What Is a Major Medical Plan: How It Works & What It Covers
Navigate comprehensive health insurance. Learn how major medical plans function to cover significant healthcare expenses and organize your access to care.
A major medical plan is comprehensive health insurance designed to protect individuals and families from significant financial burdens due to unexpected illnesses, injuries, and ongoing medical care. These plans cover a broad range of healthcare services, providing a substantial safety net. Historically, the term “major medical health insurance” described comprehensive plans, and since the Affordable Care Act (ACA) was implemented, most plans providing “minimum essential coverage” are considered major medical coverage. This insurance aims to minimize out-of-pocket costs for policyholders, ensuring access to necessary medical treatment.
Understanding Core Financial Components
Major medical plans involve several financial components that determine how costs are shared between the insured individual and the insurance company. Understanding these terms is fundamental to comprehending how your plan functions and what your financial responsibilities are.
A deductible is the amount an insured individual must pay for covered healthcare services before the insurance company begins to contribute. For example, if a plan has a $4,000 deductible, the policyholder is responsible for the first $4,000 in covered medical expenses incurred during the policy year. After this amount is met, insurance coverage for subsequent services activates.
Copayments (copays) are fixed amounts paid by the insured for a covered service, usually at the time of service. These fees vary depending on the type of service, such as a doctor’s office visit or a prescription drug. Copayments do not count towards the deductible.
Coinsurance is the percentage of costs an insured person pays for covered services after the deductible has been satisfied. For instance, a common coinsurance arrangement is 20%, meaning the policyholder pays 20% of the cost, and the insurer pays the remaining 80%. This cost-sharing continues until the out-of-pocket maximum is reached.
The out-of-pocket maximum is the ceiling on the amount an insured individual will pay for covered services in a policy year. Once this maximum is met through deductibles, copayments, and coinsurance, the insurance plan covers 100% of eligible, in-network medical expenses for the remainder of the policy year. This limit provides financial protection by capping annual healthcare spending.
Typical Covered and Excluded Services
Major medical plans cover a broad spectrum of essential health services, providing comprehensive coverage for significant healthcare needs.
Covered Services
- Hospital stays and emergency services
- Outpatient care, including doctor visits
- Prescription drugs
- Mental health and substance use disorder services
- Preventive care, such as vaccinations and screenings
- Pregnancy, maternity, and newborn care
Excluded Services
While comprehensive, major medical plans have exclusions or limitations. Cosmetic procedures, performed solely for appearance enhancement, are not covered unless medically necessary due to an accident or injury. Experimental treatments and those considered not medically necessary are also excluded.
Long-term care, which includes extended stays in nursing homes or assisted living facilities, is not covered by standard major medical insurance. Routine dental and vision care for adults are excluded unless specifically added through a separate rider or supplemental plan. Pre-existing conditions may have waiting periods or specific limitations depending on the plan, though ACA-compliant plans cannot deny coverage based on pre-existing conditions.
Common Major Medical Plan Structures
Major medical plans are structured in various ways, each influencing how individuals access care and interact with providers. These structures dictate network restrictions and referral requirements.
Health Maintenance Organization (HMO)
HMO plans require members to choose a primary care provider (PCP) within the plan’s network. This PCP acts as a gatekeeper, coordinating all care and providing referrals to specialists. HMOs offer lower monthly premiums but have more restricted provider networks and do not cover out-of-network care except in emergencies.
Preferred Provider Organization (PPO)
PPO plans offer more flexibility in choosing healthcare providers. Members can see specialists without a referral and have the option to receive care from out-of-network providers, though at a higher cost. PPO plans have higher monthly premiums compared to HMOs, but they provide a broader choice of doctors and hospitals.
Exclusive Provider Organization (EPO)
EPO plans combine aspects of both HMOs and PPOs. They require members to stay within the plan’s network for covered services, similar to an HMO, but may not require a referral to see a specialist. EPO networks are larger than HMO networks, but out-of-network care is not covered except in emergencies.
Point of Service (POS)
POS plans are a hybrid model, offering a balance between the flexibility of a PPO and the cost-effectiveness of an HMO. Members need a PCP referral for in-network specialist visits, similar to an HMO. However, POS plans also allow for out-of-network care, albeit at a higher cost, providing more choice than an HMO.