13.1 The Purpose of Medical Expense Insurance
Basic medical expense insurance (often referred to as first dollar insurance) pays benefits "up front" without the patient having to first satisfy a deductible. These plans, however, are limited to a set amount that they will pay and the amount of time they will pay for certain medical services. Medical insurance can provide financial protection for just about all kinds of medical services.
Coverage is basically provided in one of two ways.
- Basic Medical Insurance - Limited coverage to select types of medical care
- Major Medical Insurance - Broader, more complete coverage
Medical expense insurance is a contract of reimbursement. Normally members would pay their deductible for the services provided, and the insurance company would reimburse the medical service provider for the balance of the amount due. Sometimes members will pay the entire bill in which case the insurance company will reimburse the member.
Sometimes, however, payments are made using the fixed indemnity method. Both methods are demonstrated below.
Susan suffered an accident and was in a rehabilitation center for 5 days at $100 per day. Her policy pays $150 per day benefits for such services. Susan would actually receive $750 from her insurance company.
$150 x 5 = $750 - The additional $250 can be used by her for whatever purpose.
If Susan's policy used the reimbursement method, her insurance company would have issued $500.
$100 x 5 = $500 - There would be no additional funds provided.
Taxation
Taxation of medical expense insurance pertains to people who accumulate medical expenses that add up to 7.5% of their gross income. A person cannot consider disability income expenses tax deductible unless the amount exceeds 7.5%. If the amount does exceed this, all costs over this percentage can be considered tax deductible.
We'll look at the intricacies of basic medical insurance first, then go on to the more complex forms.
