Major Medical Health Insurance vs Supplemental Health Insurance: What Are the Major Differences?

Insurance may help protect your family. However, with so many different types of insurance, it can be overwhelming to decide which type of insurance you and your family may need.

In this article, we’ll explore two common types of health insurance – major medical health insurance and supplemental health insurance – and discuss the major differences between them.

What is Major Medical Health Insurance?

 
For the purposes of this article, major medical health insurance is another way to refer to health insurance that meets the Affordable Care Act requirement for coverage.
 
Major medical health insurance may help you pay for medical services and usually prescription drugs. You and your health insurer each pay a part of your medical expenses under health insurance.¹

How Does Major Medical Health Insurance Work?

To better understand how major medical health insurance works, let’s define a few key health insurance-related terms:
 

• Network – The facilities, providers, and suppliers your health insurer or plan has contracted with to provide health care services.²
• Premium – The amount you pay for your health insurance every month.³
• Deductible – The amount you pay for covered health care services before your insurance plan covers costs.⁴
• Coinsurance –  The percentage of costs of a covered health care service you pay after you've paid your deductible.⁵
• Copayment – A fixed amount you pay for a covered health care service after you've paid your deductible.⁶
• Out-of-Pocket Maximum – The most you have to pay for covered services in a plan year. After you spend this amount on deductibles, copayments, and coinsurance for in-network care and services, your health plan pays 100% of the costs of covered benefits.⁷

 
Let’s put it all together…
You pay premiums to your major medical health insurance provider every month. If you get sick and need to see a doctor, you usually seek treatment from a medical professional in your network. As part of receiving medical advice or treatment, you will most likely be required to pay a coinsurance or copayment after you’ve paid your deductible. Your health plan pays 100% of the costs of covered benefits once you reach your out-of-pocket maximum on deductibles, coinsurance, and copayments.
 
This is not a comprehensive overview of the way major medical health insurance works. For more information on how to use major medical health insurance coverage, visit https://www.healthcare.gov/using-marketplace-coverage/common-questions/ or download "From Coverage to Care: A Roadmap to Better Care and a Healthier You".

Common Ways You May Enroll in Major Medical Health Insurance:⁸

 

• Job-Based Health Plans – Coverage that is offered to an employee (and often his or her family) by an employer.⁹
• Health Insurance Marketplace® Plans – We’ll talk more about what the Health Insurance Marketplace® is later in this article.
• Individual Plans Bought Outside the Health Insurance Marketplace® – You may find these plans through insurance companies, agents, brokers, and online health insurance sellers.¹⁰
• Medicare – A federal health insurance program for people 65 and older, certain younger people with disabilities, and people with End-Stage Renal Disease.¹¹
• Medicaid – Medicaid provides health coverage to millions of Americans, including eligible low-income adults, children, pregnant women, elderly adults and people with disabilities. Medicaid is administered by states, according to federal requirements. The program is funded jointly by states and the federal government.¹²
• The Children's Health Insurance Program (CHIP) – The Children’s Health Insurance Program (CHIP) provides health coverage to eligible children, through both Medicaid and separate CHIP programs. CHIP is administered by states, according to federal requirements. The program is funded jointly by states and the federal government.¹³
• TRICARE – TRICARE is the health care program for uniformed service members, retirees, and their families around the world.¹⁴
• Consolidated Omnibus Budget Reconciliation Act (COBRA) – The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances.¹⁵
• Plans Sold through the Small Business Health Insurance Program (SHOP) Marketplace – The Small Business Health Options Program (SHOP) helps small business owners provide medical and/or dental insurance to their employees.¹⁶

This is not a comprehensive list of ways to get major medical insurance. For more examples of ways to enroll in major medical health insurance visit https://www.healthcare.gov/fees/plans-that-count-as-coverage/.

What is the “Health Insurance Marketplace®”?

The Health Insurance Marketplace® – also known as the “Marketplace” or “exchange” – is a service operated by the federal government that helps people shop for and enroll in health insurance. Some states run their own Marketplaces.¹⁷
 
The Health Insurance Marketplace® provides health plan shopping and enrollment services through websites including HealthCare.gov, call centers, and in-person help.¹⁷

Plans Offered in the Marketplace Cover 10 Essential Health Benefits:¹⁸

 

• Ambulatory Patient Services – outpatient care you get without being admitted to a hospital
• Emergency Services – evaluation of an emergency medical condition and treatment to keep the condition from getting worse¹⁹
• Hospitalization – like surgery and overnight stays
• Pregnancy, Maternity, and Newborn Care – both before and after birth
• Mental Health and Substance Use Disorder Services Including Behavioral Health Treatment – this includes counseling and psychotherapy
• Prescription Drugs – drugs and medications that require a prescription by law²⁰
• Rehabilitative and Habilitative Services and Devices – services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills
• Laboratory Services – these may include certain tests on blood, urine, or other substances from the body²¹
• Preventive and Wellness Services and Chronic Disease Management
• Pediatric Services, Including Oral and Vision Care – adult dental and vision coverage; however, aren’t essential health benefits

 
This is not a comprehensive list of what all major medical health insurance may cover.

How Might You Supplement the Coverage Major Medical Health Insurance Provides?

Major medical health insurance may help protect you and your family financially – which is a great first step in planning for the future. However, you may want to consider these facts from the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2020 - May 2021:²²
 

• When faced with a hypothetical expense of $400, 36% of Americans claimed they would not be able to pay it.
• 17% of adults had major, unexpected medical expenses in the 12 months prior to being surveyed, with the median amount between $1,000 and $1,999.

 
There may be healthcare costs your primary health care plan does not cover. Even if you already have major medical health insurance, you might want to seek further protection to help protect yourself and your family from future medical costs you may not be able to pay.
 
Supplemental health insurance may help provide this additional financial protection.

What is Supplemental Health Insurance?

Like its name implies, supplemental health insurance is meant to supplement, or be used in addition to, your major medical health insurance. Supplemental health insurance is not designed as an alternative to major medical health insurance.
 
Supplemental health insurance policies are designed to help pay for some of the healthcare costs your primary health care plan may not cover, including copayments, coinsurance, and deductibles.
 
You can often purchase supplemental health insurance from insurance companies. Many employers also offer them to qualifying employees as part of a benefits package.

What are Some Common Types of Supplemental Health Insurance?

Some common types of supplemental health insurance include:
 

• Cancer Insurance – Cancer insurance policies may help offset some of the costs associated with a cancer diagnosis. Some cancer insurance policies may pay a lump sum benefit upon diagnosis of cancer. You can use the money to assist with medical costs, experimental procedures, travel expenses, income while you are not working, or for other purposes.
• Critical Illness Insurance – Critical illness insurance policies may be able to reduce the weight of financial burdens that result from the diagnosis of a covered critical illness such as heart attack, stroke, total loss of eyesight, and more by providing a cash payout to help cover medical and other expenses after diagnosis.
• Accident Insurance – Accident insurance policies can help protect you both on and off the job. These products may help offset some of the costs associated with hospital stays, emergency treatment, intensive care units, ambulance rides, and more. Accidental Death and Dismemberment and Accident Only policies include an accidental death benefit that pays in the event of a fatal covered accident.
• Hospital Indemnity Insurance – Hospital indemnity insurance is a supplemental health insurance designed to help cover specific medical expenses, helping meet deductibles and co-pays. Hospital indemnity insurance policies may pay a direct benefit to the beneficiary if hospital admission is required, and the visit meets the terms and conditions of the policy. A hospital indemnity insurance policy may include coverage for, but is not limited to: hospital admission, emergency room visit, overnight stay, and outpatient procedures.
• Medicare Supplement Insurance – Medicare Supplement insurance, also known as Medigap, was created by the federal government and is regulated by state Insurance Departments. It is offered by private insurance companies to cover some of the out-of-pocket costs not covered by Original Medicare.

 

Major Medical Health Insurance Combined with Supplemental Health Insurance May Help Protect Your Family

 Major medical health insurance provides a greater level of protection for covered illnesses than supplemental health insurance, which provides more targeted protection for covered illnesses.
 
Supplemental health insurance is intended to provide additional financial protection beyond what is covered under traditional comprehensive major medical health insurance.

Considerations Before Purchasing Major Medical Health Insurance and Supplemental Health Insurance

Research the insurance options available to you before committing to any type of health insurance policy. Fully understand any insurance policy – including its limitations and restrictions – you’re considering purchasing before you buy.
 
Consider examining your health and financial circumstances before purchasing major medical health insurance or supplemental health insurance. Contact a licensed insurance agent in your area to learn more about these types of health insurance options and which health insurance policy is right for you.
 
Additional reading:
 

• “What Expenses are Supplemental Health Insurance Policies Designed to Cover?”
• “Choosing the Right Critical Illness Insurance Policy”
• “What is a Critical Illness Policy?”
• “5 Facts about Cancer Insurance”
• “Why Should I Consider Medicare Supplement Insurance?”

 
Sources:
 

1. Usagov.com, Finding Health Insurance, 2021
2. Healthcare.gov, Network, accessed August 2021
3. Healthcare.gov, Premium, accessed August 2021
4. Healthcare.gov, Deductible, accessed August 2021
5. Healthcare.gov, Co-insurance, accessed August 2021
6. Healthcare.gov, Co-payment, accessed August 2021
7. Healthcare.gov, Out-of-pocket maximum/limit, accessed August 2021
8. Healthcare.gov, Qualifying Health Coverage, accessed August 2021
9. Healthcare.gov, Job-based Health Plan, accessed August 2021
10. Healthcare.gov, Private plans outside the Marketplace outside Open Enrollment, accessed August 2021
11. Medicare.gov, What’s Medicare?, accessed August 2021
12. Medicaid, Medicaid, accessed August 2021
13. Medicaid.gov, Children's Health Insurance Program (CHIP), accessed August 2021
14. TRICARE, About Us, accessed August 2021
15. U.S. Department of Labor, Continuation of Health Coverage (COBRA), accessed August 2021
16. Healthcare.gov, Overview of SHOP: Health insurance for small businesses, accessed August 2021
17. Healthcare.gov, Health Insurance Marketplace, accessed August 2021
18. Healthcare.gov, What Marketplace health insurance plans cover, accessed July 2021
19. Healthcare.gov, Emergency Services, accessed August 2021
20. Healthcare.gov, Prescription Drugs, accessed August 2021
21. NIH, laboratory test, accessed August 2021
22. The Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2020 - May 2021, 2021