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Major Medical

Indemnity health insurance comes in several common variations. The variations are based on specific coverage limitations that change the traditional indemnity policy substantially-so that it becomes, for all purposes, a different kind of coverage.

The most common variation in 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.

Because it covers costs related to hospitalization and has high deductib1es, major medical is usually an insurance company's favorite kind of health policy. It can work well for you-as an insurance consumer-too. But you have to look at this coverage as one part of a larger approach to buying health insurance.

In other words, the major medical approach to hospitalization coverage is designed to provide you with protection against catastrophic expenses that are a genuine risk in today's world. You need to think of major medical as an approach because there are a lot of expenses that the plans don't cover. And you'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.

The Concept

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
• co-insurance . stop-loss provisions
• annual restoration provisions We will consider each of these items in some detail.

The deductible associated with a major medical policy has essentially the same function as it does for any other type of insurance-whether health or car or homeowners. For example, you are responsible for the first $100 of medical expenses related to a hospital visit-your insurance company pays the excess covered medical expenses.

The deductible may be expressed as a calendar year deductible or as a per cause deductible. A calendar year deductible means that you satisfy the deductible once in a calendar year.

A per cause deductible is similar to the deductible found in the auto policy. Each time you ding a fender, you are responsible for a deductible. A per cause deductible basically states that each medical claim you incur will have a deductible requirement. Thus, if you had three claims, three deductibles would need to be satisfied before your insurance company would begin to pay benefits.

Another version of the calendar year deductible is the family deductible. Most plans will specify an individual deductible such as $ 250 and a family deductible equal to two or three times the individual deductible. So, if the plan had an individual deductible of $250 and a family deductible of $750, after the family incurred expenses totaling $750, there would be no further deductibles for the balance of that calendar year.

Most <;!f the major medical plans contain a deductible carryover provision. If you haven't incurred any claims or received any benefits from the plan, expenses incurred in the last three months of a calendar year may be applied toward the new year's calendar deductible.

In this case, if Scooter has .no claims in most of 1998 but does incur $100 of covered medical expenses in November 1998, he can apply that $100 toward the annual deductible for 1999.

Deductibles do have a large effect on the cost of major medical plans. A plan with a $100 deductible will cost considerably more than a plan with a $1,000 deductible. So, if you want to save premium dollars, select a plan with a higher deductible-it will reduce the cost of the premium.

Co-insurance Provisions

Once your deductible is satisfied, the major medical insurance company will then pay for covered medical expenses, on a co-insurance basis. (As we've seen, coinsurance-sometimes called co-payment-means that you and the insurance company split the cost of a claim. The company usually pays the larger part and you pay the smaller part.)

Co-insurance requirements are typically expressed as 80 percent to 20 percent, 70 percent to 30 percent, 60 percent to 40 percent, etc. So if you have a plan with an 80 percent to 20 percent co-insurance requirement, your insurance company will pay 80 percent of the covered expenses following the deductible and you are responsible for the additional 20 percent of the expenses.

Just as deductibles affect the cost of a plan, so too will coinsurance. An 80/20 percent co-insurance provision will carry a higher premium than a 70/30 percent or 60/40 percent coinsurance feature. If you need to keep your premium low one way to meet this goal is to have a high deductible and a low co-insurance provision such as 60/40 percent.

This is another mechanism that insurance companies can use to limit the impact of insureds who have histories of health problems., If you've had heart bypass surgery and beaten a mild case of skin cancer, you may have to settle for a major medical policy that includes a high deductible-say, $5,000-and a heavy co-insurance split-say 60/40 percent.

Stop-loss Provision

The co-insurance requirement continues until you reach the policy's stop-loss point. The stop-loss is the point at which the insurance company begins to pay 100 percent of a claim. Without a stop-loss, you would be responsible for 20 percent of an indefinite amount such as $100,000 or even $1 million.

The stop-loss amount will vary. It could be reached at $2,500, $5,000 or $10,000 of covered expenses. For example, a plan with a $250 deductible and an 80/20 percent coinsurance split on the next $2,500 of covered expenses would result in a total out-of-pocket expense to the insured of $750-the $250 deductible plus 20 percent of $2,500: The stop-loss provision establishes the maximum out-of-pocket expense to you to be equal to the deductible plus the your coinsurance amount.

The stop-loss point is also a contributing factor in the policy's premium. The higher the stop-loss-the lower the premium. A stop-loss at $ 2,500 will cost more than a stop-loss at $10,000. Thus, if you want to keep the premium as low as possible, the formula becomes:

High deductible + low co-insurance + high stop-loss

Annual Restoration Provision

Let's look again at the major medical plan as consisting of a bag of money-holding a large amount, possibly $1 million, $ 2 million, etc. This sum is the maximum amount available for claims. You incur a claim subject to the plan's deductible and co-insurance requirements (including the stop-loss point).

Whatever the total claim amount, it will be deducted from the bag of money leaving a smaller sum for future claims.

The annual restoration provision puts back a certain amount of major medical dollars used each year. These amounts are generally small, such as $2,000, $3,000 or $5,000 per year.

If Scooter's plan contained a $5,000 restoration provision, one year after his claim (and, assuming he doesn't have such a hard-luck existence) the total amount available for future claims would be increased to $710,900. After two years it would be $715,900-and so forth.

The size of a claim is usually several times larger than the amount restored. Many view this as a token reassurance that some sum of money will be in the plan for claims. If the plan only has a $1 million lifetime maximum, it is possible to exhaust this sum with a major illness such as a prolonged battle with cancer. To offset this disadvantage, many insurers today provide major medical plans with $2 million lifetime maximums or unlimited maximums.

A $2 million dollar maximum is more realistic with regard to the size of typical claims. Even with a major prolonged illness, it would be difficult to exhaust benefits of $ 1 million. -

MAJOR MEDICAL INSURANCE

Deductible Co-insurance Stop Loss Must be satisfied The insured pays - The insurer pays before any a small part of 100% when stop benefits are paid the claims loss is reached

Usual, Customary; and Reasonable Charges

Co-insurance amounts are based on what the insurance company considers the usual, customary, and reasonable (UCR) expenses or charges. In addition, when the stop-loss is reached, the insurer will pay 100 percent of the VCR expenses. The introduction of reasonable and customary language into the policy means you may incur some additional out-of-pocket expenses-if the expenses incurred are not considered reasonable and customary.

Example: Julie has an tonsillectomy performed in a small farm community in central Nebraska. She is charged $1,500 for the procedure. By coincidence, julie's friend Suzy has the same procedure performed at a New York City hospital and her charge is $ 2,000. It's possible that Julie's incurred expense of $1,500 for the tpnsillectomy would be considered reasonable and customary by her insurance company It is also conceivable that Suzy's $2,000 charge would be reasonable and customary for 'the New York City area. If so, their claims would be paid in full by their respective insurance companies.

On the other hand, assume that Julie incurs a $2,000 charge for her tonsillectomy. She hasn't reached the stop-loss point but has satisfied her deductible. Julie's insurance company will pay 80 percent of $1,500-the UCR charge-or $ 1,200. Julie is responsible for 20 percent ($300) and now she must contend with a $500 excess charge. Her insurance company views the $500 as excess 'or unreasonable for that part of Nebraska. Julie has to pay $800 out of her own pocket to cover the expense. The excess is an additional out-of-pocket expense for Julie which is not counted by the insurer towards the stop-loss point or any other provision of the policy.

What can someone dealing with a UCR dispute do? One option-the one that insurance companies and health care providers hope you will choose-is simply to pay the difference and forget it. Another option is to appeal the decision with the insurance company's internal review structure. A third is to file a complaint with state regulatory authorities, though major medical insurance companies are usually allowed wide discretion in setting UCR fee schedules.

But there's a less contentious approach that often works. Explain to your health care provider that your insurance company uses a UCR limit that's lower than the fee you've been charged. If you back this argument up with the insurance company's paperwork, you may be able convince the provider to bring the bill in line with the UCR fee schedule.

In Julie's case, she could tell her doctor that her insurance company considers $1,500 to be a UCR fee for her tonsillectomy and will only reimburse that amount. The doctor may agree to accept the insurance company's reimbursement andJulie will only owe the $300 co-insurance portion. If the doctor insists that the full amount be paid, Julie could simply ignore the bill-and the doctor's collection efforts which will likely follow: There is always a chance that the doctor will give up. But that's a risky approach that most people should probably avoid to protect their credit ratings.

The problem with UGR disputes is that a aoc(or may nof con~ider a high fee to be y.nreasonabl~-only the insurance company doeS. And you are caught; in the mic;!dk Unfortunately, there is no simQle answer when the insurance company deems a chatge t9 be unreasonable.

One obvious preventive measure is to ftnd out the cost of a procedure before it becomes a claim and then check with the insurance company to determine how much of this charge will be paid. This gives you the chance to discuss the fee with your doctor, before incurring any expense. And your doctor will probably be more inclined to reduce the fee before it becomes a claims matter.

Another alternative is to find a doctor or surgeon who will perform the surgery for the UCR charge as determined by the insurance company. However, this is probably an unacceptable option because, if you are considering having surgery or some similar medical work, you have enough to worry about without shopping for a bargain from an unknown doctor. People usually take the position that they buy major medical insurance because they'd prefer to have surgery done by their own doctors.

- - Therefore--as difficult as it may be-the best strategy is to get a cqpy of your insurance company's tJCR'fee~schedule to your provider before you tlndcrgo major treatment.

Major Medical vs. Basic Medical For many, major medical is the most feasible health care plan in spite of its deductible and co-insurance provisions. The "bag of money" concept works better-is more affordable or available-in the present health care environment than a pure indemnity plan's first-dollar coverage approach.

An important point: With the major medical approach, not only inpatient expenses are covered but outpatient expenses are, too. Outpatient diagnostic services, doctors office calls, etc., are covered expenses under the major medical plan. The same bag of money used to pay inpatient expenses can be used to cover outpatient expenses subject to the plan's deductible and co-insurance features. In addition, the major medical approach may not involve the limitations of time and money that a basic plan does.

The major medical plan will have a lifetime maximum . benefit such as $1 million or $2 million. Some plans are even written with an unlimited lifetime maximum. This form of limitation is much more workable than one which limits dollars for specific expenses such as surgery and room and board expenses. It is unlikely that an insured will "run out of money" with the major medical plan.

Comprehensive Medical Expense Policies

As we've already seen, major medical coverage is considered hospitalization insurance. It doesn't cover all medical expenses-the way that tra~litional indemnity coverage does. What do you do about these other expenses? Paying for them out-of-pocket is the simplest option. But you need to be cash-rich to do this. So, most people will look for some kind of insurance to add on to their major medical.

An additional challenge to a smart insurance consumer is that many companies don't sell traditional indemnity health coverage that startS with the first dollar. These companies force policyholders to start with major medical and build additional coverage from there.

The comprehensive plan is simply a combination of:

Basic Medical Expense + Major Medical

This may seem like a long way to walk around the insurance block in order to get back to something like the traditional indemnity coverage we've considered earlier. It is. The long walk is a testament to how convoluted insurance coverage can be.

The comprehensive plan consists of a block of first dollar benefits followed by a deductible and a typical major medical plan. This plan might specify that 100 percent of the first $ 5,000 or $10,000 of reasonable and customary expenses will be covered. Once this bundle of first dollar benefits is exhausted, you must satisfy a deductible, usually referred to as a corridor deductible, and then the major medical benefits are activated.

All of the provisions common to a basic hospitalization plan as well as the provisions and concepts related to major medical plans, ie., deductibles, co-insurance, stop loss, etc., are found in this type of plan.

Total benefits provided by the comprehensive plan are $18,500 which is the same 92 percent of covered expenses we saw with the regular major medical plan. In other words, as long as the expenses exceed the package of first dollar benefits ($10,000) and the deductible and co-insurance amounts (an additional $5,500), there is no difference in the benefits provided.

There usually will be a difference in the premium, since a higher premium Will be charged for the block of first dollar benefits in the plan. You are getting into your insurance company's pockets immediately (up to $10,000) when a claim is incurred, so you will have to pay for this by means of a higher premium.

In small claim situations, the extra premium for the comprehensive plan has to be weighed against the likelihood of a small claim of a few thousand dollars. By today's health care costs, it is difficult to spend a few days in a hospital, have surgery and not incur expenses exceeding $10,900.

Comprehensive plans vary, but generally cover the same kinds of services. Some of these include:

• professional services of doctors of medicine and osteopathy and other recognized medical practitioners
• hospital charges for semiprivate room and board and other necessary services and ~upplies
• surgical charges
• services of registered nurses and, in some cases, licensed practical nurses
• home health care
• physical therapy
• anesthetics and their administration
• x-rays and other diagnostic laboratory procedures . x-ray or radium treatment . oxygen and other gases and their administration . blood transfusions, including the cost of blood when charged . medicine requiring a prescription . specified ambulance services . rental of durable mechanical equipment required for therapeutic use
• artificial limbs and other prosthetic except replacement of such appliances
• casts, splints, braces and crutches
• rental of a wheelchair or hospital bed appliances,

Major medical coverage is considered by many people with histories of health problems to be a realistic and comprehensive approach to getting indemnity-type coverage for health care expenses. The major medical plan provides a supply of money to be used over the lifetime of the insured. After the deductible is satisfied, you and your insurance company co-insure claims expenses by means of the plan's coinsurance requirements.

Co-insurance only applies to a specific amount of expenses up to the stop-loss amount. Once this figure is reached, your losses stop and your insurance company pays the claim in full thereafter.

Major medical plans usually contain an annual restoration provision whereby a small amount of money is restored to the plan each year after plan dollars have been used to pay medical expenses.

Expenses are covered based on the premise of UCR fees. The plan's co-insurance provisions will provide coverage for those expenses deemed reasonable and customary by geographical reason per the research of the insurance company.

Some people supplement major medical coverage with basic medical expense coverage to create a comprehensive health insurance package. This somewhat complex approach is made necessary by the fact that many people can't qualify for or afford traditional indemnity coverage-and the fact that some insurance companies don't sell traditional indemnity coverage.