What Is Major Medical Insurance?
Major medical insurance is a type of health insurance coverage that provides comprehensive protection against significant medical expenses associated with serious illnesses, injuries, and medical treatments. This insurance typically offers broader coverage than basic health insurance plans and can cover you for a range of healthcare services, from basic preventative care to major health treatments.
These policies meet the minimum standards set by the Affordable Care Act (ACA). In other words, the type of policy that comes to mind when you think of typical health insurance is most likely major medical insurance.
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The Benefits of Major Medical Insurance
The comprehensive coverage included in major medical insurance offers protection from high medical costs and allows access to essential medical services when you need them. Additionally, it often includes preventive care at little or no cost. Preventive services — such as routine check-ups, vaccinations, screenings, and wellness programs — encourage early detection of issues and support proactive measures to maintain overall well-being.
Another advantage of major medical insurance is the annual out-of-pocket maximum, which is the maximum amount you must pay for covered services in a policy year. Once you reach this limit, the insurance company will cover the remaining expenses. This offers financial protection, especially for people with medical conditions that necessitate a lot of healthcare expenses.
How Does Major Medical Insurance Work?
You can get major medical insurance through an employer, a federally funded health insurance program, or by purchasing a policy through the Health Insurance Marketplace. After you enroll in a policy, you’ll pay regular premiums to maintain coverage. Your insurance plan will usually have a deductible, a set amount you must pay before the policy pays out.These policies typically involve copays as well, which you must pay to receive care even after meeting your deductible.
With your plan, you’ll have access to a network of providers, which you can usually see for a lower out-of-pocket cost. If you choose to see a provider outside of your network, you’ll likely pay more. When you receive medical services, you or your healthcare provider will typically submit a claim to the insurance company. The insurer will then review the claim, apply any deductibles, copays, or coinsurance, and then pay the amount to the healthcare provider.
Most people are eligible for health insurance. Below are key points you should factor in when considering eligibility:
- Individuals and Families: Major medical insurance is typically available to individuals and families seeking comprehensive coverage. Insurance can be purchased directly from insurance companies or obtained through employers.
- Employment-Based Coverage: Some policies depend on your employment status. Employers may sponsor and subsidize health plans for qualifying full-time employees.
- Government Programs: Federally funded health insurance plans such as Medicare and Medicaid are usually reserved for low-income people and people who meet certain age and disability standards.
- Self-Employed Individuals: Self-employed people and independent contractors can purchase major medical insurance through private providers or the health insurance marketplace.
- Age: People of all ages are eligible.
- Dependent Coverage: Spouses and children of eligible individuals can be included in policies. The age limit for dependent coverage can vary, but it typically extends until the child reaches 26 years of age.
- Citizenship or Legal Residency: Lawfully present immigrants in the U.S. may purchase private major medical through the Health Insurance Marketplace. They also qualify for federally funded insurance plans.
- Open Enrollment Periods: Many providers only allow people to start or change their insurance plans during open enrollment periods or after qualifying life events, such as having a baby.
- Pre-Existing Conditions: Under the ACA, major medical insurance plans cannot deny coverage or charge higher premiums because of pre-existing conditions.
Every policy is unique, but all major medical policies meet the ACA’s minimum essential benefit standards and provide various inpatient and outpatient healthcare coverage. Policies must include the following 10 essential health benefits:
- Ambulatory Patient Services: Major medical beneficiaries should receive coverage for outpatient care not requiring admission to a hospital.
- Emergency Services: Qualifying ambulance, paramedic, and emergency room services are usually covered.
- Hospitalization: Major medical must cover hospitalizations, including overnight stays and surgeries.
- Pregnancy, Newborn, and Maternity Care: These include medical services required before, after, and during childbirth, including healthcare for the baby immediately following birth.
- Substance Use and Mental Health Services: These policies cover necessary psychotherapy, counseling, and other behavioral health treatments.
- Prescription Drugs: These include medications prescribed by a physician or another qualified medical provider.
- Habilitative and Rehabilitative Devices and Services: Beneficiaries should receive coverages for required services and devices following an injury or due to a chronic medical condition or disability.
- Laboratory Services: Analyses of urine, blood, and other bodily tissues to aid in diagnosis, treatment, or preventative care are covered.
- Preventive Care: This includes vaccines, screenings, and other healthcare services that aim to identify and address health issues before they become serious.
- Pediatric Services: This covers healthcare for children, including oral and vision care.
Health plans in the ACA marketplace must also provide birth control and breastfeeding coverage, although they’re not specifically listed under the essential health benefits.
What’s Not Covered
Major medical insurance is meant to cover medically necessary treatments and procedures, and not all healthcare services fall into this category. See below for a list of healthcare services your policy may not cover.
- Cosmetic Procedures: These are not considered medically necessary and are rarely covered by health insurance plans.
- Experimental Treatment: Experimental treatments are those not yet fully approved for medical use by the U.S. Food and Drug Administration (FDA) or widely accepted by the medical field.
- Alternative or Holistic Treatment: These are not considered traditional healthcare and are not usually covered unless prescribed by a physician.
- Long-Term Care: In most cases, this insurance only covers short nursing stays and limited home care. Long-term care coverage usually requires dedicated long-term care insurance.
- Certain Medications: Insurance may not cover some commonly abused or misused drugs. Moreover, your policy may not cover drugs intended for weight loss or gain, fertility medications, erectile dysfunction treatments, or drugs used for cosmetic reasons such as hair growth.
- Dental and Vision Care: Adults usually need separate dental and vision insurance policies to cover these services.
Types of Major Medical Insurance Plans
Not all insurance plans are created equal. You must choose from various plan types, including the following.
A Preferred Provider Organization (PPO) plan allows you to see specialists in or out of your plan’s network without a referral from your primary physician. In fact, with a PPO, you rarely need to select a primary care physician (PCP) at all. These plans suit beneficiaries who prioritize flexibility and want to have a variety of options. On the other hand, PPO plans tend to carry higher premiums than other types of health insurance.
A Health Maintenance Organization (HMO) plan works with a specific network of healthcare providers, including hospitals, doctors, laboratories, and medical groups. With an HMO plan, you must choose a primary care physician and get their referral to see a specialist or receive most medical services. Moreover, you must stay within your provider’s network to receive healthcare coverage, making HMOs more rigid and limiting than PPO plans.
That said, HMOs tend to be more affordable than PPOs as well.
An Exclusive Provider Organization (EPO) plan functions similarly to an HMO in that the plan networks with a set group of healthcare providers, and your services are only covered if you go to hospitals, doctors, and specialists within your plan’s network. Unlike an HMO, however, EPO beneficiaries do not have to select a primary care physician and get referrals for specialists. With an EPO, you can see specialists within your plan’s network without a referral.
Point of Service (POS) health insurance combines elements of HMO and PPO plans. With a POS plan, you will need to select a primary care provider, but you will be able to visit specialists without a referral from your PCP. POS plans offer more flexibility than HMOs, allowing you to get care both in-network and out-of-network — although you will likely pay more for out-of-network services.
High Deductible Health Plans (HDHP) are high deductible, low premium plans that can be a good choice for individuals or families that don’t often need extensive medical care. These plans are usually combined with a Health Saving Account (HSA), which allows individuals to save money for health expenses tax-free.
Catastrophic plans offer coverage from major medical expenses in the event of a serious injury. Unlike other major medical plans, they do not usually offer comprehensive coverage for routine healthcare needs. These plans typically include a high deductible and low premiums. They are usually only available for people 30 and younger or those who qualify for a hardship or affordability exemption. Catastrophic plans are typically not meant to cover day-to-day healthcare needs or preventive care.
What To Consider When Choosing a Plan
Different plan types come with different price points and levels of flexibility. Before settling on a major medical plan type, it’s important to consider several factors, including the following:
- Coverage and Benefits: All major medical plans offer the 10 essential benefits, but beyond that, offerings vary among plan types.
- Provider Network: Every plan has a provider network, but some network rules are more rigid than others. If you have a doctor you really like, you may want to check that they’re in your network.
- Premiums and Deductibles: Lower deductibles means higher premiums, in most cases. PPOs tend to cost more, and HMOs and EPOs are generally more affordable.
- Drug Coverage: Most all health plans cover prescription drugs, but not all plan types offer the same levels of drug coverage. You can look up your prescriptions with various insurance companies to determine whether your medicines are covered or not.
- Coverage Limitations and Exclusions: Different plan types place different limitations on coverage, the most notable being in-network vs. out-of-network providers.
- Health Savings and Flexibility: Health savings and flexible spending accounts allow you to save pre-tax income for health-related expenses, but not all plan types pair with these accounts.
- Future Needs: If you expect to require particular health services in the future — such as if you plan to become pregnant — you might choose a plan based on their provider network and specialist coverage.
- Reviews and Ratings: The Health Insurance Marketplace rates each health plan with an overall quality rating ranging from one to 5 stars. You can also check the AM Best ratings for insurers to make sure the insurance company you’re considering meets their financial commitments by paying on claims, etc.
Who Should Get Major Medical Insurance?
All eligible beneficiaries should have major medical insurance coverage. Without it, medical expenses can be devastating. Even so, health insurance has its pros and cons.
Carrying major health insurance comes with the following benefits:
- Extensive Coverage: It ensures you receive coverage for medically necessary health services, including preventative care, emergency care, hospitalization, prescription drugs, and mental health services.
- Financial Security: Out-of-pocket medical expenses can quickly get out of hand — just a few days in the hospital can cost you upward of $30,000. And even the lowest-tier plans cover about 60% of your medical costs.
- Coverage for Pre-Existing Conditions: Health insurance providers cannot deny you coverage, charge you more, or limit your benefits because you have a pre-existing health condition. This applies to children, too.
- Access to Quality Healthcare: Medical insurance helps you afford high-quality health services, and provider networks must meet state-regulated adequacy standards.
- Preventive Care: Plans must cover preventative healthcare, and many do so at no out-of-pocket cost to the beneficiary. Regular preventative care helps you catch and treat health conditions early on.
Potential drawbacks of health insurance include the following:
- High Deductibles: The most affordable plans often come with high deductibles, requiring you to pay thousands out of pocket before your insurance company pays.
- Expensive Premiums: Monthly health insurance premiums can get pricey. Employer-sponsored coverage is often subsidized, but in most cases, you must pay for a portion of your plan’s premium out of your pre-tax income. Premium prices tend to increase each year, too, with the average single-beneficiary plan premium rising by 3.6% between 2021 and 2022.
- Limited Provider Network: Your plan’s provider network limits your options for covered services, especially if you have an HMO or EPO.
- Referral Requirements: Some plan types, such as HMOs, require beneficiaries to get a referral from their primary care physician to receive care from a specialist, even if the specialist is an in-network provider.
- Confusing to Navigate: Depending on your plan type and whether you see an in-network or out-of-network provider, you may have to fill out and submit confusing claims forms. Regardless of your plan type, health insurance jargon can make it difficult to understand your benefits.
How Much Major Medical Insurance Costs
Monthly premiums vary based on several factors, including age, plan type, and metal tier. Older beneficiaries and beneficiaries with upper-tier plans tend to pay higher monthly premiums. See below for estimates of how your monthly insurance cost may vary based on influencing factors.
Typical Cost by Age
19 – 26
Typical Cost by Plan Type
Monthly Cost for an HMO Plan
Monthly Cost for a PPO Plan
Monthly Cost for an EPO Plan
19 – 26
Typical Cost by Metal Tier
Monthly Cost for a Bronze Plan
Monthly Cost for a Silver Plan
Monthly Cost for a Gold Plan
19 – 26
The above prices are estimates based on pricing information provided by the Health Insurance Marketplace. Actual plan prices vary based on your provider, location, and family size, among other factors.
Factors Influencing Cost
As demonstrated by the above tables, many factors influence the cost of health insurance, including the following:
- Age: Younger beneficiaries tend to have fewer health risks and pay lower monthly premiums. Children, however, often have a higher premium cost because they are more likely to become ill, break bones, etc. — so if you’re looking to cover your whole family, be aware that your kids may add some cost.
- Location: Your cost is influenced by your state and region. If you live somewhere where fewer health plans compete in the marketplace, insurance may cost more. Coverage is often less expensive in states with much competition among health insurers.
- Plan Type: PPOs are typically the most expensive plans. HMOs and EPOs, though more limiting, usually carry lower premiums.
- Tobacco Use: The ACA permits insurers to set higher rates for smokers. If you use tobacco, you can pay up to 50% more than a non-tobacco user for health insurance.
- Family Size: You may pay a higher premium if your health plan covers a spouse or other family members.
Getting Major Medical Insurance
If you’ve decided to get major medical insurance, here’s what to do next:
- Assess Your Healthcare Needs: Determine how often you anticipate needing care, and what kind of care you’ll need, and if you’ll need to see specialists. Will your spouse or kids need coverage under your plan? Account for all of these factors when choosing a health plan.
- Shop Around: If you plan to get insurance through your employer, you can talk to a human resources representative about your options and their varying price points and coverage offerings. Otherwise, you can compare plan rates on the Health Insurance Marketplace or by shopping directly with insurers.
- Enroll in the Enrollment Period: Open enrollment starts on Nov. 1. If you enroll in a health plan between then and Dec. 15, your coverage will start on Jan. 1. If you enroll by Jan. 15, your coverage will start on Feb. 1. Jan. 15 is the last day of open enrollment. Outside of open enrollment, you may enroll in a health plan following a qualifying life event, such as getting married or having a baby.
- Go Through the Application Process: You can apply for health insurance through HealthCare.gov, an insurance company, a health insurance seller, the Marketplace Call Center, or a local organization or representative who helps people enroll in health insurance. You can also mail in a paper application, though this option takes longer.
- Receive Your Insurance Card and Paperwork: Once you’ve been approved for a plan, you may have to submit documents demonstrating your annual income and immigration or citizenship status. Your health insurance company should provide a notice detailing which documents to submit. Once you’ve officially enrolled, you should receive an insurance card in the mail. Many insurers also provide digital insurance cards.
Make sure to read through your proposed plan’s explanation of benefits to ensure you understand its coverage before finalizing enrollment.
Though major medical insurance is the standard for health coverage, short-term health insurance and hospital indemnity insurance can help supplement coverage.
Short-Term Health Insurance
Common reasons to seek short-term insurance include:
- You missed the open enrollment period and are not eligible for a special enrollment period due to a qualifying life event.
- You just turned 26 and are no longer covered by your parent’s plan.
- You will soon qualify for Medicare and are looking for interim coverage until then.
- You are between jobs.
Short-term plans allow for fast enrollment, and coverage typically lasts between one and 12 months, depending on your state’s regulations. Several states do not permit short-term health plans at all.
Expect to pay around $125 per month for short-term health insurance. Expect limited coverage and benefits, too, and cheaper plans may have very high deductibles. You can buy short-term insurance through a private insurance company or an agent.
Hospital Indemnity Insurance
Hospital indemnity insurance helps pay for hospital stays and is best used in conjunction with a major health insurance plan. A hospital indemnity plan administers cash payments to help cover the expenses you might incur after a stint in the hospital. Payments typically depend on how long you stay in the hospital.
Though major medical insurance must cover hospitalization, hospital indemnity insurance can supplement your primary plan’s coverage. This can come in handy if you need extra cash to cover expenses while recovering after a hospital stay.
Hospital indemnity insurance is relatively inexpensive, usually costing around $10 per month.
All in All
It’s vital to have major medical insurance to help pay for health services, from standard annual checkups to surgeries and hospitalizations. Without proper coverage, out-of-pocket health expenses can rack up quickly; for instance, you might fork over nearly $8,000 to treat a broken leg.
All major medical insurance policies include essential benefits set by the ACA, providing you and your dependents with financially secure, robust coverage, plus access to quality health providers. Though it can be tedious and daunting to wade through health insurance options, jargon, and paperwork, major medical insurance is ultimately worth the investment for financial security and peace of mind.