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What is a “major medical” plan?

Who Is It Right For?

People who desire comprehensive medical benefits, and have only a few medical or budget-related constraints that could impact the cost of paying for coverage.

Basic Types of Major Medical Plans

Plan TypeSuited For:If you:
Copay Plans
(ie. 80/20 Plans)
More traditional - ingeneral with higher premiums and lower deductiblesPeople who prefer the convenience of a copay for routine health-care expenses

People or families with children who have regularly scheduled doctor office visits

People who want copay benefits for prevenive care and prescription drugs
Have multiple doctor visits for you or your family each year and don't mind paying the extra premium for the copay benefit. If your doctor visits are less frequent, consider saving on your premium by paying out of pocket for your doctor visits. Many plans offer significant in-network discounts that help reduce your out of pocket expenses.
100 % Plans
(No Copay)
In general with higher deductibles and lower premiumsPeople who prefer more control over how health insurance money is spent

People or families with less frequent doctor office visits

People who prefer a higher deductible in exchange for less monthly premium
Have less frequent doctor visits for you or or your family each year and would prefer saving money on your monthly premium. If your doctor visits are more frequent, or out of network, consider a more traditional plan with copay benefits.
Health Savings Account - HSA
(Pre-Tax funded Savings Account )
In general higher deductibles, and a pre-tax savings accountPeople looking for more control over how health care money is spent

Families interested in one calendar-year deductible per family

People wh prefer a higher deductible plan in exchange for less monthly premium
Have enough income or savings enough to pre-fund an HSA savings account or may be looking for additional ways to reduce taxible income.

How do they work?

Major medical insurance is a form of health care coverage that provides benefits for most types of medical expenses that may be incurred. Offering more complete coverage with fewer gaps, major medical insurance covers a much broader range of medical expenses – including those incurred both in and out of the hospital – with generally higher individual benefits and policy maximum limits. Of course, this often comes with higher premiums.

Most major medical policies begin paying benefits after the deductible is satisfied. The policy’s deductible is considered satisfied as long as the insured individual can show evidence of having incurred and paid the necessary covered expense. There are essentially two classes of major medical plans: those that provide first dollar coverage, and those that do not. With first dollar coverage, as soon as covered medical expenses are incurred, the policy immediately begins to pay benefits. Consequently, policies with first dollar coverage effectively have a deductible amount of zero. Without first dollar coverage, the insured must first pay out-of-pocket a specified deductible amount, and when that amount of incurred covered expenses has been paid, the policy will then begin to pay benefits.

As an example, let’s assume that before Mr. A’s major medical policy will pay anything, he must pay the first $400 of medical expenses each year. Mr. A does not have first dollar coverage; in other words, he must pay a deductible. Conversely, as soon as Mr. B was hospitalized with an acute illness, his major medical policy began paying for his expenses. He, therefore, does have first dollar coverage, and incurs no deductible. The trade-off is that Mr. B. may incur a higher monthly premium for this benefit. Talk with your health insurance agent for help with decisions about what’s right for you.

Another important feature of major medical coverage is the concept of coinsurance, which is the sharing between the insurance company and the insured of any covered expenses that exceed the deductible amount. (In some regions, this is also known as percentage participation.) The insurer always carries the bulk of these expenses, usually paying 80% while the insured is responsible for the remaining 20%. Other proportions (as stipulated in the particular policy) may also be used, such as 70/30, 90/10, and even 100%.

Coinsurance works in this manner: Ms. C’s major medical policy has a $200 deductible and 80/20 coinsurance. She incurs covered medical expenses totaling $1,200. Ms. C must first pay the $200 deductible. This leaves $1,000 of expenses to be shared on an 80%/20% basis, she being responsible for the lower amount, or an additional $200. The insurance company must pay $800 of remaining $1,000 (the 80% share). Ms. C, therefore, has to pay $400 of the total $1,200.

It is very important to weigh the risks and benefits when comparing high or low deductible plans, with their monthly premiums and covered benefits. Talk with your health insurance agent to help pick the plan that’s right for you.