A Major Medical policy typically contains a provision that requires the insurer to pay only part of a loss, while the balance is paid by the insured. The provision is called?
The Correct Answer and Explanation is :
The provision you’re referring to is commonly known as a coinsurance clause.
Explanation of Coinsurance Clause
In major medical insurance policies, the coinsurance clause stipulates that both the insurer and the insured share the costs of covered medical expenses after the insured has met their deductible. This means that once the insured pays their deductible, they are responsible for a certain percentage of the remaining medical costs, while the insurance company pays the rest.
For example, if a policy has a coinsurance provision of 80/20, the insurance company would pay 80% of covered expenses, and the insured would be responsible for the remaining 20%. This arrangement encourages insured individuals to be mindful of their healthcare expenses, as they will have to pay a portion of the costs themselves. It can also help keep premiums lower, as the insured shares in the risk and cost of their healthcare.
Coinsurance is often used in conjunction with other cost-sharing mechanisms like deductibles and out-of-pocket maximums. A deductible is the amount the insured must pay out of pocket before the insurance starts covering expenses. Once the deductible is met, the coinsurance kicks in.
Moreover, coinsurance can impact the insured’s overall financial responsibility. It can vary based on the type of service or treatment received, which means insured individuals might face different coinsurance rates for different types of care (e.g., inpatient vs. outpatient services). Understanding the coinsurance clause is essential for policyholders, as it helps them anticipate and manage their healthcare costs effectively.
In summary, the coinsurance clause is a critical component of major medical insurance that outlines the shared financial responsibility between the insurer and the insured, promoting both cost-sharing and responsible healthcare usage.