unless required to correct a condition resulting from an injury; (3) occupational injuries and illnesses that are otherwise covered under a Workers’ Compensation law; (4) routine dental and vision care; and (5) experimental procedures. Other common exclusions relate to benefits provided by government agencies and expenses paid under other insurance programs, including Medicare.

What are “out-of-pocket” costs?

An insured’s out-of-pocket cost under major medical expense plans include the deductible, doctor and/or pharmacy co-payments, coinsurance, and medical expenditures that are deemed by the plan to be in excess of reasonable and customary charges. Only charges that are reasonable and customary for a specific type of service in a particular geographic area are eligible for reimbursement under medical expense plans. The definition of reasonable and customary may vary somewhat from one medical expense plan to another.

What is coinsurance in medical expense plans and how does it work?

Coinsurance, sometimes called “percentage participation,” requires the insured to share in the cost of medical care after the deductible is satisfied. For example, under an 80/20 coinsurance provision the medical expense plan pays 80 percent of eligible medical charges after the insured satisfies the deductible. The insured is required to pay the remaining 20 percent. In the event of large or catastrophic medical expenses, an insured might suffer severe financial hardship due to the coinsurance clause. To compensate for this possibility, major medical expense plans usually contain a coinsurance cap, or stop-loss limit. This provision places a limit on the insured’s out-of-pocket costs in any given calendar year. The size of the coinsurance cap generally ranges from $2,000 to $3,000, excluding the deductible. Once the deductible and the coinsurance maximum is reached, all remaining eligible expenses are paid in full for the balance of the calendar year, up to the plan’s overall limit of coverage.

What is the difference between coinsurance and co-payments?

Coinsurance, as described above, is the shared portion of medical expenses after the deductible is satisfied. Co-payments, or copays, are fixed dollar amounts paid for certain, specific medical services. Many medical plans require a nominal copayment to receive services such as physician consultations, pharmacy prescriptions, and emergency room visits.

What is a preexisting condition clause and what is its effect on major medical expense plans?

A preexisting condition is often defined as a medical condition that required treatment prior to the insured’s effective date of coverage under the major medical expense plan. Sometimes, a preexisting condition is defined to include medical conditions that were known to the insured, even though no treatment was provided. A preexisting conditions clause excludes coverage for preexisting conditions for as long as 18 months after the effective date of coverage. Because the definition of a preexisting condition, and the provisions of the clause itself, may differ considerably from one plan to another, it is recommended that newly insured individuals carefully familiarize themselves with this policy provision.

Is medical expense coverage available for substance abuse and mental illness?

Major medical expense plans may provide some level of coverage for treatment of substance abuse and mental illness. A higher coinsurance percentage and a lower lifetime benefit limit generally apply. In addition, the extent of coverage may depend on whether treatment is provided on an in-patient or out-patient basis.

How does the medical expense coverage offered by a Health Maintenance Organizations (HMO) differ from the coverage provided under basic and major medical expense plans such as a PPO?

Basic and major medical expense plans are generally classified as indemnity contracts. These plans indemnify, or reimburse, the insured for medical expenses incurred. Most often the reimbursement is made directly to the provider. In addition, these plans usually contain deductible and coinsurance cost sharing provisions and may restrict coverage for certain types of medical care expenditures. Indemnity plans, however, provide the insured with substantial freedom relative to the choice of physician, including whether a primary care physician or a specialist will be seen. In contrast, HMO plans emphasize comprehensive and preventive care and typically requires no (or small) deductibles, and/or nominal co-payments. However, there is much less freedom of choice of physician under HMO coverage since the patient is typically required to be under the care of a primary care physician who serves as a “gatekeeper” to all medical services. In this role the primary care physician determines whether the services of a specialist are needed in addition to determining what other medical services are required for treatment.