Medical Expense Insurance

Maternity

maternity benefits are often optional. When elected, the amount of the maternity benefit is often limited. This limitation is frequently the result of the high cost of a maternity claim and the corresponding high premium charged for the benefit. For example, a maternity benefit may be limited to a total benefit of $1,000 regardless of the actual expenses incurred. Usually, the only time additional benefits are paid is when there are certain complications during the pregnancy or at the time of delivery. A very liberal maternity benefit (and a costly one) would be that maternity is treated as an illness and thus a full range of benefits are payable.

In addition to the hospital, surgical, and medical benefits just discussed, there are other benefits that might be included and may be added at the insured's option, or for which separate policies might be written. Different insurers may include different options as part of their standard policies, so each policy must be considered individually. Some coverage options are:

maternity; convalescent/nursing home; emergency first aid; home health care; mental infirmity; hospice care; prescription drugs; dread disease; outpatient treatment; dental; private-duty nursing; and vision.

First dollar coverage

means that as soon as covered medical expenses are incurred, the policy begins to pay. Policies with first dollar coverage effectively have a deductible of zero. Without first dollar coverage, the insured must pay a specified deductible amount first, and when that amount of expenses incurred has been paid by the insured, the policy starts reimbursing. Deductibles are generally an important feature of major medical policies.

Comprehensive Major Medical Benefits Coinsurance

means that the insurer and the insured share any expenses above the deductible amount. The insurer always carries the bulk of the expense, usually paying 80% of covered expenses compared with 20% for the insured. Other proportions, such as 75/25%, may be used, so it is important to read the policy. In some areas, coinsurance is referred to as percentage participation.

Under a reimbursement arrangement, the policy will pay in one of two ways.

1) The actual charges for a semiprivate room are covered. 2) A percentage of the actual charges is paid, with no specific dollar limit. Under the first reimbursement option—actual charges—the insurer will pay the full actual semiprivate room rate, regardless of what it is, as indicated in the illustration that follows. Under this same arrangement, however, the insurer still pays only the semiprivate room rate if the insured must be in a private room, as indicated in the following chart. Under the second reimbursement option—payment of a percentage of the actual charges—the insurance company pays a specified percentage, regardless of what the actual charges are. A common percentage is 80%.

Emergency Accident Benefits

A basic plan may include a specific benefit for expenses incurred as the result of an accident when the insured is taken to the emergency room of a hospital as an outpatient. Typically, this benefit is stated as $300 or possibly $500. The benefit is to cover the cost of treatment in the emergency room including physician expenses, x-rays, stitches, and other services.

Hospital Indemnity Rider

A hospital indemnity benefit provides for the payment of a daily benefit for each day that the insured is hospitalized as an inpatient. Available amounts are usually $50 to $100 per day or possibly slightly higher. In addition to any other medical benefits paid to the insured, the hospital indemnity benefit will pay the daily amount as long as the insured is hospitalized, usually for a benefit period of one or two years.

Mental Infirmity

Although some policies exclude coverage for mental infirmities, more policies now include this coverage than before. Typically, the benefits will be lower than for physical infirmities, usually a stated percentage of the benefit paid for other types of medical care. For example, the physical infirmity benefit might be $100,000, and the mental infirmity benefit 70% of that amount. Alternatively, a policy might specify a particular dollar amount for mental infirmity that is different from the amount for physical infirmity, such as $50,000 for physical infirmity and $25,000 for mental infirmity. Suppose Brad's policy will pay a maximum benefit of $100,000 for any one hospitalization but only 60% of the maximum benefit if the impairment is mental. The most Brad could receive under his particular policy if he is hospitalized for mental infirmity is $60,000, which is 60% of $100,000.

Emergency First Aid Coverage

An accident may require immediate first aid on the scene. When a medical professional who happens upon an accident provides first aid service, that person might bill the insured. Sometimes such treatment must be performed without the insured's knowledge or assent. Some policies offer coverage for such contingencies by including emergency first aid coverage for treatment expenses incurred within a very short time after an accident. This length of time is specified in the policy.

example of coinsurance

An insured's major medical policy includes a $200 deductible and 80/20% coinsurance. The insured incurs medical expenses totaling $1,200. The insured will pay $400 of this amount—the initial $200 deductible—leaving $1,000 to be shared 80/20, of which the insured pays 20%, or an additional $200. The insurance company will pay $800 of the $1,200 total. This is 80% of the $1,000 remaining after the insured has paid the deductible.

Miscellaneous Medical Expenses Benefit

Benefits for miscellaneous medical expenses are generally stated as a limit separate from the room and board benefits. Usually, the limit is expressed as some multiple of the per-day limit for room and board—such as 10 or 20 times—for each period of hospital confinement. For example, a policy might state that it will pay 10 times the semiprivate room rate. If the semiprivate rate is $500 per day, a total of $5,000 (10 × $500) is available for miscellaneous expenses during this single stay in the hospital. If, a year later, the rate has increased to $550 per day, $5,500 will be available.

Under current laws in many states, policies must provide benefits for services given by various providers if benefits would be payable for the same services when given by a physician, as long as the providers are properly qualified and are acting within the scope of their profession. As a result, benefits for various services are often provided and may not be excluded when performed by the following types of health care professionals, if they are practicing within the scope of their license when rendering treatment:

Chiropractors; Optometrists; Opticians; Psychologists; Podiatrists; Clinical social workers; Dentists; Physical therapists; Professional counselors

In-Hospital Physician Visits

Frequently, a basic medical expense policy will include a daily benefit for expenses incurred when the insured's physician visits him in the hospital. This benefit is limited to a dollar amount such as $25 or $30 per day. This amount would be paid for any charges made by the doctor for visiting the patient.

Preexisting Conditions

Generally, a preexisting condition is any condition for which the insured sought treatment or advice before the effective date of coverage. Many policies contain a preexisting conditions limitation that excludes coverage for unspecified conditions for a certain period (usually six months). If an insurer wants to permanently exclude a preexisting condition, it usually has to specify the condition by name in the issued policy. Depending on the severity of the condition, it may be permanently excluded or temporarily excluded (i.e., the first 12 months following the effective date of coverage). Seldom is a preexisting condition covered by means of limited benefit amounts. Generally, it is either excluded or covered in full as any other condition.

Room and Board Benefit

Hospital expense coverage provides benefits for daily hospital room and board and miscellaneous hospital expenses (not including telephone and television) while the insured person is confined to the hospital. The policy may provide for a certain dollar amount for the daily hospital room and board benefit, although the trend is toward coverage of not more than the semiprivate room rate unless a private room is medically necessary. The room and board benefit may be paid on either an indemnity basis or a reimbursement basis, depending on the particular policy. When room and board are covered on an indemnity basis, the insurer pays a specified, preestablished amount per day, as shown in a schedule in the policy, for a stated maximum number of days. Indemnity policies are sometimes called dollar amount plans. Room and board rates vary by geographic location, but it is not unusual to find room and board rates ranging from $300 to $500 per day or more. Typically, the maximum number of days is from 90 to 365. More commonly, room and board expenses are paid on a reimbursement basis. This is also referred to as an expenses-incurred basis. Some room and board benefits include intensive care, which may be paid in full or in part. Hospital plans with this provision generally provide for a maximum intensive care benefit of some multiple of the room and board maximum—usually two or three times. For example, if the room and board maximum is $400 per day, the plan might pay twice that amount, or $800 per day, for intensive care. A limit might also be placed on the number of days for which this benefit will be paid.

Supplemental Major Medical Benefits Covered Expenses

Hospital inpatient room and board, including intensive and cardiac care; Hospital medical and surgical services and supplies; Physicians' diagnostic, medical, and surgical services; Other medical practitioners' services; Nursing services, including private-duty service outside a hospital; Anesthesia and anesthetist services; Outpatient services; Ambulance service to and from a hospital; X-rays and other diagnostic and laboratory tests; Radiological and other types of therapy; Prescription drugs; Blood and blood plasma; Oxygen and its administration; Dental services resulting from injury to natural teeth; Convalescent nursing home care Home health care services; Prosthetic devices when initially purchased; Casts, splints, trusses, braces, and crutches; Rental of durable equipment such as hospital-type beds and wheelchairs. Expenses that are excluded from major medical policies generally parallel the exclusions listed previously in this unit.

Mental or Emotional Disorders

Lifetime benefit amounts are limited for outpatient treatment of these disorders. For example, a major medical policy may have a lifetime maximum of $1 million, but the policy may limit coverage for outpatient treatment of mental or emotional disorders to a lifetime benefit of $25,000. In addition, frequently there may be a limitation with regard to the number of outpatient psychiatric visits per calendar year (such as a maximum of 26 visits per year) or the benefit amount paid per visit (such as a maximum benefit of $50 per visit or coverage for no more than 50% of the actual charges). These limits would not apply to inpatient treatment of mental or emotional disorders. Note: New federal laws effective in 1997 removed these limitations for group coverage.

Comprehensive Major Medical Benefits Stop-Loss Limit and Maximum Benefits

More and more major medical policies include a stop-loss limit, which is a dollar amount beyond which the insured no longer participates in payment of the expenses. The stop-loss limit is sometimes known as the out-of-pocket limit. After the insured's total coinsurance and deductible payments reach that amount, the insurer picks up the entire cost of remaining expenses, up to a stated maximum benefit. Currently, the lifetime maximum limits on health policies might range from $100,000 to $1,000,000, and some policies even have unlimited benefits. Just as the maximum benefit varies considerably, so does the amount of the stop loss limit, depending on the insurer.

Organ Transplants

More insurers are offering this coverage as it becomes less experimental and more commonplace. To provide coverage, many insurers require that a transplant be performed only in life-threatening situations. Some of the more commonly covered transplants include bone marrow and kidney.

Comprehensive Major Medical Benefits Deductibles

Most major medical benefits begin to be paid after the deductible is satisfied. The policy's deductible is considered satisfied as long as the insured can show evidence of having incurred the necessary expense. There are essentially two types of comprehensive major medical plans: one with first dollar coverage and one without.

Hospice Care

Most states require that any hospitalization policy (individual or group) include benefits for hospice expenses. The hospice is a facility designed to control pain and suffering of terminally ill patients until their death. It does not treat diseases, nor does it attempt to cure. In addition, the hospice also provides counseling for the patient and the family of the terminally ill. Expenses covered include room and board, medication, and outpatient services and expenses.

Outpatient Care

Outpatient care refers to expenses incurred by the insured for doctor's office visits and out-of-the-hospital diagnostic services, such as laboratory work and x-rays. Often a basic medical expense policy only covers in-hospital expenses (inpatient) whereby treatment is provided to the patient who has been assigned a room and a bed and is staying in the hospital for some period of time. Basic plans may add coverage for certain medical services provided to the insured as an outpatient.

Substance Abuse

Outpatient treatment for drug or alcohol problems is usually limited in much the same way that coverage for nervous or emotional disorders is limited. Usually, if the insured is hospitalized as an inpatient for treatment of the substance abuse problem, then regular medical expense benefits are payable.

family deductible

Policies that cover entire families usually have a family deductible rather than individual deductibles. For example, although a policy's individual deductible might be $200, the family deductible amount might be $400. Thus, even a family with six members would pay no more than a $400 deductible as opposed to the $1,200 that would be required if each member had to meet the $200 deductible.

Common Exclusions and Limitations

Preexisting conditions, as defined in the policy and according to state law (however, some states have no loss/no gain laws that require a replacing health insurance policy to cover any conditions for which there are ongoing claims under existing coverage, thus overriding the preexisting conditions exclusion in the replacing policy); Hernia, although the trend is to cover this condition; Self-inflicted injuries Suicide; War or acts of war resulting in death or injury, whether or not war is officially declared Military duty, usually a suspension of the policy that ends when the insured is released from such duty Noncommercial air travel, which is any air travel other than as a scheduled airline passenger Injury while committing a felony; Injury, illness, or death while under the influence of intoxicants or narcotics; Cosmetic surgery, except for surgery required as the result of an accidental injury or a congenital defect; Dental expense, although some policies cover such expenses resulting from accidental injury; Vision correction, such as eye exams and eyeglasses; Care provided in a government facility, normally paid by the Veterans Administration or by workers' compensation; Sexually transmitted diseases; Experimental procedures; Organ transplants; Infertility services; Alcohol or drug abuse treatment

Major Medical Insurance

Providing more complete coverage with fewer gaps, major medical insurance covers a much broader range of medical expenses with generally higher individual benefits and policy maximums. These more extensive health policies are divided roughly into two groups

Reimbursement-type medical expense policies frequently provide limited coverage or benefits for certain medical conditions. Many plans will include limitations on the benefits to be provided for the following:

Rehabilitation and skilled nursing/extended care facilities care; Home health care; Hospice care; Ambulance services; Outpatient treatment; Medical equipment and supplies; Reconstructive cosmetic surgery; Treatment of AIDS; Infertility and sterilization; Maternity/complications of pregnancy/well-baby care; Psychiatric conditions; Substance abuse; Organ transplants; Preexisting conditions; Reimbursement for nonphysician services

Regular Medical Expense Benefits sometimes called physicians' nonsurgical expense

Remember that some states refer to this particular category as basic medical expense. Coverage is for nonsurgical services a physician provides. For example, this type of limited benefit might pay for up to three visits per day at $10 per visit for no more than 30 days. In other policies, the benefit might be for nonsurgical services a physician performs whether or not the patient is in the hospital. Again there are limits, such as $25 per visit for up to 50 visits a year.

Hospital indemnities are usually classified into two broad groups:

Room and board, including nursing care and special diets; Miscellaneous medical expenses, including x-rays, laboratory fees, medications, medical supplies, and operating and treatment rooms

Restoration of Benefits

Since lifetime maximums on major medical policies have increased dramatically to $1 million and more, the restoration or reinstatement of plan benefits is not as important as in the past when maximums were much lower. However, some policies in force today carry fairly low maximums, and most major medical policies still include a provision that allows restoration of the maximum to the original level. For example, a lifetime level might be $100,000. An insured with a severe injury or illness could easily use half or more of that in a single year, leaving only $50,000 for the rest of the insured's life. Generally, a policy allows the maximum to be restored after a certain amount of benefits are used, though sometimes the insured must prove insurability again. Many policies have an automatic reinstatement provision that restores a specified number of dollars each January 1, or after a given period elapses, without requiring the insured to prove insurability.

Maternity Benefits

Some policies provide maternity benefits subject to certain conditions and limitations—the most usual of which is a 10-month waiting period designed to prevent purchase of health insurance solely to cover pregnancy and childbirth expenses. You should be aware, however, that group policies for employee groups of 15 or more are required by law to provide maternity benefits on the same basis as nonmaternity benefits. Thus, under a group plan with 15 or more employees, a 10-month waiting period would not apply unless nonmaternity benefits also required a 10-month waiting period. Note: Since June 1, 1997, pregnancy may not be subject to a waiting period if the worker has already met the waiting period required by the group coverage of a previous employer.

Supplemental Major Medical Benefits example

Suppose Jill has a supplemental major medical policy. The basic policy will pay $500 for her scheduled surgery. The corridor deductible is $250, and the plan includes an 80/20% coinsurance provision above the base plan, up to a stop-loss level of $5,000. The policy will pay 100% of covered expenses above the $5,000 limit, up to a limit of $1 million. Jill has covered medical expenses of $4,750 following an illness. (insurance pays 3700 and Jill pays 1050) Let's change the scenario slightly. If Jill's expenses had totaled over $5,000, she would pay nothing over that amount because the insurer pays 100% of covered expenses over the stop-loss limit, which is $5,000 in Jill's policy. Here's another possibility. If Jill's expenses had totaled only $400 for benefits the basic policy provides, she would have paid nothing because her basic policy provides first dollar coverage.

Surgical Expense Benefits Scheduled Plan

Surgical expense policies pay surgeons' fees and related costs incurred when the insured has an operation. Related costs might include fees for an assistant surgeon, an anesthesiologist, and even the operating room, when it is not covered as a miscellaneous medical item. Basic surgical coverage is often included in the same policy as basic hospital and medical expense. Benefit amounts are included in a schedule that lists major commonly performed operations and benefits payable for each. The fact that a particular type of surgery is not listed in the schedule does not mean that no benefit is available to cover it. Instead, insurers indemnify on the basis of the absolute value and the relative value of each surgical procedure. In some cases, the schedule itself may be referred to in terms of the maximum benefit paid for the most costly procedure, with all other surgical benefits paid as a percentage of that maximum. For example, under a $10,000 schedule, that amount might be paid for open-heart surgery. A less complex procedure, such as a tonsillectomy, might trigger a benefit equal to 10% of that, or $1,000.

Here are some examples of situations that would be excluded by most policies.

The insured is severely cut while breaking the plate glass window of a jewelry store from which he intends to steal gems (injury while committing a felony). When the insured is injured in an auto accident, the police administer an alcohol test and discover he is legally intoxicated (injury while under the influence of intoxicants). The insured is injured by shellfire while touring another country torn by guerrilla fighting (injury caused by an act of war).

Prescription Drugs

The prescription drug benefit is most often found in group health insurance policies. Some individual health insurance policies offer this benefit as a rider. Different policies offer different prescription card benefits. For example, some policies will cover birth control pills as part of the benefit, and in other policies, birth control pills are specifically excluded. Usually prescription drug coverage requires a small deductible, typically $2, $3, or $5. A prescription drug benefit generally works one of two ways. Either insureds can be reimbursed for their prescription drug expenses using standard claim forms, or a prescription drug card can be issued. A prescription drug card allows prescriptions to be received by paying only the deductible with each prescription purchase. The pharmacy bills the insurer issuing the card directly for the prescription.

Benefit Periods and Inside Limits

The times during which benefits are paid, known as benefit periods, are generally tied to the deductible and to any inside or internal limits included in the major medical policy. When a deductible must be paid, the benefit period might begin either on the first day of the accident or illness or on the date the insured has satisfied the deductible (if later than the date of the event) and may extend for up to two years. In other cases, the benefit period ceases at the end of the calendar year and begins anew with the new deductible.

Chiropractic Services

The treatment rendered by a chiropractor is normally a covered expense subject to a limitation with regard to total benefits (e.g., $10,000 lifetime) or a limitation with regard to the number of visits that will be covered in a given year and/or the amount that may be paid per visit.

Other Major Medical Concepts Deductible Features

There are a number of ways deductibles might be handled in major medical policies. Some policies include a per-cause—injury or sickness—deductible, whereas others may have an all-cause deductible, which is also referred to as a cumulative, or calendar year, deductible.

Home Health Care

This is usually an optional benefit that provides for reimbursement of expenses incurred by the insured for the services of a visiting nurse, a therapist, or some other support-type person who, because of a medical necessity, visits the insured in the home and provides necessary medical services.

Nursing or Convalescent Home

Under this benefit, a daily maximum amount is paid for each day the insured is confined to a nursing or convalescent home after a hospital stay. Benefits are paid generally for as short as one month or up to one year.

common injury or illness provision

Under this provision, only one deductible must be paid when two or more members of the same family are injured in a common accident or become ill concurrently from the same sickness. Suppose Myra and Rick, wife and husband, are riding in Rick's car when they are both injured in an accident on the freeway. The deductible for each person under their health policy is $200, but their policy requires them to pay only $200 in this case.

Vision Care

Vision care includes eye examinations (refractions) and eyeglasses. It is usually offered as an optional benefit under group health insurance. Generally, this option will pay a specific amount or the entire cost of an annual eye examination. It normally also covers all or part of the cost of prescribed eyeglasses once in every two-year period.

Supplemental Major Medical Benefits

When major medical benefits are provided through a supplemental policy, the major medical portion supplements a basic policy that includes hospital, surgical, and medical coverage with an additional policy covering the broader range of medical expenses. Generally, the basic plan will pay covered medical expenses with no deductible, up to the policy limit. Above that limit, the supplemental policy operates identically to a comprehensive policy that provides no other first dollar coverage. That is, after the basic policy limits are exhausted, the insured must pay a deductible, after which the major medical coverage begins. Because the deductible comes between the basic policy and the major medical policy, it is often called a corridor deductible. Like the comprehensive major medical policy, a supplemental plan is likely to include a stop-loss limit and a maximum benefit limit.

Surgical Expense Benefits Nonscheduled Plan

When surgical benefits (and sometimes other benefits) are not listed by a specific dollar amount in a schedule, a policy will pay on the basis of what is considered usual, customary, and reasonable (UCR) in a certain geographic area. This type of indemnity is found more often in the major medical and comprehensive policies discussed later in this unit. Under this type of arrangement, the definition of UCR is based on the amount physicians in the area usually charge for the same or similar procedures. These nonscheduled plans allow policies to stay apace of inflation and to avoid policy restructuring every time medical costs increase. The insurer still reserves the right to agree or disagree that a particular charge is usual, customary, and reasonable.

per-cause deductible

With a per-cause deductible, the insured pays one deductible for all expenses incurred for the same injury or illness. The benefit period for each cause begins when the deductible for that particular injury or illness has been satisfied and may run for one or two years.

Medical expense policies contain many exclusions that are found in all health and disability policies: preexisting conditions, war, intentionally selfinflicted injuries, and active military duty. Medical expense policies also commonly exclude the following:

Workers' compensation; Government plans (care in government facilities); Well-baby care; Cosmetic surgery; Dental care; Eyeglasses; Hearing aids; Custodial care; Routine physicals and medical care

Sometimes, regular medical expense benefit is narrowly applied to physician visits to patients confined in the hospital. If so, the benefit will usually pay for:

a specified maximum number of visits per day; a specified maximum dollar amount per visit; and a specified maximum number of days that coverage applies.

Inside or internal limits

are benefit limitations placed on specified coverages in a major medical policy. For example, the policy might limit both the room and board benefit and the number of days benefits will be paid. In this case, the benefit period for hospital room and board would be the number of days specified. Other examples of internal limits might be restrictions placed on convalescent care days, mental health care, x-rays per claim, and similar items.

Other benefits that might be available under the same maternity coverage but scheduled at amounts different from the benefit for normal childbirth include:

cesarean deliveries; natural abortions; and elective abortions.

Supplemental major medical expense

coverage begins with a traditional basic policy, which pays first, and the major medical coverage is added to pick up expenses not covered by the basic policy

Hospital Expense Benefits

provides benefits for expenses incurred during hospitalization. In some cases, surgical benefits may be included for certain types of surgery and associated costs.

Medical expense insurance

provides benefits for medical care. Contracts may provide for payment of medical expenses incurred on a reimbursement basis (by paying benefits to the policyowner), payment on a service basis (by paying those who provide the services directly), or payment of an indemnity (by paying a set amount regardless of the amount charged for medical expenses). Medical expense or hospitalization insurance may be written on an individual or group basis. Benefits provided cover the individual and eligible dependents. Although there are many types of benefits available, medical expense insurance can generally be categorized as basic medical expense insurance, major medical insurance, comprehensive medical insurance, and special policies. Note that these products have largely been replaced by managed care alternatives and are no longer sold as stand-alone coverages. These types of plans have been modified and replaced in response to changes in the health care field relative to cost containment and market competition. However, an understanding of basic medical, hospital, and surgical plans can serve as a foundation for understanding the hybrid plans currently being marketed. Basic coverages provided by an individual medical expense policy include hospital expense, surgical expense, and medical expense. These three basic coverages may be sold together or separately. Frequently this is written as "first dollar" coverage, which means it does not have a deductible.

Comprehensive major medical expense

the more traditional basic coverages and essentially any other type of medical expense are combined into a single comprehensive policy

Aside from group plans as described, many policies exclude maternity benefits but make them available at extra cost. Often, a maternity benefit is a lump sum paid for normal childbirth. The actual amount might be:

usual, customary, and reasonable charges; a specified amount; or a multiple of the daily hospital benefit. The benefit generally includes routine newborn care while the mother is hospitalized.

all-cause deductible

with an all-cause deductible, expenses for any number of different or the same type of illness or accidents are accumulated to meet the deductible during a single calendar year. Once enough expenses have been paid by the insured to meet the stated deductible, all other covered charges are paid during the remainder of the calendar year. Under the all-cause deductible arrangement, there is also usually a carryover provision that permits expenses incurred during the last three months of the calendar year to be carried over into the new year if needed to satisfy the deductible for the next year.