When it comes to health insurance, you may be confused by the many different terms used by insurance companies that describe your coverage. You have probably heard terms like “major medical insurance,” “minimum essential benefits,” or other terms that may not make sense to you. One of the most important terms to understand, however, is major medical coverage.
What is Major Medical?
Major medical insurance is coverage that pays for medical treatments ranging from routine preventive care, like vaccines, to serious illnesses and injuries, like a broken leg. Historically, the term was used to describe comprehensive health plans that paid for necessary care. When the Affordable Care Act (ACA or Obamacare) was passed, the term “minimum essential coverage” was used to describe necessary care. There is a difference between minimum essential coverage and major medical, though. Under Obamacare, your healthcare plan must cover the 10 essential health benefits to count as a qualifying major medical plan. It must also offer all the consumer protections guaranteed under the law.
All new private plans – that is, the coverage people get outside of work – sold on and off the health insurance exchanges after March 23, 2010, must adhere to the ACA’s standards, which include covering a host of essential benefits. In short, major medical health insurance is “standard” or “regular” health insurance. It’s likely what you think about already when you think about health insurance.
Deductibles, Co-Payments and Co-Insurance
Like all forms of insurance, health insurance comes with a set of cost-sharing requirements. Major medical coverage includes a monthly premium – what you pay each month for the coverage – as well as copayments, coinsurance and an annual deductible. These costs vary by plan. For instance, you might have a $6,000 deductible for your coverage. That means that you must meet this amount before your health plan pays its portion of your bills.
Once you’ve paid your deductible, the insurance company starts to pay its share depending on the structure of your plan. Coinsurance is a percentage of a medical bill. Co-payments are a predetermined amount you pay for various services. For instance, if your major medical insurance requires you to pay 20 percent coinsurance each time you visit a doctor, and the bill for a visit is $100, you’ll pay $20 (assuming you’ve already met the deductible). Many plans don’t count regular office visits against your deductible, though. You might have a plan that allows you to just pay the coinsurance rate or copay when you see your doctor for something routine, like a sore throat.
One of the protections included in the Affordable Care Act was that all qualified healthcare plans must have an out-of-pocket maximum. This means that your insurance will have a limit of what you must spend out of your own pocket for medical costs for the year. Once you’ve reached the out-of-pocket maximum, the insurance company will pay 100 percent of your covered medical costs for the year. Note that this requirement only refers to the essential health benefits. A covered benefit like acupuncture may not be subject to this requirement, so it wouldn’t count toward your maximum spending out of pocket. For the most part, though, this cap comes in handy.
The out-of-pocket cap is set by the government each year. The limit in 2019 is $7,900 for individuals and $15,800 for families. Some plans may have lower caps, but no plan can have a higher cap than these.
Essential Health Benefits
Major medical coverage includes 10 essential health benefits. These benefits are required to be included in all major medical policies, but that doesn’t mean that every plan covers every benefit the same way. Some plans may have more generous coverage for physical therapy, for example, or some plans might have tighter restrictions on prescription drug coverage. Every plan must cover these benefits, but the degree of coverage will vary. You’ll find the following benefits in major medical plans:
- Emergency room visits
- Inpatient hospital care
- Laboratory tests, including X-rays, blood-work and other diagnostic testing
- Maternity and prenatal care during and after delivery
- Medical devices and rehabilitative care, including physical and occupational therapy as well as speech-language pathology, psychiatric rehabilitation, walkers, canes and other devices
- Mental health and substance abuse treatment
- Outpatient care (also called ambulatory care)
- Pediatric services, which includes dental and vision coverage for children under 18
- Prescription drugs
- Preventive services
Except for preventive care, these services will be subject to the cost-sharing structure of your health plan. A trip to the ER might cost $100, for example, or you might have to pay 30 percent coinsurance when you visit your therapist.
Major medical plans must cover preventive care for free. It’s not “free” in the sense that you pay nothing – since you’ll still pay your monthly premium for the coverage – but it’s free in the sense that you won’t be charged additional cost-sharing (like a copay). Flu vaccines, annual wellness checkups, cancer screenings and child well visits are examples of preventive care that won’t cost anything extra out of pocket with a major medical plan.
If you obtain health insurance from your employer, it is more than likely major medical coverage. In fact, large employers must offer coverage that meets the requirements of the ACA under the Obamacare employer mandate. If you do not receive health insurance as a benefit from an employer, you do have other options. You can purchase your insurance from the exchange in your state, where all policies will be considered major medical insurance. There are also major medical plans sold as off-exchange plans, but it’s important to confirm that a plan offered off the exchange includes the essential benefits required under the ACA. Plans that don’t meet this requirement are required to tell you in clear language.
Medicare, Medicaid and Grandfathered Plans
Although most Medicaid plans are considered major medical, you may only qualify for a limited plan, such as one that covers pregnancy only. In that case, your Medicaid plan would not be considered major medical coverage. There are also health plans that were grandfathered or grandmothered as part of the ACA. Although you can no longer purchase these plans, you can keep a grandfathered plan for as long as they are not changed significantly. Grand-mothered plans may remain in place until December 31, 2019, although states and insurers can cancel them at any time. Grandfathered plans had to be in place as of March 23, 2010 and met special requirements when the Affordable Care Act was put in place. Grand-mothered plans were those that were subject to federal transition policies, which means they were required to transition into compliant policies by certain deadlines. This deadline has been extended several times by the federal government.
Medicare Part A counts as minimum essential health coverage under the Affordable Care Act. If you have Part A, you’ve met the requirements of the law. Part B alone doesn’t count. Since you need both Parts A and B to hold a Medicare Advantage plan, you’ve also met the law’s requirements if you have an Advantage plan. These plans can be considered major medical health insurance because they cover your healthcare in a comprehensive way, though original Medicare (Parts A and B) is less comprehensive than ACA-approved major medical policies.
One of the most controversial aspects of the Affordable Care Act is a mandated tax penalty that’s assessed if you don’t have major medical coverage. The Obamacare 2019 penalty has been eliminated with other legislation, but the tax penalty is still in place for 2018. This means that if you do not have qualified health insurance, whether through the healthcare marketplace, your employer or off-market, you will be required to pay the tax penalty when you file your income taxes next spring.
The penalty for not having health insurance is $695 per uninsured adult and $347.50 per uninsured child, or 2.5 percent of your taxable household income, whichever is greater. Starting January 1, 2019, this penalty will be zeroed out, though the mandate itself remains in effect.