Kids and Health Care: Annual Restoration Provision
One way to think of a Major Medical (or any medical) policy is as a big bag of money -- holding $1 million, $2 million or more. This money is the maximum amount available to pay for covered health care expenses. You incur a claim subject to the plan's deductible and co-insurance requirements (including the stop-loss point). Whatever the total claim amount, it will be deducted from the bag of money leaving a smaller sum for future claims.
Example: Your son Elroy has a $1 million dollar Major Medical plan with a $500 deductible, 80/20 percent co-insurance split up to $5,000 and 100 percent coverage thereafter. He's hit by a meteorite and incurs $300,000 in hospital costs. After the deductible and co-insurance are paid, $294,100 is withdrawn from the bag of money -- leaving $705,900 for future claims. If Elroy has no large claims for the rest of his life, he has nothing to worry about. But, if he's struck by lightning two months later, the money in the bag would dwindle to $411,800. If he breaks his back in a skiing accident a year after that, the money in the bag would be down to $117,700. And then he starts having trouble with his kidneys....
The annual restoration provision puts back a certain amount of Major Medical dollars used each year. These amounts are generally small, such as $2,000, $3,000 or $5,000 per year.
If your family's plan contained a $5,000 restoration provision, one year after Elroy's first claim (and, assuming he doesn't have such a hard-luck existence) the total amount available for future claims would be increased to $710,900. After two years it would be $715,900 -- and so forth.
The size of a claim is usually several times larger than the amount restored. Many view this as a token reassurance that some sum of money will be in the plan for claims. If the plan only has a $1 million lifetime maximum, it is possible to exhaust this sum with a major illness such as a prolonged battle with cancer. To offset this disadvantage, many insurers provide major medical plans with $2 million lifetime maximums or unlimited maximums.
