MAJOR MEDICAL COVERAGE : Maximum Benefits

The maximum benefits that will be paid for any covered person under a major medical contract may be determined in one of two ways. Although the use of a lifetime maximum is most common, a few contracts contain a per-cause maximum. In both instances, the benefit maximum applies separately to each employee and each dependent covered under the contract.

Lifetime Maximum. When a lifetime maximum is used, the specified overall maximum applies to all medical expenses paid (after the application of deductibles and coinsurance) during the entire period an individual is covered under the contract. It is no longer common to find benefit maximums of less than $1 million, and most benefit maximums fall within the range of $1 million to $2 million. Higher maximum benefits (such as $5 million) or even an unlimited maximum benefit are sometimes available, but their availability is much less common with traditional major medical contracts than it is with PPO products.

The lifetime maximum is reduced by the amount of any benefits paid. For example, an individual with a $200 calendar-year deductible, an 80 percent coinsurance provision, and a $100,000 lifetime maximum who incurs $4,000 of medical expenses in his or her first year of coverage (assuming it corresponds with the calendar year) receives benefits of $3,040 (that is, 80 percent of $3,800). This reduces the remaining lifetime benefit to $96,960.

Until recently, it was common to have one or more provisions in major medical contracts that restored (either partially or totally) the lifetime maximum to its original level. In some cases, this restoration required showing evidence of insurability or having no claims for a period of time. This type of provision has largely been dropped because it appears to be in conflict with state and federal regulations that prohibit the basing of benefits on health status.

A few plans still have an automatic annual restoration of a small amount of benefits, varying from $1,000 to $5,000 per year. Such a restoration was of significant value a few years ago when lifetime maximums were much lower. However, there is little practical value in such a restoration with today's maximum lifetime benefits of $1 million or more. As a result, this type of provision has also been dropped by the majority of plans.

In addition to the overall lifetime maximum, internal maximums are sometimes found in major medical contracts. For example, a plan may have a $1 million overall lifetime maximum, but a $10,000 lifetime maximum for benefits relating to alcoholism and drug addiction. In other words, only $10,000 of the $1 million will be paid for expenses relating to these conditions. Such a limitation was once also common for mental and nervous disorders, but the provisions of the Mental Health Parity Act prohibit this type of maximum for many employee benefit plans. A few plans do contain calendar-year or per-disability internal maximums.

Per-Cause Maximum. A few plans contain maximum limits for each cause of medical expenses, but in general this type of maximum limit is used only when the deductible is also applied on a per-cause basis. While coverage terminates for any cause for which the maximum benefits have been paid, it remains in force for medical expenses arising from other causes