Major Medical and Supplemental Health Insurance: Understand the Differences

Insurance Carriers offer a variety of products that can provide you benefits should you get sick or just need a wellness check-up. There are numerous advertising campaigns designed to influence your purchase claiming that their program is better than others. Many can have a place in a well-designed health insurance program depending on your needs. This is intended to help our readers understand what each insurance product does and how it might fit into a program
for your personal situation.

Major Medical Insurance: This is traditional coverage usually bundled in physician, pharmacy, and hospital networks (ex. HMO, POS, PPO). The costs include your monthly premium, a deductible, and copays/coinsurances with an out of pocket maximum. Benefits vary by plan but generally cover some portion of doctor visits, prescriptions, lab work, diagnostic procedures, hospital stays and surgery, etc. The most important concept with Major Medical insurance is that most plans pay for all covered services once you have satisfied your deductible, met your out of pocket maximum, and are current on premium payments.   Therefore the most important benefit of Major Medical is insurance protection from severe medical problems that can cost you tens of thousands of dollars. With health reform, Major Medical can no longer “cap” lifetime maximums. These are now unlimited.  

Indemnity Insurance: This offers a defined payment structure for your premium. Look carefully at the specific benefits provided for your premium dollar.  Most of these plans are not Major Medical policies and the benefits are specific dollar amounts.  Some indemnity policies are Guaranteed Issue programs. These can be useful for people declined by Major Medical insurance carriers. However, check carefully the waiting period and also compare the benefits to the Federal Pre-Existing Condition plan. Some are solid and others should be avoided.

Supplemental Health Insurance: These insurance policies generally pay cash benefits once you are diagnosed with a specific illness, or have an accident, or are possibly hospitalized dependent on what type of policy you purchase. There are many types of supplemental policies and these can be very useful in providing cash for your needs beyond specific medical expenses. They also are helpful
in paying for deductibles and coinsurances in your Major Medical program. The caution with these programs is that they are NOT Major Medical Policies and in my view not a replacement since they pay a specific amount of cash only.  Should you suffer a severe medical condition or a chronic problem these policies generally do not provide ongoing benefits. In this regard, “supplemental” is a good term and proper role for such insurance. 

My View: Most important is that you construct a plan to meet your specific needs, risks and it fits with your status. I do believe Major Medical is an essential base for your health insurance plan because of the ongoing benefits provided for care from severe medical problems. However, many of us buy coverages we don’t use hence overpaying premiums. Supplemental protections can be bundled with Major Medical to actually provide broader cash benefits at a lower cost. Many of us can adequately provide for these cash expenses in a personal emergency fund and do not need supplemental policies. In the end, it comes down to being a smart shopper buying what you need for your specific situation, protecting for hose risks that most concern you.

Editor's Note: is a health, long-term care and life insurance professional, and blogger for Cumming Patch.