Choosing a health care plan often comes down to cost, but don’t forget to compare the monthly premium with the amount of coverage you get. Major medical insurance is designed to cover you during everything from routine check-ups to major catastrophic events. Basic health insurance, by contrast, is a cash reimbursement service that can help you pay for some—but not all—types of medical services.
Basic Health Insurance
According to Markel Insurance Company, basic plans offer less coverage for lower premiums than major medical insurance. Ideally, the basic plan functions as a supplement to traditional medical insurance; however, sometimes these basic plans are all people can afford. Subscribers pay a low premium for coverage and receive set amounts of cash to reimburse them for events including doctor visits, lab tests and surgery. The reimbursement amounts will almost always be lower than the total cost of services provided.
It’s easier to be approved for basic health insurance than major medical insurance. According to insurance broker MedSave, there aren’t any co-payments, co-insurance amounts, deductibles or “network” doctors. You can see any doctor in the U.S. at any time you want, without approvals or referrals. You won’t be asked about any pre-existing medical conditions on your application. However, both Markel Insurance Company and MedSave specify that treatments for pre-existing conditions will only be reimbursed after a six-month waiting period.
Major Medical Insurance
Major medical insurance offers more coverage for a higher premium. This type of insurance includes familiar programs like HMOs, PPOs and fee-for-service programs. According to the State of Tennessee Department of Commerce and Insurance, major medical insurance covers doctor visits, hospital visits and care performed on an outpatient basis. Instead of a cash reimbursement basis, the system functions with payment thresholds called deductibles—the amount a consumer needs to pay before the insurance company will provide benefits. Some routine maintenance may be free or nominally priced with a small co-pay.
Major Medical Benefits
Major medical insurance covers more than doctor visits and surgical procedures. Most plans cover some or all of your prescription drug costs as well as services related to health care like rehab, physical therapy, mental health and nursing home care. Unlike basic health insurance, which provides you with a set amount of cash no matter what the final cost of your procedure may be, most major medical insurance plans offer an annual out-of-pocket spending limit that caps your expenses, even if you need very expensive treatment.
Basic health insurance is not available in every state. According to Markel Medical Insurance, each state’s insurance department must approve this type of insurance before it can be sold to the general public. As of 2010, only 25 states allow providers to sell this type of insurance to individuals and families. More states allow businesses to offer basic health insurance as a supplement to major medical insurance—for businesses with more than 50 employees, this insurance is available in 34 states.
In the past, major medical insurance was a term used interchangeably with comprehensive or catastrophic coverage. Major medical policies were those that usually covered expenses in and out of the hospital.1
Today, the Affordable Care Act (ACA) ensures that qualified health plans offered in the individual market offer a comprehensive package of items and services, known as essential health benefits. Essential health benefits must include items and services within at least the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services (including behavioral health treatment); prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.2
Until the Affordable Care Act, major medical insurance was also called catastrophic coverage, a term that has a very different and specific meaning today. The ACA describes it this way – “Catastrophic plans usually have lower monthly premiums than a comprehensive plan. But they cover your costs only after you’ve used a lot of care. These plans basically protect you from worst-case scenarios like serious accidents or illnesses.”3
A catastrophic insurance plan generally requires you to pay all of your medical costs, up to a certain amount (your deductible), which is usually several thousand dollars. If you have a “major medical event” such as a heart attack or a serious car accident, catastrophic insurance will help cover the major costs of treatment after you have paid all the costs up to the deductible.
Who can buy a major medical insurance plan?
Anyone can purchase an individual health plan during open enrollment. However, not everyone can purchase a catastrophic plan. According to the Affordable Care Act, people under 30 and people with “hardship exemptions” may buy a catastrophic health plan.
Fifty-six percent of nonelderly Americans get health insurance from an employer-based plan. Others gain coverage through public programs such as Medicaid. Forty-seven million are considered uninsured. However, public programs and employer health plans are not the only means by which consumers may obtain coverage.
Individual major medical insurance is an option for individuals and families who do not have access to a health plan through an employer or public program. Individual major medical plans offer comprehensive health insurance coverage and may be purchased from a health insurance carrier, agent or broker.
Going without major medical insurance puts consumers’ health and finances at risk. And, starting Jan. 1, 2014, most Americans who do not have it will face a fine.
What is individual major medical insurance?
When someone mentions health insurance, the type of plan they often have in mind is major medical insurance. As mentioned above, a little more than half the U.S. population obtains it through an employer; that type of major medical insurance is known as group coverage. Those who are left to purchase their own health plans may buy coverage for themselves and their family members; however, they are not pooled with a larger group, so the coverage is considered individual major medical insurance.
Individual major medical plans offer benefits similar to those available through an employer-based plan. Consumers pay a monthly premium for access to health care services. They must often meet a selected deductible before benefits kick in, and they will share health care costs with the plan in the form of copayments and/or coinsurance.
As with an employer-based plan, individual major medical coverage is considered comprehensive and long-term. Policies last a full year. They meet the minimum essential coverage requirements necessary to fulfill the Affordable Care Act’s individual mandate. Starting with Jan. 1, 2014, effective dates, consumers purchasing these plans cannot be denied coverage or rated up based on health history or preexisting medical conditions.
What benefits does major medical coverage include?
This coverage typically includes doctor office visits, hospitalization, medical supplies and services, prescription drugs and other health care expenses. Obamacare mandates that major medical insurance covers certain preventive care services, such as shots and screenings, at no additional cost to the insured—visit healthcare.gov to see the full list of free preventive health services for adults, women and children.
Furthermore, health plans are now required to include coverage for 10 categories of essential health benefits, including:
Ambulatory patient services
Maternity and newborn care
Mental health and substance use disorder services
Rehabilitative and habilitative services and devices
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care
Benefits within these categories vary from state to state based on a selected benchmark plan.
What does an individual health plan cost?
Individual major medical insurance premium rates and out-of-pocket expenses vary based on a number of factors. Effective starting with 2014 coverage, monthly premiums will be based on applicant age, geographical location, family size and tobacco use. They can no longer be established based on gender or health history.
Premium rates and out-of-pocket expenses will also vary based on the plan design you select. Obamacare plans fit into four actuarial levels known as the metal plans. They are as follows:
Bronze plan – 60 percent of covered medical expenses paid by the plan; 40 percent by the consumer
Silver plan – 70 percent of covered medical expenses paid by the plan; 30 percent by the consumer
Gold plan – 80 percent of covered medical expenses paid by the plan; 20 percent by the consumer
Platinum plan – 90 percent of covered medical expenses paid by the plan; 10 percent by the consumer
A catastrophic plan, also known as a minimum coverage plan, is available in many states to those under 30 or who qualify for hardship exemptions.
It is important to note that a lower monthly premium will translate into higher out-of-pocket expenses when you need care, and a higher monthly premium will mean lower out-of-pocket expenses. For this reason, you should to consider your overall health care needs and not just buy based on premium alone. Our “6 Tips for Buying Health Insurance Online,” provides additional tips for shopping for coverage on or off the Obamacare’s online health insurance marketplace exchanges.
Income-based tax credits and cost-sharing subsidies are available to those who buy coverage through state-based and federally facilitated exchanges. You can estimate your credit using the healthedeals.com Health Care Reform Calculator, which was listed among The Financial Times “Best Online Tools for the Toughest Health Questions.” While Americans are free to purchase health plans in the private marketplace, only plans purchased through an exchange are eligible for financial assistance.
Visit manhattan-institute.org/knowyourrates for an illustrated map of state rate data. Consult your state’s health insurance exchange website, contact an insurance carrier, or talk with your agent or broker for more details on plans and rates available to you, as well as assistance selecting the right coverage for your health care needs and household budget.
Who is this type of coverage ideal for?
Individual major medical health insurance plans are ideal for those who need their own coverage for the long term. They may be self-employed or work part time and, therefore, not eligible for employer-based coverage. They are individuals who want comprehensive coverage.
With the Affordable Care Act requirement that most Americans have health insurance starting in 2014 or face a penalty, this type of coverage is ideal for much of the population. However, in certain circumstances, temporary medical insurance or hospital indemnity plans may be worth your consideration. Again, if you have questions regarding what type of coverage is best for your individual circumstances or have concerns over affordability, contact helpers listed at your state’s exchange website or an agent or broker.
In the age of Obamacare, can people even buy individual major medical insurance outside a health insurance exchange?
Yes. State-based and federally facilitated health insurance exchanges are not the only place to obtain coverage for you and your family. Plans that meet Affordable Care Act requirements may be purchased through an agent or broker as well as directly from a carrier. However, as stated earlier, plans purchased outside an exchange do not qualify for tax credits and subsidies.
It is also wise to consider additional insurance protection such as dental insurance, a critical illness plan or bundled gap plans that provide additional benefits such as accident medical expense insurance and accident disability income insurance, which pays lump-sum cash benefits when a qualifying event occurs. These additional coverages create a more comprehensive benefits solution like that offered through an employer.