MAJOR MEDICAL COVERAGE : Supplemental versus Comprehensive

At first glance, it might appear that the simplicity of a comprehensive major medical plan makes it preferable to a supplemental plan. However, supplemental plans continue to cover a large percentage of employees insured under traditional medical expense plans, even though most newly written plans are of the comprehensive type. The reasons for choosing separate coverages include the employer's desire to (1) use more than one provider of coverage, (2) offer first-dollar coverage, or (3) use different contribution rates for the basic and supplemental coverages. There are also disadvantages to using supplemental plans, including more difficult administration and communication.

More than One Provider of Coverage
Sometimes the provider of a supplemental major medical plan is different from the provider of the underlying basic coverages. For example, Blue Cross or Blue Shield may provide the basic coverages and an insurance company may provide the supplemental coverage. In the past, only a few of the Blues offered major medical coverage because (1) some of them felt such coverage was not within the scope of their traditional benefit structure, (2) some states legally prohibited it and (3) some Blues experienced administrative difficulties with effectively and efficiently coordinating these broader benefits. Although most Blue Cross—Blue Shield plans now offer major medical coverage (sometimes referred to as extended benefits), insurance companies are still the largest providers of major medical benefits.

The most common type of supplemental plan is the one shown in Figure 10-1, but occasionally a major medical plan is designed to supplement only a basic Blue Cross plan.

First-Dollar Coverage
Under the traditional comprehensive major medical plan, a deductible and coinsurance apply to all covered expenses. However, because of competition or labor negotiations, employers frequently offer their employees first-dollar coverage for certain medical expenses. With first-dollar coverage, there is no deductible and usually no coinsurance provision, and the basic medical expense plan consists only of those benefits provided on a first-dollar basis. Because first-dollar coverage has been characteristic of the Blues, they are frequently used as the providers of basic coverages. Therefore, to compete with them, most insurance companies now offer comprehensive major medical plans that are modified to provide similar first-dollar coverage.

It should be emphasized that, all other things being equal, first-dollar coverage increases the cost of a medical expense plan. Employers have become increasingly concerned with the cost of providing medical expense coverage and are less likely than in the past to provide first-dollar coverage.

Different Contribution Rates
A few employers still maintain separate basic medical and major medical expense plans because different employer contributions are made for each plan. The most common arrangement under these circumstances has the employer paying the entire cost of the basic coverages for the employee (and possibly his or her dependents) and the employee paying a portion, if not all, of the costs of the major medical coverage. However, most employers have a single plan even when the contribution rates for the basic and major medical coverages differ.

Administration and Communication
Most employers want to have benefit plans that minimize administrative problems and that can be easily communicated to employees. In both respects, comprehensive plans have the advantage. With supplemental plans, the employer must often deal with two providers of coverage, so two plans must be properly coordinated so that no undesired gaps in coverage exist. In addition, the processing of claims becomes more burdensome for both the employer and the employees. The complexity of medical expense plans in general makes them difficult to communicate to employees, and the task becomes even more challenging when two plans are used.

Even when a single provider supplies both the basic medical expense plan and a supplemental major medical plan, the same problems may exist. The employer must often negotiate the plans with separate divisions of the provider's organization, and separate claims forms and claims departments are frequently used.