MEDICAL INSURANCE

If you recall, we explained that there are two broad categories of health

insurance policies: disability and medical expense. Thus far we have covered

disability. Now we’ll take a look at basic medical expense insurance.

Basic medical expense policies provide for medical expenses that result

from accidents and sickness. This is a loose term that refers to various medical,

hospital and surgical benefits.

The broad category of medical expense coverage provides a wide range of

benefits for hospital, surgical and medical care. Other benefits may apply as well,

such as private nurses, convalescent care, and more.

Policies may be written as such that they may be limited to only one or two

types of coverage like hospital or miscellaneous medical costs or surgical

expenses. These are known as basic plans.

Other, more broadly written, policies may cover all expenses resulting

from accident or illness using some specific exceptions.

Medical plans include fee-for-service wherein doctors and other providers

receive a payment that does not exceed their billed charge for service provided.

Prepaid plans provide medical or hospital benefits in the form of service

rather than dollars. Many things need to be considered when selecting a medical

expense plan such as:

Specified coverage versus comprehensive care. In other words does

the plan feature only specific benefits or is the coverage comprehensive?

Any provider versus a limited number of providers. Are you

required to choose from a specific list of providers?

National versus regional operation. Is the plan limited to a specific

geographical region or operate nationwide?

Insured versus subscribers. Are participants considered insureds

(the person who receives the benefit) or subscribers (the person who is

paying the premium)?

We are going to take a look at the limited coverage for hospital, medical

and surgical expenses. Discussing this separately first, will help you to

understand how the components are combined in major medical and

comprehensive policies.

The broad definition of basic medical expense insurance in most states

includes hospital, medical and surgical expenses. The purpose of this type of

insurance is to cover a broad range of medical, hospital and surgical expenses as

well as separate categories of medical expenses.

Let’s explore individual versus group coverage.

No matter how a policy is written, narrowly or broadly, medical expense

insurance is designed to reimburse for the cost of care whether it results from

injury or illness.

Both individual and group policies are available to consumers. Normally

individual policies are more costly along with having limited benefits but

generally speaking, both types cover the same medical services.

Hospital expense benefits provide for expenses incurred during

hospitalization. Indemnities usually fall under two broad groups:

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requirements

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medications, medical supplies and operating and special treatment

rooms

In some cases, benefits might be included for certain surgeries and related

costs like pain killers given during a hospital stay.

Room and board benefits may be paid based on indemnity or

reimbursement depending upon the particular policy. When paid on an

indemnity basis, the insurer pays a specified rate per day that has been predetermined

and is laid out in a schedule within the policy.

The schedule will spell out the details of the benefit coverage as it pertains

to length of stay. Once the length of stay has been exhausted, no more benefits

are available. These are sometimes called dollar amount plans and typically the

number of days is from 90 up to 365.

More commonly used is a reimbursement basis, also known as an

expenses-incurred basis. With this type of coverage the policy will pay in one of

two ways – the actual charges for a semi-private room or a percentage of the

actual charges. There are no specific dollar amounts but a maximum number of

days will still be specified.

Surgical Expense Benefits fall under two plans, scheduled and nonscheduled.

In the scheduled plan, surgical expense policies pay the fees incurred from

the surgeons services and related costs incurred when the insured has an

operation. Typical related costs include fees for an assistant surgeon,

anaesthesiologist and can even include the operating room when it is not covered

as a miscellaneous item.

Basic surgical coverage can be included in the same policy as basic hospital

and medical expense and are normally included in a schedule listing major

commonly performed operations and the benefits payable for each.

This gets a bit tricky and you need to be aware of how the insurance

company determines the benefit. Just because a specific surgery is not listed in

the schedule does not necessarily mean that there is no benefit for it available. It

might mean that the insurer indemnifies that surgery based on absolute value

and the relative value of each procedure.

In other words, let’s say that the insurer determines that a certain surgical

procedure has a prevailing value of $1500 and indicates that in the schedule

included in your policy. That is considered the absolute value. Now, let’s say that

there is another procedure not listed in the schedule that is say 50% less

complicated as the $1500 procedure. In this case, the relative value would be

$750 and that is the benefit amount that will be paid for the less complicated

procedure.

Using a non-scheduled scenario, when surgical benefits are not listed by a

specific dollar amount in a schedule, the policy will pay based on what is

considered usual, customary and reasonable in a certain geographical area and is

also known as UCR.

This non-scheduled type of indemnity is found most often in major

medical and comprehensive policies which we will discuss further along.

As you might imagine, under this type of arrangement the UCR is

determined by the amount that physicians in the local area usually charge for the

same procedure.

Regular medical expense benefit is another category that is sometimes

known as physician’s non-surgical expense. This coverage is for non-surgical

services a physician provides and can sometimes be narrowly applied to

physician visits while the patient is in the hospital.

If this is the case the benefit will most likely pay for a specified maximum

number of visits per day, a specified maximum dollar amount per visit and a

specified number of days coverage applies.

In other policies this benefit could be for non-surgical services performed

by a physician whether the patient is in or out of the hospital. Once again there

are limits such as $100 per visit up to 50 visits per year depending on the policy.

Other medical expense benefits fall into a category in addition to the

hospital, surgical and medical benefits previously discussed. These optional

benefits vary from insurer to insurer and may or may not include as part of their

standard policies. Separate policies can sometimes be written to include these

benefits. Some of them are:

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We will not cover all of these options, but will let’s take a look at the most

common.

Maternity benefits are sometimes included in policies subject to certain

conditions and limitations. The most usual limitation is a 10 month waiting

period designed to prevent the purchase of health insurance just to cover

pregnancy and childbirth expenses. Interesting to note, however, group policies

for employee groups of 15 or more are required by law to provide maternity

benefits on the same basis as non-maternity benefits. This means that in a case

such as this, the waiting period would not apply unless non-maternity benefits

also required a 10 month waiting period.

Aside from the group scenario above, many policies just exclude maternity

benefits totally but make them available at extra cost. Where maternity benefits

do apply, the benefit usually includes newborn care while the mother is in the

hospital.

Other benefits that are sometimes available under the same maternity

coverage might include caesarean deliveries, natural abortions and elective

abortions.

Emergency First Aid Coverage applies to an accident that may call for

immediate first-aid on the scene. This applies when a medical professional who

just happens on the scene provides first-aid service he/she might bill the insured.

Sometimes treatment like this must be performed without the knowledge or

assent of the insured. Some policies offer coverage for such contingencies and

normally must incur within a very short time after an accident.

Mental Infirmity historically has been excluded from most policies.

However, in recent years more and more policies include this type of coverage

but with limitations. The benefits are usually much lower than physical ailments

and a stated percentage of the benefit paid for other types of medical care is

included.

Common exclusions and limitations. Both disability income and medical

expense policies limit or exclude coverage for certain types of injuries or illness.

There is a difference between limitations and exclusions. The mental infirmity

policy limitations we discussed above is an example, whereas an exclusion is

completely omitted from any coverage.

It is important that you deal with a knowledgeable agent because state

laws and policies may differ on specific items. Some items that fall into the

common exclusions and limitations might be:

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state law.

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alcohol or narcotics

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accidental injury or a congenital defect

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by the Veterans Administration or by workers compensation

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Up to this point we have discussed “basic” benefits that are designed to

cover some hospital, medical and surgical costs that are primarily considered to

be minor. When purchased individually, these benefits can be substantially less

than actual costs incurred.

Here is where Major Medical coverage enters the picture. Major Medical

covers a broader range of medical expenses providing more complete coverage.

Generally speaking, these more extensive types of policies fall into two categories:

1. Comprehensive. This is the more traditional basic coverage and

any other type of medical expenses are combined into a single

policy.

2. Supplemental. This coverage usually begins with a traditional basic

policy. That coverage pays first and the major medical coverage is

added to include expenses that are not covered by the basic policy.

The primary distinction between supplemental and comprehensive major

medical coverage is that supplemental plans distinguish between basic and major

medical for reimbursement purposes. Comprehensive plans combine the two

types to cover essentially all types of medical expenses.

Let’s take a more in depth look at comprehensive major medical benefits.

There are two types of comprehensive major medical plans, one with first dollar

coverage and the other without.

Just as the first term implies, first dollar coverage begins as soon as

covered medical expenses are incurred. Without first dollar coverage, the insured

must pay specified “deductible” amounts first. When that amount of expenses

incurred has been paid by the insured, the policy begins reimbursing.

Major medical coverage has another feature, coinsurance. This means that

the insurer and the insured share in any expensive above the deductible amount.

The insurer will always carry the bulk of expenses and normally pays 80% and

the insured pays 20%. Other proportions may be used so it is important that you

read your policy thoroughly.

Some policies dictate that certain types of medical expenses are not

subjected to the deductible while other types are. For example it is non

uncommon for no deductible to apply to initial hospital and/or surgical expenses

up to a specified amount. In a case like this, the insured would pay no deductible

in expenses but would first pay the deductible before major medical covered any

additional expenses. The insurer and insured would then share in the remaining

expenses at 80% and 20% or whatever the percentage is in their applied policy.

It is becoming more common for major medical polices to include a “stoploss

limit.” This limit would be a dollar amount that, when reached, the insured

no longer participates in any further payment.

This is generally referred to as a stated maximum benefit. The lifetime

maximum limits on health insurance might range from $100,000 to $1,000,000.

Some policies can even have unlimited benefits. Just as the maximum benefit

can vary, so can the amount of the stop-loss limit depending upon the insurer.

Supplemental major medical benefits supplement a basic policy that

includes hospital, surgical and medical with an additional policy that covers the

broader range of medical expenses.

Usually the basic plan will pay covered expenses with no deductible up to

the policy limit. Beyond that limit, the supplemental policy operates the same as

a comprehensive policy that provides no other first dollar coverage.

This means that after the basic policy limits are exhausted, a deductible

kicks in followed by the major medical coverage.

Just as the comprehensive major medical policy, a supplemental plan will

more than likely include stop-loss limit as well as a maximum benefit limit.

What expenses are covered under major medical policies? No matter

whether they are supplemental or comprehensive both will generally cover the

following even if they vary slightly from policy to policy:

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care

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wheelchairs

Let’s review some of the other major medical concepts such as deductible

features, benefit periods and restoration of benefits.

Deductibles can be handled in several different ways depending on your

policy. One method might be on a per-cause deductible which applies to sickness

or injury. Other policies may have a deductible known as all-cause which is

sometimes called cumulative or calendar-year deductible.

If your policy is per-cause you will pay a single deductible for all expenses

you incur for the same injury or illness. Your benefit period for each cause begins

when deductible has been meant for that injury or illness. This can sometime run

as long as one or two years.

It is important to understand the per-cause stipulation. Let’s look at an

example. If you are ill in May and then are injured in an accident in July those

are two separate causes and deductible must be met for each of them separately.

However, if your policy is based on an all-cause deductible, the expenses

for various injuries or illnesses are accumulated to meet your deductible in one

calendar year. Once that is met, the rest of your charges are paid for that

calendar year.

Additionally, using the all-cause method there is usually carryover

provision that allows you to carry over expenses from the last three months of

one calendar year to the next.

If your policy covers the entire family, then a family deductible will apply

rather than individual deductibles. In other words if a policy’s individual

deductible is $200 a family deductible might be $400. This can be very

advantageous because a six member family would only have to meet $400 rather

than $1200 individually.

One other type of deductible could also be beneficial to a family and that is

the common injury or illness provision. What this means is that if two or more

family members are injured in a common accident or become sick from the same

illness, only one deductible amount will be required.

The time during which benefits are paid is called a benefit period. These

times are generally linked to the deductible as well as any inside or internal limits

in the major medical policy.

Determining when a benefit must be paid can be one of two different ways.

The benefit period might begin either on the first day of an injury or illness or on

the date that the insured meets the deductible and can extend up to two years.

Or, the benefit period may cease at the end of a calendar year and begin with a

new deductible.

Benefit limitations placed on certain of the various coverage’s in a major

medical policy are considered inside or internal limits. In other words, the policy

may limit both room and board and number of days that will be paid. In this

case, the period for hospital room and board will be whatever number of days

that are specified. Other internal limits might be restrictions for convalescent are

days, mental health, x-rays and similar items.

Your restoration of benefits is the time at which you can expect your

benefits to resume after policy limits have been met. For instance, a lifetime level

might be as much as $500,000 and an insured might use up half or more of that

in a single year. This leaves only $250,000 left for the remainder of his life.

Some policies allow the maximum to be restored if the insured can prove

that he is once again insurable. Other policies may have an automatic reset

provision restoring a specified amount every January 1st.