Merritt Personal Lines Manual: Major Medical Expense Policies
The most common variation on indemnity health coverage is the major medical policy. This coverage focuses on hospitalization costs, rather than health care costs in general. And it uses deductibles and absolute dollar limits differently than traditional indemnity insurance.
Major medical can be sold on an individual and group basis. It provides benefits up to a high limit for most types of medical expenses incurred, subject to a large deductible. The contract may contain limits on specific types of charges, like room and board and a co-insurance clause.
These policies usually pay covered expenses whether an individual is in or out of the hospital. Another name for this type of contract is a catastrophe policy.
In other words, the major medical approach to hospitalization coverage is designed to provide the insured with protection against catastrophic expenses that are a genuine risk in today's world.
The insured needs to think of major medical as an approach because there are a lot of expenses that the plans don't cover. And the insured 're going to have to fund those expenses somehow -- either with out-of-pocket payments or some kind of supplemental insurance. We'll consider the options in this chapter.
Major medical plans can be thought of as consisting of a bag of money, containing $1 million, $2 million, $5 million or an unlimited amount. The money is to be used to pay for covered medical expenses, either as an inpatient or as an outpatient. The only limitation is how much money is in the bag.
Unlike a traditional indemnity policy with benefit amount limitations, major medical insurance is designed to provide a large sum of money from which to pay covered medical expenses.
Major medical plans are characterized by the following:
- deductibles,
- coinsurance,
- stop-loss provisions and
- annual restoration provisions.
- We will consider each of these items in some detail.
