Major Medical Health Insurance Overview

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Major medical health insurance is a type of health insurance that covers the expenses associated with serious illness or hospitalization. 

Major medical health insurance is the terminology that was historically used to describe comprehensive health plans that covered most necessary care. Since the Affordable Care Act was implemented, the term "minimum essential coverage" is frequently used instead, although they're not entirely interchangeable.

Minimum essential coverage is what you had to have between 2014 and 2018 in order to avoid the ACA's penalty for being uninsured. Although the ACA's individual mandate still exists, the federal penalty for not having minimum essential coverage was eliminated at the end of 2018 (some states have their own penalties). But the concept of minimum essential coverage is still important because several qualifying life events only trigger a special enrollment period if you already had minimum essential coverage in effect before the qualifying event.

With the exception of short-term health insurance (discussed below), all major medical health insurance plans count as minimum essential coverage.

"Real" Health Insurance

Major medical health insurance in layman's terms is what people would generally consider "real" health insurance. It does not include limited benefit plans, fixed indemnity plans, dental/vision plans, accident supplements, or critical illness plans, none of which are regulated by the Affordable Care Act.

Major medical plans usually have a set amount, or deductible, which the patient is responsible for paying. Once that deductible is paid, the plan typically covers most of the remaining cost of care; there is usually coinsurance after the deductible is met, which involves the patient paying a percentage of the bill (20% is a common amount) and the insurance company paying the rest. Once the patient's total share of in-network costs (including the deductible, coinsurance, and any applicable copays) reach the plan's maximum out-of-pocket limit, the health plan pays 100% of the patient's covered in-network care for the rest of the year.

In 2020, all ACA-compliant plans must cap in-network out-of-pocket costs (for essential health benefits) at no more than $8,150 for an individual and $16,300 for a family. In 2021, this upper limit on out-of-pocket costs will increase to $8,550 for an individual and $17,100 for a family.

Major medical plans that are not fully ACA-compliant (ie, grandmothered and grandfathered plans) can have higher out-of-pocket limits, but it would be highly unusual for even these plans to have unlimited out-of-pocket costs (note that traditional Medicare, without a Medigap supplement, does not have a cap on out-of-pocket costs, but this is not the model that private insurance typically follows).

Major medical plans can be very robust, with low out-of-pocket costs, but they also include high deductible health plans that are HSA-compliant, and catastrophic plans as defined by the ACA.

Major Medical Versus Plans That Aren't Major Medical Coverage

There's no official definition for major medical coverage. But it's generally accepted that plans that are minimum essential coverage (which is defined) are providing major medical coverage.

But even so, there are no hard-and-fast rules that apply to minimum essential coverage, in terms of what has to be covered by the plan. ACA-compliant plans are much more clearly defined, but ACA-compliant plans are just one subset of minimum essential coverage (and of major medical coverage).

Specifically, grandfathered and grandmothered health plans are major medical coverage and are minimum essential coverage, but they aren't required to cover all of the things that ACA-compliant plans are required to cover.

And even for ACA-compliant plans, the rules are different for large group plans versus individual and small group plans. Large group plans, for example, aren't required to cover the ACA's essential health benefits, while individual and small group plans are. But they all count as minimum essential coverage. In nearly all cases, they would also be considered major medical coverage, although some large employers offer "skinny" health plans in an effort to circumvent the more significant of the employer mandate penalties. These "skinny" policies do not provide comprehensive coverage and cannot be considered major medical coverage. Employers are still subject to a penalty under the employer mandate if they offer these plans, but it can be a lesser penalty than the one they'd face if they didn't offer coverage at all.

Things like limited benefit plans, fixed indemnity plans, accident supplements, dental/vision plans, and critical illness plans, on the other hand, are very different. They are generally designed to supplement a major medical plan, rather than serve as a person's primary coverage. So they'll help to cover some of the out-of-pocket costs that a person might incur with a major medical plan, or provide some coverage for things that aren't covered under major medical plans, like dental and vision care, or some of the costs associated with having to travel to a distant location for medical treatment. But a person relying entirely on one of those plans—without a major medical plan in place—would be woefully underinsured in the event of a serious illness in injury.

The premiums for excepted benefit plans tend to be much lower than major medical premiums, but that's because they're covering so much less. (Keep in mind that the ACA's premium subsidies make major medical coverage much more affordable, for millions of people, than it would be if they had to pay full price. And employers cover the majority of the cost of employer-sponsored health insurance. )

Some States Consider Short-Term Health Plans Major Medical Coverage

Short-term health insurance is also not regulated by the ACA and is considered an excepted benefit. But it differs from the other excepted benefits in that some states apply their individual major medical insurance laws to short-term plans (some, however, explicitly differentiate between major medical coverage and short-term coverage). While short-term health insurance is considered major medical coverage by some state regulators and is sometimes referred to as "short-term major medical," it is never considered minimum essential coverage.

Short-term health insurance plans are the closest thing to "real" health insurance among the excepted benefits. They're similar in many ways to the grandfathered and grandmothered major medical plans that were sold before the ACA was enacted and implemented, and they're still available for sale today (unlike grandfathered and grandmothered plans, which have not been sold since 2010 and 2013, respectively). In 2018, the Trump administration relaxed the rules for short-term plans, allowing them to have initial terms of up to 364 days, and total duration, including renewals, of up to 36 months. States can impose stricter rules, however, and many have done so, meaning that there are numerous states where short-term plans are limited to much shorter durations.

When a short-term plan can potentially last for up to 36 months and is comparable to some of the grandfathered and grandmothered health plans that are still in force, it's easy to see how it can be considered major medical coverage. But the rest of the excepted benefits are never considered major medical coverage.

Where Can You Get Major Medical Coverage?

The coverage you get from your employer is probably major medical health insurance. If you work for a large employer, they have to offer coverage that provides minimum value in order to comply with the ACA's employer mandate. A plan that provides minimum value will generally also be considered major medical coverage, as it will be fairly comprehensive. As noted above, a small minority of large employers—particularly those with a low-wage, high-turnover workforce—opt to offer plans that do not provide minimum value and that cannot be considered major medical coverage. These employers face a penalty (albeit a potentially smaller one than they'd face if they didn't offer coverage at all), but their employees have the alternative of obtaining major medical coverage in the exchange, and can receive premium subsidies if their income makes them eligible.

Any plan you buy in the exchange in your state will be considered major medical coverage. Off-exchange plans (purchased directly from an insurer, instead of from the health insurance exchange in your state) are also major medical plans, as long as they're fully compliant with the ACA. All new major medical plans have to be ACA-compliant since 2014, including those sold outside the exchanges. But supplemental coverage, limited benefit plans, and short-term plans can still be sold outside the exchanges; these plans are not regulated by the ACA and are not considered major medical coverage.

If you buy coverage in the exchange in your state, you may be eligible for premium subsidies to offset the cost of purchasing major medical coverage. For 2020, subsidy eligibility for a family of four extends to household incomes as high as $103,000 (eligibility is capped at 400% percent of the previous year's poverty level; on the low end, subsidies aren't available if your income is below the poverty level, or if you're eligible for Medicaid). 

Medicare and most Medicaid plans also count as minimum essential coverage, and can thus be considered major medical plans (some people qualify for limited-benefit Medicaid coverage—Medicaid that only covers pregnancy-related services, for example—and this would not be considered minimum essential coverage or major medical coverage).

Grandmothered and grandfathered health plans count as major medical coverage, although they can no longer be purchased. But if you still have coverage under these plans, you've got minimum essential coverage (and major medical coverage). Grandfathered plans can remain in force indefinitely, as long as they're not substantially changed. Grandmothered plans can currently remain in place until as late as December 31, 2021 (a deadline that may be extended again), at the discretion of states and insurers.

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