Characteristics of Major Medical Coverage

The distinguishing features of major medical expense plans—either supplemental or comprehensive—include a broad range of covered expenses, deductibles, coinsurance, and high overall maximum benefits.

Covered Expenses
Major medical plans give broad coverage for necessary expenses incurred for medical services and supplies that a physician has ordered or prescribed. These services and supplies, which are specified in the contract, generally include the following:

Hospital room and board. Traditionally, coverage has not been provided either for confinements in extended-care facilities or for home health care. However, major medical plans now often include such coverage. Some plans also provide benefits for room and board in alternative facilities, such as birthing centers.

Other hospital charges.

Charges of outpatient surgical centers.

Anesthetics and their administration.

Services of doctors of medicine or osteopathy.

Professional services of a registered nurse. The services of a nurse midwife, nurse practitioner and nurse anesthetist may also be covered.

Services of certain other types of providers. Most states mandate that the services of certain types of providers other than physicians and nurses must be covered as long as the service is a covered benefit and the provider is operating within the scope of his or her license. The list of providers varies from state to state and may include one or more of the following: acupuncturists, audiologists, chiropractors, dentists, marriage and family therapists, dietitians, optometrists, physical therapists, physicians' assistants, podiatrists, psychologists, social workers, and speech pathologists.

Prescription drugs. This benefit is often carved out and provided through a separate prescription drug program.

Physical and speech therapy.

Diagnostic X-ray and laboratory services.

Radiation therapy.

Blood and blood plasma.

Artificial limbs and organs.

Pacemakers.

Casts, splints, trusses, braces, and crutches.

Rental of wheelchairs, hospital beds, and iron lungs.

Ambulance services.

The expenses of dental care may also be included as a major medical benefit. However, dental benefits are usually provided under a separate dental expense plan.

Even though coverage is broad, major medical contracts contain certain exclusions and limitations.

Exclusions. This list of exclusions varies, but exclusions found in most major medical contracts include charges arising from the following:

Occupational injuries or diseases, to the extent that benefits are provided by workers' compensation laws or similar legislation.

Services furnished by or on behalf of government agencies, unless there is a requirement for the patient or the patient's medical expense plan to pay.

Care provided by family members or when no charge would be made for the care received in the absence of the insurance contract.

Cosmetic surgery, except as required by the Women's Health and Cancer Rights Act, unless such surgery is to correct a condition resulting from either an accidental injury or a birth defect (if the parent has dependent coverage when the child is born).

Most physical examinations, unless such examinations are necessary for the treatment of an injury or illness. While most major medical plans contain this exclusion, it should be noted that some plans do provide coverage for some forms of preventive medicine, which might involve specific types of physical examinations.

Experimental or investigational drugs and treatment.

Convalescent, custodial, or rest care.

Dental care except for (1) treatment required because of injury to natural teeth and (2) hospital and surgical charges associated with hospital confinement for dental surgery. This exclusion is not included if dental coverage is provided under the major medical contract.

Eye refraction, or the purchase or fitting of eyeglasses or hearing aids. Like the dental care exclusion, this exclusion is not included if the major medical coverage provides benefits for vision and hearing care. These benefits, however, are most likely to be provided under a separate plan.

Expenses either paid or eligible for payment under Medicare or other federal, state, or local medical expense programs.

Benefits provided by any other benefit program to which the employer makes a contribution. This includes any benefits provided under basic medical expense plans if a supplementary major medical plan is used.

To minimize the problem of adverse selection, most major medical plans also contain an exclusion for preexisting conditions. However, this exclusion applies only for a limited time, after which the condition is no longer considered preexisting and is covered in full, subject to any other contract limitations or exclusions. It is interesting to note that a preexisting-conditions clause is common in major medical contracts, but it is rarely found in basic medical expense contracts.

A preexisting condition is typically defined as any illness or injury for which a covered person received medical care during the three-month period prior to the person's effective date of coverage. Usually, the condition is no longer considered preexisting after the earlier of (1) a period of three consecutive months during which no medical care is received for the condition or (2) 12 months of coverage under the contract by the individual.

The use of preexisting-conditions provisions in group medical expense plans was affected by the passage of the Health Insurance Portability and Accountability Act (HIPAA), but the traditional time periods that apply to such conditions are within the act's guidelines. However, the act does limit the use of preexisting-conditions provisions with respect to newborn or adopted children. In addition, preexisting-conditions provisions cannot apply to pregnancy.

Some insurance companies provide limited coverage rather than excluding coverage for preexisting conditions. During the time a condition is considered preexisting, benefits may be paid subject to limitations, such as a 50 percent coinsurance provision or a calendar-year maximum of $1,000. It is also not unusual, particularly with large employers, for the preexisting-conditions clause to be waived for persons who are eligible for coverage on the date a master contract becomes effective. However, future employees will be subject to the provision.

Finally, there are certain types of medical expenses that may or may not be excluded. While these exclusions are not found in most major medical contracts, they are found in many. Examples include charges arising from the following:

Treatment for weight reduction and morbid obesity

Treatment of injuries resulting from attempted suicide or self-inflicted injury

Sexual transformation or sexual dysfunction

Procedures to restore or enhance fertility, reversal of sterilizations, artificial insemination, or in vitro fertilization

Treatment of injuries incurred while committing a felony

Limitations. Major medical plans also contain "internal limits" for certain types of medical expenses. Although the expenses are covered, the amounts that are paid under the contract are limited. Benefits are very rarely paid for charges that exceed what is reasonable and customary. In addition, limitations are often placed on the following expenses:

Hospital room and board. Benefits are generally limited to the charge for semiprivate accommodations, unless other accommodations are medically necessary. In some cases a flat-dollar maximum is placed on the daily semiprivate accommodation rate.

Extended-care facilities, home health care benefits, and hospice benefits (if provided). Benefits for extended-care facilities are often subject to a dollar limit per day for room-and-board charges as well as a time limit on the number of days that coverage is provided. Similarly, home health care benefits are often subject to a maximum daily benefit and limited to a certain number of visits within a specific time period. Hospice benefits are usually limited to a specified maximum amount.

Dental care, vision and hearing care, and physical examinations. When these are covered under major medical contracts, benefits are frequently subject to schedules and annual limitations.

Ambulance service, such as $250 per trip.

Rental or purchase of durable equipment, such as $5,000.

Some plans also have limits on outpatient prescription drugs, such as $2,500 per year per person.

Treatment of Mental Illness, Alcoholism, and Drug Addiction. It is common for major medical plans to provide limited benefits for treatment of mental and nervous disorders, alcoholism, and drug addiction. Unless state laws require that such conditions be treated like any other medical condition, inpatient coverage is often limited to a specific number of days each year (commonly 30 or 60). Outpatient benefits, which are even more limited, are usually subject to 50 percent coinsurance and to a specific dollar limit per visit. One unfortunate effect of more stringent limitations on outpatient care is that it encourages many persons to seek inpatient treatment, which is significantly more expensive but no more effective in the eyes of many medical experts. As a result, some plans have started to carve out coverage from the major medical plan. Benefits are then coordinated by a managed care plan that specializes in mental health and/or substance abuse problems.

It has been common for major medical plans to impose an annual maximum (such as $1,000) and/or an overall maximum lifetime limit (such as $25,000) on benefits for mental and nervous disorders, alcoholism, and drug addiction. Under federal legislation, such limitations are no longer allowed for mental health benefits in many employee benefit plans.

At the time of the 1996 debate over HIPAA, there was considerable disagreement over the issue of requiring mental illness to be treated as any other illness for purposes of medical expense coverage. With estimates that complete parity would raise the cost of providing medical expense benefits by 4 to 10 percent (depending on whose estimate one believed), Congress left the issue unresolved. The debate continued after the passage of the previously mentioned act and resulted in the passage of another act the following month—the Mental Health Parity Act. Because of cost considerations, however, its provisions are limited, and the use of the term parity is probably a misnomer.

The provisions of the act apply only to employers that have more than 50 employees. The act prohibits a group health plan, insurance company, or HMO from setting annual or lifetime dollar limits on mental health benefits that are less than the limits applying to other medical and surgical benefits. If there are no such dollar limitations for substantially all other (meaning two thirds or more) medical and surgical benefits under a plan, there can be none for mental health benefits. If substantially all benefits are subject to an annual or lifetime limit, the parity requirements can be satisfied by either having separate dollar limits that are equal for mental health benefits and other medical and surgical benefits or applying a uniform dollar limit to all benefits in the aggregate. If a plan has different limits for different categories of benefits, the act calls for the use of a weighted average of all the limits to be used for the mental health limitations.

Besides imposing no limitations on benefits for alcoholism or drug addiction, the act is noteworthy for other things it does not do. It does not require that employers make any benefits available for mental illness, and it does not impose any other restrictions on mental health benefits. Employers can still impose limitations, such as an annual maximum on number of visits or days of coverage and different cost-sharing provisions for mental health benefits than those that apply to other medical and surgical benefits.

Congressional advocates of the act estimate that overall medical costs to employers should not increase by more than .4 percent. Any employer who can prove that the act's provisions increase its group health plan costs by more than 1 percent is exempt from the act. This exemption is available only if the employer has complied with the act for six months and uses a prescribed formula for measuring the cost increase.

The act is subject to a sunset provision of September 30, 2001. As of that date, any benefits required by the act can be eliminated unless Congress extends the date or removes the sunset provision prior to that time.