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: Sep 30, 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. It has an appeal to young, fairly healthy people who don’t want to pay high insurance premiums. But they also don’t want to get stuck with hundreds of thousands of dollars in medical expenses. These medical insurance plans make sense.

This type of insurance can be purchased through an unconventional insurance company (why you need health insurance). Keep in mind, their job is to sell you a product, not to necessarily help you properly evaluate your options. Still, for many people, major medical coverage puts some coverage within reach.

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). While these plans did not meet the affordable care act standards, they can be used to supplement an existing plan.

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Is major medical coverage right for you?

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.

In the past, these plans have appealed to many young and healthy borrowers. They have also appealed to borrowers who are struggling financially and want cheap insurance. While they do provide protection against accidents and major events, they can still leave some insured parties in a hole of debt that a small monthly premium cannot counterbalance.

These borrowers are not able to save money to pay everyday medical costs or the higher deductibles. This could lead to everyday medical conditions not being treated until they become emergencies. If you cannot afford preventative care, major medical services coverage should be approached with caution if at all.

How can you avoid crippling medical costs with an insurance company?

You can avoid these high-dollar self insurance (coinsurance, copayment and deductibles) costs. The bad news is the policy will cost more. If you work full-time, you can expect your employer to provide basic insurance for preventative services. In states like Hawaii, you need only work 20 hours a week for 4 weeks to qualify.

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. If this is still more than you can spend, this type of plan would be a bad idea.

What are the alternatives to a major medical expense plan?

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.

With the healthcare marketplace, if your employer does not offer medical care, you can get discounted prices. This is also true if you lose your job. That is one of many qualifying events. Plans are required to cover preventive care and certain mental health care benefits. This could prevent hospital stays and provide essential health benefits with key prescription drugs along with coverage for major incidents.

If you fall below a certain income line, you can also apply for state sponsored insurance. This is true whether you’re just trying to get on your feet or if you need long-term assistance. It can be used for families and single people. The key is to have health coverage that doesn’t leave you in a bind when you need emergency services or preventive medical care.

Read more: Top Ten Health Insurance Companies