How Does Major Medical Health Insurance Work?


Chart to explain what to look for in health insurance.

During the recent health care reform debates, the term, “health insurance” was used over and over.  The politicians and press talked as if everyone understands what “health insurance” means.

After 24 years as an insurance agent, I know what a mistake it is to assume that people understand what a technical term means.  “Health insurance” is a very broad topic.  There are many different types of policies that are called “health insurance.”

The type that is regulated in the Patient’s Protection and Affordable Care Act, aka Obamacare, is called Major Medical insurance.  It is the most comprehensive type of health insurance.  In many ways, it is also the most complicated.

In this post I will attempt to explain the 4 features that are common to all major medical insurance policies.

1. DEDUCTIBLE

A deductible is a risk management technique.  The fancy term for it is “Risk Retention.”  Simply put, the policy’s deductible is the amount of medical bills that you agree to pay in full before you get any help from the insurance company.

Every major medical policy has a deductible.  Some people will scream that their policy has none.  Technically, that is incorrect.  Those types of policies have a $ 0 deductible but they still have a deductible.

I have seen policies with everything from a $ 0 deductible to a $ 25,000 deductible.

2.  CO-INSURANCE

Co-insurance is another risk management technique.  The fancy name for it is
“Shared Risk.”  After you have paid 100% of your medical bills during your deductible phase, you are not finished paying.  You and your insurance company will share the costs for your future medical bills.

Co-insurance is usually expressed as a ratio.  The insurance company’s share is usually the first number and your share is usually the last number.  For example, an 80:20 plan means that the insurance company will pay 80 % of your medical bills and you will pay 20 % of your medical bills after you have paid all of your policy’s deductible.

3.  OOP

OOP refers to your policy’s Out-Of-Pocket maximum.  The fancy term for it is, “Stop-loss.”  It is a term that is used to describe the maximum you will have to pay in medical bills.  Once the amount you have paid in co-insurance equals your plan’s OOP, you will be able to stop paying on your medical bills.  Your insurance company will pay 100% of your medical bills according to the terms of your policy.

4.  LIMITATIONS AND EXCLUSIONS

One area that people tend to ignor until it is too late is the policy’s Limitations and Exclusions.  Many policies place limits on what they will pay for or exclude certain conditions completely.

It is important to remember that insurance policies are contracts.  The Limitations and Exclusions are often referred to as, “Fine Print.”  When people complain about an insurance company declining their claim, it is generally going to be because they did not bother to read the Limitations and Exclusions pages of their policies before it is too late.

The Patient’s Protection and Affordable Care Act, aka Obamacare, restricted some of the limitations that insurance companies were able to write into policies, but did not eliminate all limitations and restrictions.

It is still up to you to read and understand your policy.  If the limitations and exclusions are not acceptable, it will be up to you to change plans or get supplements, when available, to make up for what your major medical health insurance policy will not pay.

You need to discover the policy’s limits and exclusions before there are any problems.  Complaining to your state’s department of insurance will only make you more frustrated if your insurance company declines your claim because you made an incorrect assumption.

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