Health Care Insurance and Cost Management - Majormedical Insurance and Benefits
MAJOR MEDICAL INSURANCE AND THE CALCULATION OF BENEFITS
As the name implies, this type of medical insurance is designed to insure against catastrophic loss. Typically, these policies will pay or cover a broad spectrum of loss associated with illness or injury. To properly manage the risk associated with the increasing cost of health care it is essential to understand these policies and how the benefits are calculated. There are two types of major medial plans.
1. Supplemental (or superimposed plan)
- The base plan covers a fixed amount of hospital and surgical costs. Once a participant incurs a set amount of expenses, called the corridor deductible, the participant will be covered under a major medical policy.
- This plan is old and rarely seen anymore.
2. Comprehensive major medical plan
- This is the most common form of medical insurance today.
- As stated, the plan will cover a broad array of loss associated with illness or injury.
- Calculation of Benefits
- This plan has four major categories that a covered individual must understand when calculating the benefits.
Deductible - This is the amount the covered individual must pay before the insurance company will pay any benefits. This is amount is reset annually and varies. Typically a person's deductible will range from $500 - $2,500 dollars. Also, with a family policy the deductible amount is per person.
Co-insurance - This is the percentage that in insured will have to pay once all deductibles have been met. Typically, the co-insurance amount is 80%/20%. For example, if Jack incurs $3,000 dollars in medical expenses and pays his $2,000 deductible the insurance company will pay 80% of the remaining $1,000 ($800) and Jack will pay the remaining $200.
Maximum out-of-pocket - This is the maximum amount of money that an insured has to pay out-of-pocket including deductibles and co-insurance. Once the maximum out-of-pocket limit is reached the insurance company will pay 100% of expenses. This amount is an annual amount. ·
- Stop Loss Method - This method is different in that the maximum a plan participant will have to pay is a percentage of the stop-loss amount plus the deductible. For example, If Jane has a policy with a $500 deductible and a 50% stop loss to $10,000, the maximum she would have to pay is $500 + $5,000 (50% of $10,000) or $5,500.
Benefit Ceiling - This the maximum amount of money an insurance company will pay for the life of the policy.
Tina has a major medical policy with a $1,000 deductible, 75/25 co-insurance, and a $12,000 maximum out-of-pocket. She has already incurred $500 in medical expenses this year. Last month she underwent an operation and the total bill is $15,000. How much will Tina have to pay out of pocket for this operation?
Since Tina has already paid $500 towards her deductible for the current year she has $500 remaining to pay ($15,000 - $500) and leaves $14,500 for the insurance company to cover. Since she has a 75/25 co-insurance she will also have to pay 25% of $14,500 ($3,625). The total she will have to pay is her remaining deductible ($500) plus the co-insurance ($3,625) which equals $4,125.
Using the example above, what is the maximum out-of-pocket expense Tina will ever incur.
Using the maximum out-of-pocket method the maximum he will ever pay out-of-his pocket (annually) is $12,000. This includes the deductible and co-insurance.
Practice Question: Harry has two children, Mary and Jeremy, and they are all covered under Harry's major medical policy. The terms of Harry's policy are $2,000 deductible, 50% co-insurance to $7,000. The maximum benefit is $1,000,000. Harry recently paid $4,000 out-of-his pocket for an operation incurred earlier in the year. Last month Jeremy incurred medical bills of $5,200. How much of Jeremy's expense will the insurance company cover?
Remember there is a difference between the stop-loss method and the maxim out-of-pocket method. The key phrase in the question is "50% co-insurance to $7,000."
Continuance and Portability
Mutual Funds & ETFsDiscover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
Mutual Funds & ETFsFind out why mutual funds are not insured by the FDIC, including why the FDIC was created and how to minimize your risk with educated mutual fund investments.
InvestingThe further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
Personal FinanceMany advisors display similar skillsets that can make distinguishing between them difficult. The following guidelines can help you better understand their qualifications and services.
ProfessionalsAmong the best universities for financial planning are the University of Georgia, Boston University, The College of Financial Planning, Texas Tech, San Diego State, Baylor, Fairleigh Dickinson ...
Investing BasicsDon’t skimp on the CFP designation. Here's why those three letters show that someone is qualified in financial and investment planning.
Mutual Funds & ETFsDiscover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
InvestingWhile recent market volatility is leading investors to look for the nearest exit, here are some suggestions for bond exposure in attractive sectors.
Mutual Funds & ETFsDiscover detailed analysis of lower-risk, higher-return balanced mutual funds, and learn about the characteristics of this type of mutual fund.
InvestingBeing in the stock market for so long I tend to look at the world through the eyes of a trader, but how to decide when we are presented with two options?
The excess return that investing in the stock market provides ...
The amount of risk that an insurance company retains after subtracting ...
Coverage that provides financial protection to investors, financial ...
The maximum loss from a peak to a trough of a portfolio, before ...
The absolute level of a fund's investments.
A technique used by insurance companies to calculate loss reserves.
While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
While the majority of financial advisors work for financial institutions such as banks, a large proportion of them are self-employed ... Read Full Answer >>
The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
An investor who is overweight in a particular sector risks a loss in value for the portfolio if there is a downturn in that ... Read Full Answer >>