Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 19, 2021

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The name really says it all. Major medical insurance coverage is health insurance that’s designed to cover the catastrophic costs associated with serious injury or illness.

Major medical is one of the more common types of health insurance policies out there. Many Americans purchase this type of coverage to prevent serious financial consequences if they happen to suffer a major health-related issue (why you need health insurance).

In fact, nowadays employers are opting for this type of coverage as health insurance costs continue to increase.

For those of us seeking coverage in the “private” market (not through an employer), major medical coverage, with its large insurance deductible, may be the most affordable option to reduce the cost of health insurance coverage.

[Can I get health insurance without a job?]

Basically, the idea here is that your insurer will only get involved (pay out benefits) in the event your health takes a serious decline and the expenses are high. The concept is similar to having a high deductible on auto or homeowner’s insurance. The more you “self-insure,” the less the insurer charges you for a policy.

How Does Major Medical Insurance Work?

Major medical insurance is a designed to provide benefits for most medical costs. You can think of this coverage as a complete health insurance coverage policy. It should cover expenses that result while in or out of the hospital. That’s some great peace of mind as we deal with something like the current coronavirus pandemic.

There are two types of major medical insurance. You can purchase a “comprehensive” or “supplemental” major medical policy. We’ll focus on comprehensive in this post, as it is the major “player” in the health insurance market.

You can read more about supplemental health insurance coverage, which is designed pay benefits to you directly, to cover any expense you incur, whether medical or not (perhaps you car payment).

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You Must Share in the Costs

Expect major medical coverage to have high limits of liability (coverage) as it deals with catastrophic events. You may see a $1,000,000 limits associated with a major medical policy.

While the limits may be high, coinsurance, copayments and deductibles associated with major medical insurance are the “downside” to this type of health insurance policy.

These policy provisions mean you are responsible for a predetermined amount of your health insurance expenses.

For example, you may have a policy that covers you for a specific amount, perhaps $1,000,000, but you are personally responsible for the first $5,000 worth of expenses. Not a bad deal if your medical care expenses add up to several tens-of-thousands of dollars.

But bad news if your expenses are at or below that amount – you essentially pay for everything.

Can You Avoid These Costs?

The good news is, YES, you can avoid these high-dollar self insurance (coinsurance, copayment and deductibles) costs. The bad news is; the policy will cost more.

There are some major medical policies with a first dollar deductible clause that do not require you to share in the expense of your medical costs. If you are “covered” for your initial medical concern, the policy responds immediately.

Additionally, major medical policies typically contain a stop-gap loss provision, which means that even if you have a coinsurance clause (you share a percentage of the overall cost), there is a limit to the total dollar amount you have to contribute to your healthcare costs.

For example, your policy may dictate that you “share” a total of 20% of your medical care costs. But, what if your total cost is $500,000? Your policy may have a stop-gap loss measurement of $10,000.

This means that no matter what the total bill is, you won’t have to pay more than $10,000 of the costs.

Tip: It may be a good idea to purchase supplemental health insurance in addition to a major medical policy. Supplemental health insurance is designed to provide benefits above and beyond what major medical will.

You can use the benefits from a supplemental policy to pay for everyday expenses that continue while you are hospitalized.

Read more: Top Ten Health Insurance Companies