MEDICAL INSURANCE (Last of Two Parts)

Up to this point we have discussed “basic” benefits that are designed to cover some hospital, medical and surgical costs that are primarily considered to be minor. When purchased individually, these benefits can be substantially less than actual costs incurred.

Here is where Major Medical coverage enters the picture. Major Medical covers a broader range of medical expenses providing more complete coverage. Generally speaking, these more extensive types of policies fall into two categories:

1. Comprehensive. This is the more traditional basic coverage and any other type of medical expenses are combined into a single policy.
2. Supplemental. This coverage usually begins with a traditional basic policy. That coverage pays first and the major medical coverage is added to include expenses that are not covered by the basic policy.

The primary distinction between supplemental and comprehensive major medical coverage is that supplemental plans distinguish between basic and major medical for reimbursement purposes. Comprehensive plans combine the two types to cover essentially all types of medical expenses.

Let’s take a more in depth look at comprehensive major medical benefits. There are two types of comprehensive major medical plans, one with first dollar coverage and the other without.

Just as the first term implies, first dollar coverage begins as soon as covered medical expenses are incurred. Without first dollar coverage, the insured must pay specified “deductible” amounts first.

When that amount of expenses incurred has been paid by the insured, the policy begins reimbursing.

Major medical coverage has another feature, coinsurance. This means that the insurer and the insured share in any expensive above the deductible amount. The insurer will always carry the bulk of expenses and normally pays 80% and the insured pays 20%. 

Other proportions may be used so it is important that you read your policy thoroughly. 

Some policies dictate that certain types of medical expenses are not subjected to the deductible while other types are. For example it
is non uncommon for no deductible to apply to initial hospital and/or
surgical expenses up to a specified amount. In a case like this, the insured would pay no deductible in expenses but would first pay the
deductible before major medical covered any additional expenses. 

The insurer and insured would then share in the remaining expenses at 80% and 20% or whatever the percentage is in their applied policy.

It is becoming more common for major medical polices to include a “stop-loss limit.” This limit would be a dollar amount that, when reached, the insured no longer participates in any further payment.

This is generally referred to as a stated maximum benefit. The lifetime maximum limits on health insurance might range from $100,000 to $1,000,000. Some policies can even have unlimited benefits. Just as the maximum benefit can vary, so can the amount of the stop-loss limit depending upon the insurer.

Supplemental major medical benefits supplement a basic policy that includes hospital, surgical and medical with an additional policy that covers the broader range of medical expenses. 

Usually the basic plan will pay covered expenses with no deductible up to the policy limit. Beyond that limit, the supplemental policy operates the same as a comprehensive policy that provides no other first dollar coverage.

This means that after the basic policy limits are exhausted, a deductible kicks in followed by the major medical coverage.


Just as the comprehensive major medical policy, a supplemental plan will more than likely include stop-loss limit as well as a maximum benefit limit.

What expenses are covered under major medical policies? No matter whether they are supplemental or comprehensive both will generally cover the following even if they vary slightly from policy to policy:

• Hospital inpatient room and board including intensive and cardiac care
  
• Nursing services including private duty outside a hospital
  
• Hospital medical and surgical services and supplies
  
• Physicians’ diagnostic, medical and surgical services
  
• Anesthesia and anesthetist services
  
• Other medical practitioners’ services
  
• Outpatient services
  
• Ambulance service to and from a hospital
  
• xRays and other diagnostic and lab tests
  
• Radiologic and other types of therapy
  
• Prescription drugs
  
• Blood and blood plasma
  
• Oxygen including administering
  
• Dental services that are a result of injury to natural teeth
  
• Convalescent nursing home care
  
• Home health care services
  
• Prosthetic devices when initially purchased
  
• Casts, splints, trusses, braces and crutches
  
• Rental of durable equipment like hospital style beds and wheelchairs
  

Let’s review some of the other major medical concepts such as deductible features, benefit periods and restoration of benefits.

Deductibles can be handled in several different ways depending on your policy. One method might be on a per-cause deductible which applies to sickness or injury. Other policies may have a deductible known as all-cause which is sometimes called cumulative or calendar-year deductible.

If your policy is per-cause you will pay a single deductible for all expenses you incur for the same injury or illness. Your benefit period for each cause begins when deductible has been meant for that injury or illness. This can sometime run as long as one or two years.

It is important to understand the per-cause stipulation. Let’s look at an example. If you are ill in May and then are injured in an accident in July those are two separate causes and deductible must be met for each of them separately. 

However, if your policy is based on an all-cause deductible, the expenses for various injuries or illnesses are accumulated to meet your deductible in one calendar year. Once that is met, the rest of your charges are paid for that calendar year.

Additionally, using the all-cause method there is usually carryover provision that allows you to carry over expenses from the last three months of one calendar year to the next.

If your policy covers the entire family, then a family deductible will apply rather than individual deductibles. In other words if a policy’s individual deductible is $200 a family deductible might be $400. This can be very advantageous because a six member family would only have to meet $400 rather than $1200 individually.

One other type of deductible could also be beneficial to a family and that is the common injury or illness provision. What this means is that if two or more family members are injured in a common accident or become sick from the same illness, only one deductible amount will be required. 

The time during which benefits are paid is called a benefit period. These times are generally linked to the deductible as well as any inside or internal limits in the major medical policy.

Determining when a benefit must be paid can be one of two different ways. The benefit period might begin either on the first day
of an injury or illness or on the date that the insured meets thE deductible and can extend up to two years. Or, the benefit period may cease at the end of a calendar year and begin with a new deductible.

Benefit limitations placed on certain of the various coverages in a major medical policy are considered inside or internal limits.

In other words, the policy may limit both room and board and number of days that will be paid. In this case, the period for hospital room and board will be whatever number of days that are specified. 
Other internal limits might be restrictions for convalescent are days, mental health, x-rays and similar items.

Your restoration of benefits is the time at which you can expect your benefits to resume after policy limits have been met. For instance, a lifetime level might be as much as $500,000 and an insured might use up half or more of that in a single year. This leaves only $250,000 left for the remainder of his life.

Some policies allow the maximum to be restored if the insured can prove that he is once again insurable. Other policies may have an automatic reset provision restoring a specified amount every January 1st.

When a person becomes disabled and unable to work, at some point their income will stop. It might be sooner or later, but unfortunately, life goes on and daily living expenses continue to
mount. 

Disability income insurance is available to continue at least a portion of ones income while unable to work. It’s sad, but most people give more attention to life insurance than they do about income replacement should they become disabled.

Disability income insurance is available individually or sometimes as a portion of a group benefit provided by an employer in their group package.

Individual policies are most often sold to self-employed and professional people. The amount of the benefit relates to earnings and is matched as close to after tax income as possible. Generally it is up to 60% of monthly net income and there is usually a cap on the amount.

When included as part of a employee group benefit package, disability income policies are usually more liberal than individual plans as far as limitations and exclusions. It is also much easier to acquire coverage. As a general rule, group plans are much less costly to all
parties.

Disability income protection should be an element of your entire financial planning. The importance cannot be overestimated because it relates to your overall family finances. Whatever you situation may be, disability is one of the most important factors when you consider you inability to work and produce income.


Some things to consider when determining disability income needs are:

• Establish the bare minimum required if income stops.
  
• Determine your retirement needs if work ceases and the ability to pay into the retirement ends.
  
• Allow for any benefit that might be offset by social security and workers compensation.
  

Some thought needs to be afforded to the possibility of “total disability.” That definition is important as it is always defined in a policy and different companies may use different definitions.

Interpretation is important as it pertains to the insured’s own occupation and any occupation the insured may be qualified to perform.

The first method used to determine total disability concerns the occupation that the insured is normally engaged in. In this case total disability might be defined as “the insured’s inability to perform any or all of the duties or his or her own occupation.” This is determined by the insured’s occupation at the time that disability begins.

The second method is more restrictive defined as “the insured’s inability to perform the duties of any occupation for which he or she is reasonably qualified by education, training or experience.”

In other words, while you may no longer be able to conduct the duties of your current occupation you may be able to perform activities in a related field.

There are some disability income policies that use another criterion to classify total disability. This is called presumptive disability and automatically qualifies the insured for total disability classification. 

These conditions are:

• Loss of use of any two limbs
  
• Total and permanent blindness
  
• Loss of speech and hearing
  

Presumptive disability may also be decided by using a loss of income test. If the earnings after disability significantly drop below pre-disability earnings by a given percentage the insured may be considered totally disabled.

Usually short-term policies cover non-occupational disability but most long-term policies cover both occupational and non-occupational sickness and accidents. Bear in mind, however, that occupational benefits are usually reduced by benefits received form workers
compensation and social security.

Other considerations are the probationary period, elimination period and the benefit period.
Some disability policies use a probationary period that begins when a policy goes into effect and no benefits are paid during this period. It varies but is often 15 or 30 days and sometimes up to 60 days for long-term policies.

In addition to the probationary period some policies also include an elimination period. It begins when the policy goes into effect and can last for any length of time even up to a full year. This is usually left to the insured to decide as it is based on how long the insured can
go without income after becoming disabled.

The primary advantage to a long probationary period is a low premium and allows the insured to use premium dollars to purchase a benefit that best suits their needs.

The benefit period, which is the length of time, can vary depending on the needs of the insured. They can be as short-term as 13 weeks up to long-term as long as age 65.


As a general rule the longer the benefit period, the higher the premium. Same as everything in life, we get what we pay for.

Benefit amounts for both short-term and long-term policies range from 50% to 66 2/3% of earnings with a cap on the maximum amount to be paid. 

Other disability categories are confining vs. non-confining, partial, residual, recurrent, delayed, combined accident and sickness and non-disabling.

We won’t cover definitions of each category here, but do be aware of their existence and check your policy for a definition of coverage for these types of disability.


Most companies offer optional short-term benefits for an additional cost. A typical disability income policy might include all, some or none of the items below so it is important to discuss these with your agent. These options are:

• Supplemental income – sometimes called an additional monthly benefit rider, provides additional income during the first several months of a long-term disability.
• Hospital income – pays a stipulated amount per day when hospitalized extending for a certain period and can be up to 12 months.
• Elective benefits or indemnities – provides lump-sum payments for certain injuries like fractures, dislocations, sprains or amputations of toes or fingers and is elected by the insured in lieu of weekly or monthly benefits stated in a contract.
  

DIFFERENT TYPES OF HEALTH INSURANCE POLICIES


Health insurance is a legal contract between two or more parties that promises certain performance in exchange for considerations. A health insurance policy is considered a unilateral contract. This is because only one party (the insurer) is required to fulfill their obligation. While a policy owner may decide to terminate premium payments, as long as the payments are paid the insurer must meet their responsibility under the contract.

A health insurance policy can provide just one or any combination of certain benefits: 

• Hospital, medical and surgical expenses resulting from sickness or an accident
  
• Accidental death or dismemberment
  
• Disability resulting from accident or sickness (sometimes this can also be referred to as “loss of income” or “loss of time” 

An accident is an injury that occurs accidentally. A sickness is an illness or disease that is not the result of an accident. Knowing the difference is important because policies may have different provisions that apply to accidents or sickness. Also, there are some companies that sell a separate accident policy that does not include sickness.

The terms accident and sickness are widely used and often interchangeable in any discussion of health insurance. They are often abbreviated as A&H and A&S. Health insurance is also referred to as medical insurance.

As we discussed above, health insurance is designed to protect again two types of economic loss. Loss of income and expenses for medical care which places them in either of two broad policy categories:

1. Disability income policies
   
2. Medical expense policies
   

Disability income policies can also be referred to as loss of income, loss of time or replacement income. This type of policy will
pay benefits to an insured who is disabled and can no longer work to earn a regular income. Payments can be weekly or monthly depending on the policy.

Medical expense policies are represented by a wide range of coverage from very minimal to comprehensive packages with multiple coverage. Some include both accidents and illnesses, various hospital expenses and other costs pertaining to medical care such as:

• Accident and sickness policies
  
• Hospital policies
  
• Basic medical expense policies
  
• Major medical expense policies
  
• Comprehensive medical expense policies
  

Any of these policies might cover various combinations of the above and may be paid in a lump sum.


Accident Policies. Some policies cover only accidents and not illness. As you might imagine, policies like this are very specific about what is considered an accident. 


It is important to understand what is defined as an accident as it pertains to the health insurance industry. . .an accident is an event that is unforeseen and unintended.


Keep in mind that any discussion of this type of policy also applies to any type of policy that includes accidental coverage not just accident specific policies.

Accident benefits are most commonly paid for accidental loss of life (also called accidental death), accidental loss of limb or sigh (dismemberment), loss of time and/or income, hospital expenses, surgical expenses, and medical expenses like visits to the doctor. 

Let’s expand a bit on dismemberment. As we said, this would be loss of limb or sight, however, different states have statutes that define dismemberment and they can vary from state to state. This is a subject that you need to discuss with your insurance agent to determine what actually constitutes dismemberment in your state. 

Accidental Death Benefit can also be referred to as “principal sum.” This type of coverage should not be confused with life
insurance. There is a world of difference between the two. Life insurance policies will generally regardless of the cause of death. An accidental benefit is paid ONLY if the death is accidental as opposed to a death by natural causes or illness.

The person who received the death benefit is called the beneficiary. The policy owner has the right and responsibility of
naming beneficiaries. Usually there is a primary beneficiary however he/she can assign a second and even a third beneficiary.
The primary beneficiary is the first person in line to receive the benefit in the event of the death of the policy holder. They can also name a second beneficiary who would receive the benefit in the event the primary beneficiary dies before the insured. 

Some policies can include a third beneficiary who would be in line after the first two.

There is much more to be learned about accidental death policies, but we would like to mention one important element before
we move on. 

An accidental death may not be instant. A person can die as a result of an accidental injury months after the accident occurrence. Read your policy carefully because most stipulate that the accidental death benefit will only be paid if death occurs within three months of the accident.