An individual medical expense policy that pays the insured the actual covered charges incurred, subject to deductibles and coinsurance and up to policy limits, is written on which basis?

Why C is correct

An expense-incurred policy, also called a reimbursement policy, pays the insured the actual covered expenses incurred, up to the policy's limits, after application of deductibles and coinsurance. This is the customary basis for major medical coverage because the amount payable tracks the real cost of care rather than a pre-set dollar figure. The examination outline for individual medical plans (AH-III.A.1a) requires recognizing this benefit basis and distinguishing it from scheduled or fixed-dollar designs. If the covered charge is $2,000 and the plan pays 80 percent after a deductible, the insurer reimburses the actual expense. Because reimbursement is tied to the expense actually incurred, the policyholder is not overpaid and the coverage responds to the true cost of treatment.

Why the other options are wrong

• A) A scheduled benefit policy pays stated dollar amounts for each listed service or procedure, regardless of the actual charge incurred. The payment is fixed by the schedule, so it is not an expense-incurred arrangement.
• B) A fixed indemnity policy pays a flat dollar amount per day, event, or service, without reference to what the care actually cost. Indemnity payments may exceed or fall short of the true charge, which is the opposite of reimbursement.
• D) Capitation is a method of paying providers, a fixed per-member fee paid in advance by the plan, rather than a basis for determining a policyholder's benefits under the contract.

Memory hook

Expense-incurred means the insurer pays back what the care actually cost.