 |
 What
are the principal types of medical expense insurance coverage?
Is
medical expense coverage available for substance abuse and mental illness?
What
types of expenditures are commonly excluded under major medical expense plans?
Even
though major medical plans provide broad coverage, insureds still incur certain "out-of-pocket" costs. What are these costs?
What
is the coinsurance clause in medical expense plans and how does it work?
What
is the difference between coinsurance and copayment?
What
is a preexisting conditions clause and what is the effect of its inclusion in major medical expense plans?
How
does the medical expense coverage offered by Health Maintenance Organizations (HMOs) differ from the coverage provided under basic and major medical expense plans?
What are the principal types of medical expense insurance
coverage?
Medical expense insurance is broadly classified into two principal types of
coverage: base (or basic) plans and major medical plans. Base plans generally
consist of either hospital expense coverage, surgical expense coverage, or both.
Basic hospital and surgical expense plans generally provide coverage on a first-dollar
basis (i.e., no deductible) and provide 100 percent reimbursement of covered
expenses, up to a relatively low maximum of $10,000, $25,000, $50,000 or $100,000.
Major medical plans, in contrast, apply a deductible to initial expenses, generally
ranging from $100 to $500 per calendar year. After the deductible is satisfied,
major medical plans typically reimburse 80 percent of eligible expenses up to
a relatively high maximum, e.g., $500,000 or $1,000,000. Some major medical
plans reimburse eligible expenses at 70 percent; some plans also provide unlimited
lifetime benefits. Major medical plans typically cover a broad list of medical
expenditures, including hospital expense, surgical expense, physician (non-surgical)
expense, private duty nursing, diagnostic X-ray and laboratory services, prescription
drug expense, artificial limbs and organs, ambulance services, and many other
types of medical expenses when prescribed by a duly licensed physician. Thus,
in comparison with basic plans, major medical plans provide much broader coverage,
with higher limits, but these plans require the insured to share in the cost
of medical care through deductibles and coinsurance (i.e., 20 or 30 percent
of eligible expenses above a deductible amount).
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Is medical expense coverage available for substance
abuse and mental illness?
Major medical expense plans also generally provide coverage for treatment of
substance abuse (e.g., alcoholism and drug usage) and mental illness. A higher
coinsurance percentage (e.g., 50 percent) and a lower lifetime benefit limit
(e.g., $25,000 or $50,000) generally applies, however. In addition, the extent
of coverage may depend on whether treatment is provided on an in-patient or
out-patient basis.
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What types of expenditures are commonly excluded under
major medical expense plans?
Although providing very broad coverage, major medical plans typically contain
a number of exclusions. Common exclusions include medical expenditures arising
from: (1) convalescent or custodial care; (2) physical examinations, unless
required for the treatment of an injury or illness (it should be noted that
some plans now cover this expenditure); (3) cosmetic surgery unless required
to correct a condition resulting from an injury or a birth defect; (4) occupational
injuries and illnesses that are otherwise covered under a Workers' Compensation
law; and (5) routine dental and vision care (care required for treatment of
an injury and dental and eye surgery are frequently covered, however). Other
common exclusions relate to benefits provided by government agencies (e.g.,
VA hospitals) and expenses paid under other insurance programs, including Medicare.
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Even though major medical plans provide broad coverage,
insureds still incur certain "out-of-pocket" costs. What are these costs?
An insured's "out-of-pocket" costs under major medical expense plans include
the deductible, cost-sharing amounts arising from the operation of the coinsurance
clause, and medical expenditures that are deemed by the plan to be in excess
of "reasonable and customary" charges. Only charges that are "reasonable and
customary" for a specific type of service, in a particular location or geographic
area, are eligible for reimbursement under medical expense plans. The definition
of "reasonable and customary" may vary somewhat from one medical expense plan
to another.
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What is the coinsurance clause in medical expense
plans and how does it work?
Coinsurance, sometimes called "percentage participation," requires the
insured to share in the cost of medical care. Under an 80/20 coinsurance provision,
the medical expense plan pays 80 percent of eligible medical charges above any
deductible. The insured is required to pay the remaining 20 percent. Other coinsurance
arrangements, e.g., 70/30 or 90/10, are sometimes used. In the event of large
or catastrophic medical expenses, an insured might suffer severe financial hardship
due to the operation of the coinsurance clause. To compensate for this possibility,
many major medical expense plans contain a coinsurance cap, or stop-loss limit.
This provision places a limit on the insured's out-of-pocket costs in a given
year arising from the operation of the coinsurance clause. The size of the coinsurance
cap generally ranges from $2,000 to $3,000, depending on the plan, although
limits as low as $1,000 are sometimes used. Once the coinsurance cap has been
reached, all eligible expenses above this amount are paid in full, up to the
plan's overall limit of coverage.
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What is the difference between coinsurance and copayment?
On occasion, these terms have been used interchangeably. However, it is preferable
to define the two terms differently, despite their similarity of purpose. Under
a copayment or copay provision, the insured usually is required to pay a set
or fixed dollar amount (e.g., $3, $5, or $10) each time a particular medical
service is used. Copay provisions are frequently found in medical plans offered
by health maintenance organizations (HMOs) where a nominal copayment is applied
to each office visit and to each prescription that is filled.
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What is a preexisting conditions clause and what
is the effect of its inclusion in major medical expense plans?
A preexisting condition is often defined as a medical condition (i.e.,
an injury or illness) that required treatment during a prescribed period of
time, e.g., 3 or 6 months, prior to the insured's effective date of coverage
under the major medical expense plan. Sometimes, a preexisting condition is
defined to include medical conditions that were known to the insured, even though
no treatment was provided during the prescribed period. A preexisting conditions
clause excludes coverage for preexisting conditions for possibly as long as
12 months after the effective date of coverage. Because the definition of a
preexisting condition, and the provisions of the clause itself, may differ considerably
from one plan to another, it is recommended that newly insured individuals (and
prospective insureds) completely familiarize themselves with this policy provision.
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How does the medical expense coverage offered by Health
Maintenance Organizations (HMOs) differ from the coverage provided under basic
and major medical expense plans?
Basic and major medical expense plans are generally classified as indemnity
contracts. These plans indemnify, or reimburse, the insured for medical expenses
incurred and typically require the completion and filing of claim forms. In
addition, these plans usually contain deductible and coinsurance cost sharing
provisions and may restrict coverage for certain types of medical care expenditures.
Indemnity plans, however, provide the insured with substantial freedom relative
to the choice of physician, including whether a primary care physician or a
specialist will be seen. In contrast, HMO coverage emphasizes comprehensive
(including preventive) care and typically contains very few exclusions, no (or
small) deductibles, and nominal copayments. However, there is much less freedom
of choice of physician under traditional HMO coverage since the patient is typically
required to be under the care of a primary care physician who serves as a "gatekeeper."
In this role the primary care physician determines whether the services of a
specialist are needed, in addition to determining what other medical services
are required for treatment. Some HMOs today offer a point-of-service option,
whereby patients may opt for indemnity type coverage (with a deductible and
coinsurance) when they desire medical treatment outside the HMO network.
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