Health Insurance Basics and Medical Expense Insurance
Cost-sharing mechanics
Medical expense policies shift cost through four levers: the deductible (paid first each period), coinsurance (a percentage of the balance), copayments (flat dollar amounts), and the out-of-pocket maximum, after which the insurer pays covered costs at 100%. Inside limits cap specific services (e.g., chiropractic visits, mental health days). A waiting or elimination period delays benefits; a pre-existing condition limitation may exclude recent treatment, subject to federal limits for group and ACA plans.
Plan types
Indemnity (fee-for-service) plans reimburse and usually impose deductibles and coinsurance. Managed care plans differ by network rules: HMO (closed panel, gatekeeper, no out-of-network except emergencies), PPO (network discounts with out-of-network coverage), POS (HMO with an out-of-network option), EPO (network only, no referrals). Limited policies cover a single need - dental, vision, cancer, hospital indemnity, short-term medical - and are not comprehensive major medical. ACA-compliant individual plans must be guaranteed issue, cover essential health benefits, and fit metal tiers (bronze 60%, silver 70%, gold 80%, platinum 90% actuarial value).
Coordination of benefits
When two group plans cover one person, the primary plan pays first and the secondary plan pays the remainder, never more than 100% of the charge. The birthday rule usually makes the plan of the parent whose birthday falls earlier in the year primary for dependent children.
Worked example
$5,000 deductible, then 80/20 coinsurance, $10,000 out-of-pocket maximum. A $25,000 covered claim: insured pays the $5,000 deductible, then 20% of the remaining $20,000 ($4,000), for $9,000 total - under the out-of-pocket maximum, so the insurer pays $16,000.
Trap
Coinsurance is a percentage; a copay is a flat dollar amount. Do not confuse the deductible with the out-of-pocket maximum.