Kids and Health Care: Variations On Indemnity
The most common form of indemnity health coverage is Medical Expense insurance, designed to insure you and your children against sickness and accidental bodily injury. Medical Expense policies are of two types: Basic Medical Expense and Major Medical Expense.
Basic Medical Expense policies cover one of three expenses and include: hospital, physician and surgical expenses. You can purchase only one, or a combination of expense coverages.
The hospital expense coverage includes room and board, including intensive care, operating room and lab fees and other necessary services and supplies. Surgical expense coverage includes doctor's fees related to surgery and coverage for various types of procedures based on the company's surgical schedule (the maximum amount payable for particular operations). Finally, physicians expense coverage pays for treatment by a physician not related to surgery. Basic Medical Expense policies are usually written with deductibles ranging from $100 to $500 per calendar year. Once the deductible is met, the insurer pays the remaining costs in full, up to the policy limits.
Major Medical Expense insurance, on the other hand, is aimed at catastrophic medical expenses (in fact, the policies are often called catastrophic coverage).
This coverage was introduced in the 1950s by a small group of insurance companies; today virtually every health insurer offers some form of it. Major Medical is intended to cover serious illnesses and accidents that end up costing thousands of dollars. As a result, they come with very high deductibles and limits. A $10,000 deductible seems like a huge amount, if you and your kids are basically healthy; but it's a reasonable part of the six- or seven-figure costs that can pile up if your child needs a bone marrow transplant or cancer treatments over an extended period of time.
Major Medical policies will often have a co-insurance clause, meaning you must pay a portion of the covered expenses -- usually 20 percent -- and the insurance company pays the remaining 80. Major Medical also limits coverage for such things as mental illness and drug or alcohol treatment programs.
Because it covers costs related to hospitalization and has high deductibles, Major Medical is usually an insurance company's favorite kind of indemnity policy. It's almost always the cheapest and easiest for which to qualify. It can work well for you -- even if you have kids -- especially if you've had health problems in the past. But you have to look at this coverage as one part of a larger approach to buying health insurance. There are a lot of expenses that the plans don't cover; you're going to have to fund those expenses somehow -- out-of-pocket or with some kind of supplemental insurance. These plans are often used in conjunction with Medical Savings Accounts (MSAs) and other non-traditional health care financing programs.
In short, Major Medical is the most stripped-down form of indemnity coverage. It assumes that you will be willing -- and able -- to pay considerable amounts of money out-of-pocket for the high deductibles and co-insurance. Frankly, this scenario doesn't fit for most families with young children.
With regard to the cost, the premium for a Major Medical plan will cost less -- usually a lot less -- than the premium for a Basic Medical Expense plan. But these cost advantages often fade as you have more dependents. So, again, Major Medical plans aren't really the best option for families with kids.
