Medical Insurance Basics

What are the principal types of medical insurance types?

Major medical plans apply a deductible to initial expenses, generally ranging from to $1,000 to $1,500 per calendar year. After the deductible is satisfied, major medical plans typically reimburse 80 percent of eligible expenses up to a relatively high maximum, e.g., $2,000,000.  Some major medical plans reimburse eligible expenses at 80 percent; some plans also provide unlimited lifetime benefits.

Major medical plans typically cover a broad list of medical expenditures, including hospital expense, surgical expense, physician (non-surgical) expense, 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 duly licensed physician. Major medical plans provide broader coverage, but require the insured to share in the cost of medical care through deductibles and coinsurance (i.e., 20 or 30 percent of eligible expenses above a deductible amount).

What are common exclusions under major medical plans?

Although providing very broad coverage, major medical plans typically contain a number of exclusions. Common exclusions include medical expenditures arising from:

(1) custodial care;

(2) cosmetic surgery unless required to correct a condition resulting from an injury or a birth defect;

(3) occupational injuries and illnesses that are otherwise covered under a Workers' Compensation law;

(4) routine dental and vision care; .

(5) Experimental, investigational, or unproven services;

(6)  Health services received as a result of war or any act of war, whether declared or undeclared or caused during service in the armed forces; and

(7) Growth hormone therapy; sex transformation operations, & treatment of temporomandibular joint syndrome.

Other common exclusions relate to benefits provided by government agencies (e.g., VA hospitals) and expenses paid under other insurance programs, including Medicare.

What are the medical plan out-of-pocket costs?

An insured's "out-of-pocket" costs under major medical expense plans include the deductible, cost-sharing amounts arising from the operation of the coinsurance clause, 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 location or 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?

Coinsurance, sometimes called "percentage participation," requires the insured to share in the cost of medical care. Under an 80/20 coinsurance provision, the medical expense plan pays 80 percent of eligible medical charges above any deductible. The insured is required to pay the remaining 20 percent. Other coinsurance arrangements, e.g., 70/30 or 90/10, are sometimes used. In the event of large or catastrophic medical expenses, an insured might suffer severe financial hardship due to the operation of the coinsurance clause. To compensate for this possibility, many major medical expense plans contain a coinsurance cap, or stop-loss limit. This provision places a limit on the insured's out-of-pocket costs in a given year arising from the operation of the coinsurance clause. The size of the coinsurance cap generally ranges from $2,000 to $3,000, depending on the plan, although limits as low as $1,000 are sometimes used. Once the coinsurance cap has been reached, all eligible expenses above this amount are paid in full, up to the plan's overall limit of coverage.

What is the difference between coinsurance and copayment?

On occasion, these terms have been used interchangeably. However, it is preferable to define the two terms differently, despite their similarity of purpose. Under a copayment or copay provision, the insured usually is required to pay a set or fixed dollar amount (e.g., $30, $15, or $10) each time a particular medical service is used. Copay provisions are frequently found in medical plans offered by health maintenance organizations (HMOs) where a nominal copayment is applied to each office visit and to each prescription that is filled.

What is a preexisting conditions clause?

Most insurance carriers follow HIPAA for their definition of pre-existing.  A pre-existing clause can be more liberal than HIPAA law but not more stringent.   According to most group health insurance policies, a pre-existing condition is a condition (excluding pregnancy) for which an individual received medical care during the six month immediately prior to the enrollment date.   

That condition will not be covered for a period of 12 months (18 months if enrollment in the plan is considered late).  Under HIPAA's creditable coverage, the pre-existing condition exclusion is reduced one month for every month that a person had coverage in a previous qualifying plan as long as the gap in coverage between the previous plan and the new plan is 63 days or less.