►BASIC MEDICAL EXPENSE PLANS

• Basic medical expense insurance is sometimes called "first dollar insurance". Unlike major
  medical expense insurance, it provides benefits up front without having to satisfy a
  deductible

• Basic medical expense policies classify their coverages according to general categories of
  medical care: hospital expense, surgical expense, and physicians’ (nonsurgical) expense

• Basic medical expense insurance typically has lower benefit limits than major medical
  insurance

• The benefits provided by basic medical expense insurance are lower than the actual
  expenses incurred

• A particular fee charged by a physician or other health professional is called a usual,
  customary, and reasonable expense

Hospital Expense Policies

• Cover hospital room and board, miscellaneous hospital expenses (such as lab and x-ray
  charges), medicines, use of operating room, and supplies

• These expenses are covered while the insured is confined in a hospital

• There is no deductible and the limits on room and board are set at a specified dollar amount
  per day up to a maximum number of days

• Hospital room and board benefits cover expenses for occupancy of the room and bed, general nursing care, food and beverages, and personal hygiene items

Note: These limits may not provide for the full amount of hospital room and board charges incurred
by the insured. For example, if the hospital expense benefit was $200 per day and the hospital
actually charged $400 per day, the insured would be responsible for the additional $200 per day

Surgical Expense Policies

• Commonly written in conjunction with hospital expense policies

• These policies pay for the costs of surgeons' services, whether the surgery is performed in or
  out of the hospital

• Coverage includes surgeon’s fees, anesthesiologist, and the operating room

Approaches

There are three different approaches used by insurers in providing surgical expense coverage
and determining the benefits payable. These are: the surgical schedule approach, the reasonable and
customary approach, and the relative value scale approach.

• Under the surgical schedule approach, every surgical procedure is assigned a dollar amount by
  the insurer

• Under the usual, customary, and reasonable approach (UCR), the surgical expense is compared
  to what is deemed reasonable and customary for the geographical part of the country where
  the surgery was performed. The usual, customary, and reasonable approach is the maximum
  amount an insurer will consider eligible for reimbursement under a health insurance plan.

• The relative value approach is similar to the surgical schedule method. The difference is that
  instead of a flat dollar amount being assigned to every surgical procedure, a specified set of
  units is assigned. The policy will carry a stated dollar-per-units amount (known as the conversion
  factor) to determine the benefit.

Physician Expense policies

• Often referred to as Basic Physician Nonsurgical Expense Coverage because it provides
  coverage for nonsurgical services a physician provides

• Basic medical expense coverage can be purchased to cover emergency accident benefits,
  maternity benefits, mental and nervous disorders, hospice care, home health care, outpatient
  care, and nurses' expenses

• Regardless of what type of plan or coverage is purchased, these policies usually offer only
  limited benefits that are subject to time limitations

► MAJOR MEDICAL EXPENSE PLANS

Major medical expense plans offer broad coverage under one policy:

• Benefits for reasonable and necessary medical expenses, subject to policy limits

• Comprehensive coverage for hospital expenses (room and board and miscellaneous expenses,
  nursing services, physicians' services, etc.)

• Catastrophic medical expense protection

• Benefits for prolonged injury or illness

• Unlike the basic medical expense plans, these policies usually carry deductibles, coinsurance
  requirements, and have large benefit maximums

• Coverage is provided for both inpatient and outpatient hospital expenses

• Hospice benefits under a major medical plan normally includes coverage for pain management, home-
 based services, and counseling

• The list of prescription drugs covered by a pharmacy benefit is called a drug formulary

Major medical expense insurance usually picks up where basic medical expense insurance leaves off in
one of two ways: as a supplement to a basic plan or as a comprehensive stand-alone plan.

Supplementary Major Medical

• These policies are used to supplement the coverage payable under a basic medical expense
  policy

• After the basic policy pays, the supplemental major medical will provide coverage for expenses
  that were not covered by the basic policy, and expenses that exceed the maximum

• If the time limitation is used up in the basic policy, the supplemental coverage will provide
  coverage thereafter

Comprehensive Major Medical

• Combines the features of basic expense coverage and major medical coverage, sold as
  one policy

• Cover practically all medical expenses, hospital, physicians, surgical, nursing, drugs, laboratory
  tests, etc.

• Comprehensive major medical policies include a deductible (usually a single deductible per
  person and per family, but corridor deductible may also apply), coinsurance, and are generally
  sold on a group basis. An example of a comprehensive health policy is a major medical policy.

• Most major medical plans contain a “lifetime maximum benefit” that limits the insurer’s total exposure under a contract, while few contain a “per cause maximum benefit” which limits the medical expenses covered for each cause

►DEDUCTIBLES

A deductible is a stated initial dollar amount that the individual insured is required to pay before
insurance benefits are paid. Deductibles are used primarily to help control the cost of premiums
and reduce overutilization of medical services. The term “deductible” is used most frequently
with major medical insurance policies. There are three kinds of deductibles: flat, corridor, or
integrated.

Flat deductible

• A stated dollar amount that applies to a covered loss (e.g. $500). This deductible is applied per
  occurrence, per insured individual. Sometimes referred to as an “initial deductible”.

Corridor deductible

• When a major medical policy is supplementing basic coverage (that contains no deductible),
  the corridor deductible is not applied until the basic coverage has been exhausted

Integrated Deductible

• Used when a major medical plan is supplementing basic coverages. Example- If the major
  medical has a $500 deductible and the insured has basic coverage of $500 or more, then, in
  the event of a claim, the amount paid by the basic coverage satisfies the major medical
  deductible. However, if the basic does not cover the entire deductible amount of the major
  plan, the insured is required to make up the difference

Per-Cause Deductible

In a per-cause deductible, the insured must satisfy a deductible for each accident or illness.

All-Cause Deductible

In an all-cause deductible, the insured only has to meet the deductible amount once during the benefit period.

Carryover Provision

This policy feature allows an insured to defer current health charges to the following year’s deductible instead of the current year’s deductible. The major medical deductible carryover period normally applies to expenses incurred during the last three months of the plan year.

►COINSURANCE

Coinsurance is another characteristic of major medical policies. It is a sharing of expenses by the insured
and the insurer and its purpose is to reduce overutilization of the coverages. After the insured satisfies
the deductible, the insurance company pays a high percentage of the additional expenses (usually
75% or 80%) and the insured pays the remainder.

• Coinsurance requires the insured to participate in the payment of expenses

• Typically, the percentage of payment participation required of the insured is 20% and the
  insurance company pays 80%

►STOP – LOSS

• Stop – Loss provision is a feature designed to limit the amount of an insured’s out-of-pocket
  medical expenses

• Often, the stop-loss will state that after the insured has paid a specific amount toward his
  covered expense, the insurer, will pay 100% of the remaining expenses

• Will pay up to the maximum limit of the policy and for remainder of the policy year

►PRE-EXISTING CONDITIONS

• Most policies contain a benefit limitation on pre-existing conditions

• Limitations apply to all pre-existing conditions whether or not the insured declared them on
  the application

• Unlike the impairment rider, the exclusion for pre-existing conditions is subject to the time
  limit for certain defenses

►INTERNAL LIMITS

Certain types of expenses may have limits placed on the dollar amount of certain services or on the
type of service provided. For example, the policy will only pay for a semi-private room, not for a private
room; or it will pay only medical expenses that are usual and customary; or it will pay lifetime alcohol or
drug rehab expenses only up to $10,000, or for 75 days, etc.

►HEALTH SAVINGS ACCOUNTS (HSA)

A Health Savings Account (HSA) is a tax-advantaged medical savings account available to
individuals who are enrolled in a high-deductible health plan. The funds contributed to an account are
not subject to federal income tax at the time of deposit and roll over and accumulate year to year if not
spent. HSAs are owned by the individual and are an alternate tax-deductible source of funds used to
pay for qualified medical expenses at any time without federal tax liability or penalty.

• Health Savings Accounts (HSAs) are designed to help individuals save for qualified health
  expenses that they, their spouse, or their dependents incur

• HSAs contributions are tax deductible. An individual who is covered by a high-deductible health plan can
  make a tax-deductible contribution to an HSA and use it to pay for out- of-pocket medical expenses

• To be eligible for a Health Savings Account, an individual must be covered by a high-deductible
  health plan, must not be covered by other health insurance (does not apply to accident
  insurance, disability, dental care, vision care, long-term care), must not be eligible for
  Medicare, and can't be claimed as a dependent on someone else's tax return

• HSA’s also require enrollment in a health plan that limits out of pocket expenses

Health Reimbursement Arrangements

Health Reimbursement Arrangements are employer-funded, tax-advantaged health benefit plans that
reimburse employees for out-of-pocket medical expenses and individual health insurance premiums.
Unused amounts may be carried forward for reimbursement in future years

• Reimbursements may be tax-free if the employee paid for qualified medical expenses or a
  qualified medical plan

• Health Reimbursement Arrangements must be established by the employer

Medical Savings Accounts

Medical Savings Accounts (MSA’s) were created to help employees of small employers, as well as self-
employed individuals, pay for their medical care expenses. MSA’s are tax-free accounts set up with
financial institution such as banks and insurance companies.

• Qualified medical savings accounts are available for employers with no more than 50 employees

Flexible Savings Accounts

Flexible Savings Accounts (sometimes called Flexible Spending Accounts) are tax-advantaged accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of earnings to pay for qualified medical expenses (such as prescription medication) as established in the cafeteria plan.

►OTHER TYPES OF MEDICAL EXPENSE COVERAGE

Hospital Indemnity Policies

• Pays a specified amount on a daily, weekly or monthly basis to the insured while the insured is confined to
  a hospital

• Payment under this type of policy is unrelated to the medical expense incurred, but based only
  on the number of days confined in a hospital

• Indemnity plans normally only make payments after receiving and reviewing the actual
  hospital bill

• Any health provider may be used

• Pay on a fee-for-service basis

Limited Benefit Policies

• There are a variety of health insurance policies providing limited coverage for specific accidents
  or sickness

• These contracts must specify the type of accident or sickness covered, limited perils and
  amounts of coverage. Benefits may be paid on a reimbursement or indemnity basis.

• Specified disease insurance can cover such things as out-of-pocket payments, noncovered medical
  expenses, and incidental costs

Limited Risk (Dread Disease) Policies

• Provide a variety of benefits for a specific disease such as cancer or heart disease

• Benefits are usually paid as a scheduled, fixed-dollar amount for specified perils or medical
  procedures such as hospital confinement or chemotherapy

Critical Illness Policies

• Pays a lump sum to the insured upon the diagnosis (and survival) of a critical illness

• The insured must survive the illness for a certain period of time (e.g. 30 days)

• The insurer may have a list of critical illnesses they will cover

• Also known as Specified Disease Plans