Study guide
3.1 Basic and Major Medical Expense Plans
Accident & Health Insurance License Exam
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1 Introduction & Exam Overview
0.1 Current Exam Facts 0.2 Study Plan & Strategy
2 Chapter 1: Health Insurance Foundations
1.1 Insurance Principles and Contract Characteristics 1.2 Adverse Selection and the Underwriting Process 1.3 MIB and Consumer Reports 1.4 Policy Structure and Common A&H Provisions 1.5 The Twelve Mandatory Uniform Policy Provisions 1.6 Optional Uniform Provisions, Riders & Rights of Renewability
3 Chapter 2: Cost Sharing, Insurers, Distribution & Field Underwriting
2.1 Cost Sharing 2.2 Insurer Types, Admitted Status & Reinsurance 2.3 Marketing Systems, Agents & Brokers 2.4 Contract Law, Insurable Interest, Warranties & Representations 2.5 Field Underwriting: Application, Receipts, Delivery & Replacement 2.6 Ownership, Beneficiaries, Premium Modes & Cost Containment
4 Chapter 3: Medical Expense Plan Types
3.1 Basic and Major Medical Expense Plans 3.2 Health Maintenance Organizations (HMOs) 3.3 Preferred Provider Organizations (PPOs) 3.4 Point-of-Service (POS) and Exclusive Provider Organizations (EPOs) 3.5 Dental and Vision Plans 3.6 Limited, Supplemental & Worksite Health Policies
5 Chapter 4: Consumer-Directed Health & ACA Reforms
4.1 High-Deductible Health Plans & Health Savings Accounts 4.2 Flexible Spending Accounts & Health Reimbursement Arrangements 4.3 Coordination of Benefits 4.4 ACA Essential Health Benefits 4.5 ACA Market Reforms & Guaranteed Issue
6 Chapter 5: Disability Income Insurance
5.1 Disability Definitions 5.2 Elimination and Benefit Periods 5.3 Renewability, BOE, and SSDI 5.4 Disability Provisions and Exclusions 5.5 Group vs. Individual Disability and Taxation 5.6 Business Disability: Overhead Expense, Buy-Sell & Key Person
7 Chapter 6: Group Health, COBRA, HIPAA & ERISA
6.1 Group Health Underwriting 6.2 Contributory vs Noncontributory Plans 6.3 COBRA Continuation Coverage 6.4 HIPAA Portability & Privacy 6.5 ERISA & Employer-Sponsored Plans
8 Chapter 7: Medicare Parts A & B (Original Medicare)
7.1 Medicare Part A: Hospital Insurance 7.2 Medicare Part B: Medical Insurance
9 Chapter 8: Medicare Part C, Part D & Medigap
8.1 Medicare Advantage (Part C) 8.2 Medicare Part D (Prescription Drugs) 8.3 Medigap (Medicare Supplement Insurance)
10 Chapter 9: Medicare Enrollment, Medicaid & ACA Marketplace
9.1 Medicare Enrollment Periods 9.2 Medicaid 9.3 ACA Marketplace
11 Chapter 10: Long-Term Care Insurance
10.1 Tax-Qualified LTC & Levels of Care 10.2 ADL Triggers & Benefit Design 10.3 Inflation Protection & LTC Partnership Programs 10.4 LTC Provisions, Nonforfeiture & the NAIC Model Act
12 Chapter 11: Regulations & Ethics
11.1 Prohibited Trade & Claims Practices 11.2 Replacements, Parity, and Medicare Marketing 11.3 Producer Conduct, Premium Handling, and Ethics 11.4 Insurance Regulation, Solvency & Guaranty Associations
3.1 Basic and Major Medical Expense Plans
Key Takeaways Explain This Topic AI
Basic medical expense plans pay first-dollar benefits with low or no deductibles but cap coverage at defined hospital and surgical limits
Major medical plans feature broad coverage, a deductible, coinsurance, and a stop-loss or out-of-pocket maximum that protects against catastrophic claims
A comprehensive major medical plan combines basic and major medical coverage into one contract, while a supplementary plan layers major medical on top of existing basic coverage
Coordination of benefits (COB) prevents duplicate recovery when two or more group plans cover the same person; the primary plan pays first under established order rules
Common medical expense exclusions include cosmetic surgery, experimental treatments, self-inflicted injuries, war-related losses, and routine vision and dental care
Last updated: August 2026
Medical expense insurance is the backbone of accident and health coverage. The exam draws a sharp line between basic medical expense plans and major medical plans, and you must know how each is structured, how they combine, and how duplicate coverage is coordinated.
Basic Medical Expense Plans
Basic medical expense plans cover the cost of routine hospital, surgical, and physician services. They are characterized by first-dollar coverage — the insured pays no deductible before benefits begin — and by defined benefit limits tied to specific services. A hospital plan might pay a fixed daily room rate (for example, up to a stated semiprivate room amount) for a capped number of days, while a surgical plan pays a surgical schedule amount keyed to the complexity of the procedure. Physicians' visits are commonly reimbursed as "usual, customary, and reasonable" (UCR) charges up to a schedule.
Because benefits are capped and tied to specific services, basic plans are not designed for catastrophic claims. They also typically reimburse the provider or the insured on an indemnity basis — a set dollar amount per service rather than a percentage of a negotiated rate.
Major Medical Plans
Major medical plans provide broad protection against the high cost of serious or prolonged illness. Unlike basic plans, major medical is built around three cost-sharing features that the exam tests heavily:
Deductible — A fixed dollar amount the insured must pay each year before the insurer shares costs. Deductibles commonly range from a few hundred to several thousand dollars; family plans may use an aggregate or embedded deductible structure.
Coinsurance — After the deductible, the insured and insurer split covered charges by a percentage, such as 80/20 , where the insurer pays 80% and the insured pays 20%.
Stop-loss / out-of-pocket maximum — Once the insured's share of covered charges (coinsurance plus deductible, in many plans) reaches the stop-loss limit, the insurer pays 100% of remaining covered charges for the rest of the policy year. This is the catastrophic protection that basic plans lack.
Major medical also commonly includes a carry-over provision , which lets deductible expenses incurred in the last three months of a calendar year apply toward the next year's deductible, and a family deductible cap that limits the total deductible a family must meet.
Comprehensive vs. Supplementary Major Medical
The exam distinguishes two ways basic and major medical are combined:
Comprehensive major medical — A single contract that folds basic hospital, surgical, and physician benefits together with broad major medical coverage under one deductible and one set of coinsurance. This is the dominant form in the modern market.
Supplementary major medical — Major medical is layered on top of an existing basic plan. The basic plan pays first up to its limits; the major medical deductible is then reduced by the amounts the basic plan paid (a "deductible credit" or "corridor deductible" concept), and major medical picks up the excess.
Hospital and Surgical Policies
Standalone hospital policies pay a stated daily room benefit for a limited number of days plus miscellaneous hospital services. Surgical policies pay according to a surgical schedule that lists maximum benefits for listed procedures. These are older forms of basic medical expense coverage; today they are most often sold as supplements rather than primary protection.
Coordination of Benefits (COB)
When a person is covered under two or more group health plans — for example, through their own employer and a spouse's employer — coordination of benefits (COB) prevents duplicate recovery. The plans follow an established order:
The plan covering the person as an employee pays before the plan covering the person as a dependent .
For dependent children, the plan of the parent whose birthday falls earlier in the calendar year is primary (the "birthday rule"), absent a court decree.
The primary plan pays its normal benefits first; the secondary plan pays up to, but not more than, the remaining allowed charges so that combined payments never exceed 100% of the covered expense.
COB is mandatory for group plans under NAIC model rules and is a frequent exam topic.
Common Exclusions
Medical expense plans, basic and major medical alike, share a standard set of exclusions. Expect to recognize these:
- Cosmetic or reconstructive surgery (unless required due to accidental injury or congenital defect)
- Experimental or investigational treatments
- Self-inflicted injuries
- War or act of war losses
- Routine vision and dental care (usually covered under separate policies)
- Custodial or rest care
- Pre-existing conditions (subject to ACA market reforms when applicable)
Exclusions narrow the promise of broad coverage and are routinely tested by scenario questions.
Key Takeaways
Basic medical expense = first-dollar, narrow, capped benefits; major medical = broad, deductible/coinsurance, stop-loss catastrophic protection.
Comprehensive merges both in one contract; supplementary stacks major medical above a separate basic plan.
COB orders payment so two group plans never pay more than 100% of allowed charges.
Common exclusions — cosmetic, experimental, war, self-inflicted, routine vision/dental — narrow coverage in both plan types.