Chapter 12

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Medical Expense Insurance (Hospital Expense)

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Medical Expense Policies covering sickness and disease usually require that the illness must
be diagnosed and treated while the policy is in force for coverage to apply. The terms of the
policy determine the amount of benefits paid upon claim. Medical Expense Policies normally
provide reimbursement on an indemnity basis with a benefit period of January 1 through
December 31 of each year. These policies do not cover loss of income while hospitalized.

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Deductible

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is a cost containment method used in insurance and designed to help control
rising premium costs. It is usually expressed as a specific dollar amount that the insured
pays first, such as $250

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Coinsurance

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is a participation requirement whereby the insured must share, on a
percentage basis, the cost of expenses in excess of the deductible

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Out of Pocket Limits (Stop Loss)

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is a dollar amount beyond which the insured no longer
participates in the payment of expenses and the insurer then pays 100% up to the policy limits

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Blanket Payment

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maximum dollar limit set, with no itemizing of costs, used for
sports teams, schools, etc.

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Scheduled Payment

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schedule listing the amount payable for each medical expense

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Cash Payment

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specified amount per day during hospitalization up to a maximum
number of days

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Reimbursement (Expense Incurred)

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pays directly to insured

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Service

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pays directly to the provider

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Usual, Customary, Reasonable (UCR)

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is not scheduled, but is based on the average fee charged by all doctors in a given geographical area. Many insurers pay the
(UCR) amount and the balance of any overcharges or costs of any disallowed services
are the insured’s responsibility.

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Regular (Basic) Medical Expense Policy

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cover doctor visits while in the hospital (hospital
expense) and are usually expanded to include payment for office visits, diagnostic xrays,
laboratory charges, ambulance, nursing expenses when not hospitalized, and for an
additional premium, maternity benefits. Medical Expense Policies do not cover vision or
dental care as a policy provision.

Basic policies generally specify the benefit limit for covered expenses; a schedule of
benefits. The benefit limit may be less than actual expenses incurred. The Basic Health
insurance policy characteristics are:
1. Basic Hospital Expense – pays for a hospital room (semi-private), and for board
and miscellaneous hospital expenses, up to a limit.
2. Basic Surgical Expense
a. Commonly written with the Basic Hospital Expense.
b. Schedule lists surgeries covered; if not listed, may pay for a comparable surgery.
c. Pays surgeon’s fees, operating room charges and anesthesiologist’s fees.
d. Policies normally use a schedule to specify benefit limits for covered expenses.

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Major Medical Policy

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1. Major Medical Policies (stand-alone) provide benefits for prolonged injury or illness.
They are characterized by the following:
a. High maximum limit of coverage (stated in the policy as a lifetime maximum).
b. Deductible (an initial amount the insured must meet before benefits are paid).
This applies as per person, per family, per year, not per expense.
c. Percentage of participation (coinsurance).
d. Designed to protect against health losses that may be catastrophic.
e. Hospice and Home Health care are not normally covered.

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Provisions that may be included in a Major Medical policy are:

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a. Stop Loss Provision (AKA stop loss limit) – is a maximum dollar limit
set on the coinsurance to limit the out-of-pocket expense that an insured can
incur in a policy year. This may or may not include the deductible.
b. Common Accident Provision – if several family members are injured in the
same accident, only one deductible is applied.
c. Family Deductible – if a family is insured, a maximum of two or three deductibles
will satisfy the deductible requirement for the entire family per calendar year.
d. Carry-Over Provision – expenses that did not satisfy the previous year’s
deductible and were incurred in the last three months of that year are used
towards satisfying the current year’s deductible.
e. Restoration of Benefits Provision – if claim free, it allows an insured to
restore a certain amount each year for coverage limits lost due to a previous
claim payment(s).
f. Recurrent Hospitalization Provision – if the insured returns to the hospital
for the same injury or sickness within a certain period of time, only the first
deductible will apply.
g. Accumulation Provision – rewards an insured for maintaining a policy in
force by increasing the benefits periodically.

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Supplementary Major Medical Policy

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1. A Major Medical policy that is written to pay over and above any Basic plan.
2. A Corridor Deductible is used between the Basic Plan (when the limits of coverage are
exhausted) and the start of coverage under the Supplemental Major Medical policy. The
Corridor Deductible is the specified expense the insured must personally incur before
the supplemental benefits begin.

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Comprehensive Major Medical Policy

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1. The most recent version of Major Medical coverage combines the best features of the
Basic policies and Major Medical policy into a single policy and includes “reasonable and
necessary” medical expenses. This policy provides the most complete hospital coverage.
2. These policies are available as individual policies or group.
3. These policies usually have a deductible, coinsurance clause, and a stop loss limit.

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Benefits That Must Be Provided Or Offered In
Medical Expense Insurance

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Newborn Infant Coverage
1. All individual and group health insurance policies, written on an expense-incurred
basis, providing coverage for dependents of the insured must provide coverage for the
insured’s newborn child from the moment of birth. Adopted children are covered at the
date of placement for adoption.
2. The coverage shall include injury or sickness, including the necessary care and
treatment of medically diagnosed congenital defects and birth abnormalities.
3. Notification of birth or adoption and payment of the required premium must be within
31 days after the date of birth or adoption in order to continue coverage beyond 31 days;
otherwise, the coverage is for only 31 days.

Dependent Child Coverage (Limiting Age Law)
1. In California, the law provides that coverage for a dependant child terminates upon
attainment of the limiting age for dependant children specified in the policy or contract,
unless the child is and continues to be both:
a. Incapable of self-sustaining employment by reason of mental retardation or
physical handicap.
b. Chiefly dependent upon the insured for support and maintenance, provided that
proof of such incapacity and dependency is furnished the insurer by the insured
within 31 days of the child’s attainment of limiting age.
2. If a child cannot be claimed as a dependent on Federal IRS Tax Forms, an insurer might
deny coverage of a stepchild or refuse court-ordered premium payments.

Child Health Supervision Services
1. Coverage for a physician’s periodic review of a child’s physical and emotional status
shall be offered.
2. Such coverage shall be effective from the moment of birth through age 12 (well baby
checkups and immunizations). This coverage may be referred to as the Wellness Program.
3. These benefits are subject to the same deductibles and coinsurance as other services.

Speech and Hearing Disorder Coverage
Coverage shall be offered for the necessary care and treatment of loss or impairment of
speech or hearing and subject to the same duration limits, dollar limits, deductibles and
coinsurance factors as other covered services.

Mammography Coverage
1. All individual and group health policies providing coverage on an expense–incurred
basis must provide coverage for low-dose mammography screening for any eligible,
nonsymptomatic woman covered under such policy.
2. The following shall be provided in the following frequencies:
a. A baseline mammogram for women age 35 to 39.
b. A mammogram for women age 40 to 49 every two years or more frequently
based on the recommendation of the patient’s physician.
c. A mammogram every year for women age 50 and over.
3. Coverage for such mammography shall be subject to the same dollar limits, deductibles,
and coinsurance factors as other radiological examination benefits.

Cervical Cancer Examination
This particular cancer may be detected by a Pap test, and the policy must provide coverage
for such an examination.

Alcohol Abuse
Some states require individual and group health policies to at least offer treatment for alcoholism
as an optional coverage, while other states stipulate that treatment for alcoholism must be
provided, while confined, on the same basis as any other illness for a limited number of days.

Chemical Dependency
Every Medical Expense Policy shall offer benefits for chemical dependency. Coverage
will be subject to the same deductibles and coinsurance factors as those that apply to
any physical illness and be subject to a maximum benefit per policy period. The term,
“Chemical Dependency,” refers to an illness where an individual is physiologically
dependent upon a controlled substance.

Mental Illness
Every Medical Expense Policy shall offer coverage for mental illness. The lifetime
maximum benefit for this coverage may vary from state to state. Coverage will be subject to
the same deductibles and coinsurance factors as those that apply to any physical illness.

Diabetes Treatment
Each entity offering individual and group health insurance on an expense-incurred basis
shall offer coverage for all physician prescribed medically appropriate and necessary
equipment, supplies and self-management training used in the management and treatment of
diabetes. Coverage shall include persons with gestational, type I and type II diabetes. This
diabetes treatment cannot be subjected to any greater deductible or co-payment than any
other health care service offered under the plan.

Genetic Testing
In some states the Department of Health and Welfare has been designated as administrator
of a comprehensive genetics program which is to provide genetic diagnosis, counseling,
treatment, education and research. The implications of this legislation from an insurance
perspective are listed below.
1. Every infant who is born in that state should be treated for phenylketonuria and such
other metabolic diseases prescribed by the department.
2. If a patient is eligible, payments will be made for such services through Medicaid or other
insurance benefits available to the fullest extent possible. If a patient is in need of genetic
services and is financially unable to pay, they will be entitled to such services through
state assistance without charge to the limit of appropriations provided for genetic services.

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Medical Expense Insurance Optional Benefits

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Prescription Drugs
1. The prescription drug benefit is most often found in a group health insurance policy.
However, some individual health insurance policies provide the benefit as a rider.
2. This benefit is written requiring a small copayment, a flat amount, for each prescription.
Elective medication may or may not be included, such as birth control pills.

Vision Care
1. Provides for one routine annual examination (refraction).
2. May provide payment for the cost of lenses, frames, contact lenses, but not the cost to replace
frames or lenses that are lost or broken. It does not pay for sunglasses or safety glasses.
3. Does not pay for medical expenses incurred from disease or injuries to the eye.

Supplemental Accident
1. Available as a rider on both group and individual policies.
2. Pays on a first dollar basis for medical expenses incurred as a result of an accident.
3. The maximum amount payable for any one accident is normally $500.

Dental Expense
1. Typically, medical expense policies exclude dental expenses making an endorsement necessary.
2. For detail of benefits, see “Dental Insurance” later in this chapter.

Maternity Rider
1. Medical plans will usually cover the “complications of pregnancy” as an illness, without paying
the extra premium for this rider. Normal Birthing Costs are paid only with this rider added.
2. If the rider is added, a health plan must provide 96 hours of inpatient care following a
caesarean section birth. Normal birth inpatient care is 48 hours. A shorter stay may be
allowed if approved by the attending physician.

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Limited Policies

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Limited health exposures are generally covered by limited policies that specify the exposure
to be covered and the amount of the corresponding benefit, such as prescription drugs,
vision care, etc. State laws require that the agent/insurer make special note or reminder to
the insured regarding the fact that the policy pays only under stipulated conditions.

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Types of Limited Policies

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1. Accidental Death and Dismemberment
a. May be written as a separate policy or added to a Health/Disability, or Life
Policy as a rider.
b. The policy or rider will not pay for loss due to infectious disease, and usually
provides that death must occur within 90 days from the date of the accident.
c. A smaller amount (capital amount) as stated in the policy, may be paid for the
loss of sight in one eye or the loss of one limb.
2. Limited Accident – provides specific benefits for specific injuries from specified
causes, such as associated with travel, athletic events, etc.
3. Limited Sickness (Dreaded Disease) – provides specific benefits for a specified
sickness, such as cancer and heart disease.
4. Hospital Income or Indemnity (Cash Payment) – pays directly to the insured a
specified dollar amount per day during hospitalization. Payment is based solely on the
number of days the insured is hospitalized. It pays the daily amount stated in the policy.
5. Blanket
a. Coverage sold to groups whose membership fluctuates, such as common
carriers, schools, athletic teams, etc.
b. This coverage provides medical and surgical benefits in excess of any primary
coverage.
c. Members are not individually underwritten and do not receive an individual
certificate or policy.
5. Blanket
a. Coverage sold to groups whose membership fluctuates, such as common
carriers, schools, athletic teams, etc.
b. This coverage provides medical and surgical benefits in excess of any primary
coverage.
c. Members are not individually underwritten and do not receive an individual
certificate or policy.
7. Short Term Medical Expense Plan – normally written on persons unemployed or
fulfilling a waiting period. Coverage may be from 30 to 180 days and generally only
renewable once up to 180 days. It is not considered a guaranteed renewable policy.

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Common Exclusions From Coverage

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Exclusions are causes or conditions listed in the policy that are not covered and for which
no benefits are payable. If an exclusion rider is added after the application is taken and
a receipt has been issued, coverage is effective when the insured accepts the policy. The
following exclusions are typical of those found in either individual or group disability
policies or medical expense policies, depending upon the insurer:
1. Preexisting conditions – may be excluded, or subject to a probationary period.
2. Intentionally self-inflicted injuries (suicide).
3. War or any act of war.
4. Elective cosmetic surgery.
5. Medical expenses payable under Workers’ Compensation, or any Occupational Disease Law.
6. Aviation.
7. Military service and overseas residence.
8. Care in a government facility.

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Dental Insurance

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A dental plan offered by an insurer must state the benefits, the exclusions, and any reductions
in coverage. Plans are normally written stating an annual maximum dollar benefit, not the
number of appointments or the number of teeth repaired. Dental insurance contracts may be
written on either an individual or group basis. Some plans limit the selection of dentists; others
the benefits. Services received immediately prior to a plan termination are normally covered.
Some group health and dental plans share the same deductible (integrated deductible).

Choice of Providers
There are as many choices of dental coverage as there are choices of group health insurance
today. These choices are as follows: conventional insured plans offered by insurers, dental
service plans, Blue Cross/Blue Shield, and managed care plans or prepaid dental plans. Dental
plans must offer the insured a choice of providers regardless of the dental coverage selected.

Choice of Providers
There are as many choices of dental coverage as there are choices of group health insurance
today. These choices are as follows: conventional insured plans offered by insurers, dental
service plans, Blue Cross/Blue Shield, and managed care plans or prepaid dental plans. Dental
plans must offer the insured a choice of providers regardless of the dental coverage selected.

Types of Dental Care
The dental profession is very specialized and the following is a partial list of dental specialists:
1. Endodontics – services covering dental pulp care and root canals.
2. Orthodontics – services for teeth alignment and other irregularities of the teeth.
3. Periodontics – services for the treatment of gum problems and disease.
4. Prosthodontics – services provide bridgework and dentures.
5. Restorative Care – services to restore the functional use of natural teeth.
6. Oral Surgery – surgical treatment of diseases, injuries and jaw defects.

Types
1. Benefits may be payable on a Basic (scheduled) plan, a Comprehensive (nonscheduled)
plan or a combination of both.
2. Benefit maximums of a Basic (scheduled) plan are commonly paid on an amount lower
than the usual and customary dental charges.
3. Comprehensive (nonscheduled benefits) are paid on a reasonable and customary basis.
Dentures are a major dental expense and would be paid using this benefit provision.

Exclusions
1. Purely cosmetic services (unless necessitated by an accident).
2. Replacement of prosthetic devices.
3. Duplicate dentures or prosthetic devices.
4. Oral hygiene instruction or training.
5. Occupational injuries covered by Workers’ Compensation.
6. Services furnished by or on behalf of government agencies.
7. Certain services that began prior to the date of coverage.

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Limitations (Designed to control costs and eliminate
unnecessary dental care).

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1. Deductibles are normally waived for routine preventive care, exams, and/or cleaning.
Preventive care is more fully covered, stressing preventive dentistry, similar to an HMO
stressing preventative medicine.
2. Coinsurance applies in addition to deductibles.
3. Limitation to least expensive treatment, such as gold or silver fillings, payment is for
silver even if gold is used.
4. Both annual and lifetime maximums are imposed.

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Predetermination of Benefits (Precertification or Prior
Authorization) - Dental

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Although this procedure is normally not mandatory, it does allow both the patient and dentist
to know what will be covered before treatment. This knowledge enables the insurer to maintain
some control over unnecessary or more expensive than necessary procedures and gives the
insured an opportunity to seek less expensive care if he/she knows the benefits are limited.

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Employer Group Dental Expense

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Minimizing adverse selection is a goal and concern of underwriting group dental plans.
The policy may include a one-year benefit reduction of up to 50%, or exclude certain
benefits altogether for a specified period for those who enroll after the initial eligibility date.
Frequent open enrollments would add more exposure to immediate claims and concerns of
increasing “adverse selection.”

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Service Categories - Dental

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For the most part, there are two categories of dental care, Basic and Major. Routine
preventive care services, such as routine check ups, x-rays and cleaning, are considered to
be basic care. Major dental care includes any fillings, root canals, dentures or bridge work,
and the use of braces.