Merritt Personal Lines Manual: The Mechanics of Major Medical Coverage

GENERAL AGREEMENT

We agree to issue this policy to you because you paid the premium shown in the application. We rely on the application you made. The application is a part of this policy. All dealings are between you and us. This policy covers the persons named in the application and any child who may be born to you during the policy term.

In the general agreement, the insurance company states that it relied on information given in the application and issued the policy because you paid the first premium. Coverage applies only to each person named in the application and to any child born during the policy term.

COVERAGE

When we receive proof of injury or sickness of an insured person and subject to the terms of this policy, we will pay insured expenses incurred during the payment period after the deductible and less the copayment up to the maximum payment.

Insured expenses must be medically necessary and must be authorized by a physician or surgeon.

Preexisting conditions are not covered. These conditions are any injury, sickness, or mental disorder which had existed within the two year period before the effective date.

Coverage begins at 12 noon on the effective date and ends at 12 noon on the termination date shown in the application.

A child born to you while this policy is in force will have immediate coverage from the date of birth to the end of the policy term.

Coverage for the newborn child includes coverage for congenital defects, birth abnormalities, injury and sickness. Coverage is not provided for premature birth or routine well-baby care.

Coverage applies only to charges which are made for injury or sickness, are medically necessary and are authorized by a doctor. The insurance company agrees to pay up to the maximum payment for covered expenses incurred during the payment period. It will only pay expenses above the deductible amount and minus the insured's copayments.

Preexisting conditions which existed in the two-year period before the effective date are not covered by this policy. (Notice that this is different from the "limitation" found in the basic hospital expense policy, which only delays coverage for a preexisting condition for two years following the effective date unless it is specifically excluded by an endorsement. This major medical policy "excludes" preexisting conditions completely and there is no need to attach an endorsement to do so.)

Coverage begins and ends at 12 noon on the effective date and termination date shown in the policy schedule.

A newborn child will be automatically covered until the end of the policy term shown in the schedule. Coverage for a newborn child includes coverage for congenital defects, birth abnormalities and injury or sickness. But no benefits are provided for premature birth (where no defects or abnormalities are involved) or well-baby care. Notice that this differs from the newborn child provision found in the basic hospital expense policy. That policy provides automatic coverage for newborns only for 31 days and requires a request for continued coverage.

INSURED EXPENSES

Confinement in a Hospital. Insured expenses for confinement in a hospital are the regular and customary charges for room (other than a private room), board and general nursing care and miscellaneous hospital services. When an insured person is confined to a private room, we will pay up to the average semi-private room charge of the hospital, or of the community if the hospital does not have semi-private rooms.

Coverage for hospital confinement applies to the regular and customary charges a hospital makes on its own behalf for such things as room and board, general nursing care and miscellaneous services. Benefits for room and board are limited to the semi-private room rate.

Again, your insurance agent should be able to tell you how a particular company defines things like "regular and customary."

An example: You submit a claim for benefits for $1,200 of miscellaneous hospital services. The insurance company determines that this amount is excessive, because it exceeds the regular and customary charges for those same services, which would be $900. It will probably disallow the $300 excess charge and only recognize $900 as "insured expenses" (this amount is still subject to deductible and copayment provisions).

This is a common point of dispute because it give the insurance company pretty wide discretion in defining "regular and customary charges." However, most insurance companies know that if they take this advantage too far, they're inviting charges of bad faith -- for which juries love to award big punitive damages.

In May 1992, Claudette Wyant passed out in her Omaha, Nebraska, home because of heavy vaginal bleeding. She was rushed to nearby St. Joseph's Hospital and admitted. The medical staff there conducted a battery of tests to check for cancer -- a common cause of Wyant's symptoms.

The doctors at St. Joseph's found no cancer and, with a few basic surgical procedures, corrected Wyant's problem. In all, she had to stay in the hospital about two weeks.

A short time later, the hospital sent its bill -- for more than $7,200. Wyant was surprised by the amount. She hadn't inquired about costs during her hospital stay. Her insurance paid $2,430 and Wyant paid $30, leaving an unpaid balance of $4,740.

A spokesman for Globe Life and Accident Co., which had written Wyant's health policy, admitted that the policy had given her only limited coverage. "Buying insurance is not a lot different than buying a car. What you buy depends a lot on what you can afford," he said.

Wyant didn't have the cash on hand to pay the balance -- but she also felt she was making a principled stand. She told a local newspaper that she had paid only $30 because she felt St. Joseph's bill was too high. She was already trying to pay off another $2,600 in medical bills related to her surgery.

She and her husband Roy lived on about $1,000 in monthly income, mostly from Social Security. They had no substantial assets other than their house, with about $30,000 in equity.

To the hospital, Wyant's case was part of a growing problem: St. Joseph officials said the number of unpaid bills has risen significantly in the last five years because more patients are either uninsured or underinsured.

A spokesperson for the hospital said that the Wyants might have been able to get financial help if they had given administrators written verification of their financial worth. Again, the Wyants were partly culpable for not responding to this point. Claudette Wyant told the local paper that she didn't do this because of miscommunication about the reason for financial disclosure and because her husband resented what he regarded as an invasion of privacy.

Wyant had paid $113 a month in premiums for an individual insurance policy she had at the time of her surgery. She stopped paying the premiums on that policy after its limited coverage for her surgery. Better coverage would have cost $286 a month, which Wyant said she couldn't afford. So she went without.

St. Joseph turned over the Wyants' bill to a collection company, which sued the Wyants in May 1993.

James Case, the attorney who represented the Wyants, said that even if General Service won the lawsuit and obtained a court judgment, the company would be unlikely to sell the house and evict the Wyants. The company would probably have to establish its claim on their property and permit that claim to lie dormant until the Wyants sold the house or until they died.

The Wyants experience shows that even people who are insured can't be certain that their coverage will fully insulate them from the possibility of their assets being wiped out.