Major Medical (Catastrophic) Insurance

Major medical plans are a special type of fee-for-service plan that generally have very high deductibles. They are designed to provide protection against long-term chronic or catastrophic illness or injury. These plans cover a broad area of health care services and are designed to protect against large medical expenses. Typically included in a major medical plan are:

• the services of private registered nurses
• at-home, in-office, and in-hospital medical care
• X-ray treatment
• prescription drugs
• laboratory tests

Health care reform. The Patient Protection and Affordable Care Act and related legislation heavily regulates the insurance industry, instituting benefit and coverage mandates. Except for grandfathered plans, it mandates that by 2014, all qualified health benefit plans offer at least an "essential health benefits package" as defined by the Secretary of Health and Human Services.

For more information, including the latest health care reform developments, visit the government's health care website.

Advantages of major medical plans. Despite the high deductible, the coinsurance requirement, and the ceiling on the amount of benefits, major medical plans have several advantages over basic benefit plans:

• Instead of covering only certain enumerated expenses, major medical plans cover all personal medical expenses (with a few exceptions) whether incurring in or out of a hospital. Major medical plans are, therefore, more fair because they reimburse virtually all patients according to the same formula, regardless of the specialties of the attending physician, the location of the treatment, the drug treatment used, or the diagnostic techniques employed.
• Unlike many basic plans, major medical plans do not encourage unnecessary or prolonged hospitalization by covering medical service only if it is rendered in a hospital.
• The maximum amount of benefits payable is much higher under a major medical plan than under a basic medical plan, particularly in the areas of physician and surgeon fees.
• Partially reimbursing medical expenses has the combined effect of having a deductible and coinsurance in major medical plans, and offers three advantages over basic plans that provide full reimbursement:
  • It discourages over-utilization of services and unnecessarily expensive treatment and facilities -- both of which raise costs
  • It gives plan participants an incentive to police their own medical fees and keep costs down.
  • It eliminates the payment of many small claims, thereby reducing administrative costs and saving money that would otherwise be spent on higher premiums to offset the additional administrative costs.

Types of major medical. There are two types of major medical plans: comprehensive plans that coinsure all covered medical expenses exceeding the deductible and, less common, supplementary plans that coinsure expenses in excess of the deductible and expenses in excess of those covered by another plan. Both supplementary plans and comprehensive plans place ceilings on the amount of benefits payable for each insured person.

• Comprehensive plans. Comprehensive major medical plans provide coverage for the same types of services covered many other plans. Comprehensive plans also include deductibles and co-payment requirements, but may provide first-dollar coverage (full coverage with no deductible) for emergency accident benefits or waive out-of-pocket expenses for certain benefits.
• Supplemental plans. These plans act as a supplement to another health insurance plan. Supplemental major medical plans cover most medically necessary services excluded under basic insurance plans, as well as charges that exceed the primary plan's limits. Covered services typically include inpatient and outpatient hospital care, special nursing care, outpatient prescription drugs, medical appliances, durable medical equipment, and outpatient psychiatric care. Supplemental major medical plans set deductibles, require co-payments, and often limit total benefits.

Who will like major medical plans? Major medical plans may be popular with lower income earners if they are healthy because the cost is lower than some other, more comprehensive plans. In fact, the premiums are usually lower than they would be with an HMO. Low earners with health problems will not like them because of the deductibles involved.

Health Savings Accounts (HSAs). HSAs require high deductible catastrophic plans.