How does gap insurance work?

If you experience a covered illness or injury, with some gap policies, you receive a lump sum benefit payment that you may use to help cover out-of-pocket expenses associated with your major medical plan, such as deductible, copayment and coinsurance amounts. Once your medical gap policy has paid the maximum benefits allowed under the plan for the year, no more benefits are available until the next policy year.

No Coordination of Benefits
Your gap health insurance benefits ordinarily do not coordinate with your major medical insurance coverage. Coordination of benefits is the process of determining which insurance benefits will be applied first, second, third, etc., when you have multiple insurance plans.[1]

Rather, your medical gap plan benefit amount is determined by the eligible expenses you incur and your policy’s benefit limit, rather than being based on the amount not covered by your ACA plan.

Gap Health Insurance Examples
Let’s say you’ve purchased a medical gap plan that has a lifetime limit of $10,000 in benefits for covered illnesses or injuries, and are enrolled in a bronze plan with the average 2019 deductible of $6,258.[2]

If you suffer a heart attack and incur the typical hospitalization and related costs of $20,246 associated with this condition,[3] your medical gap policy will pay $10,000 in benefits. You will still have $10,246 in costs, most of which will likely be covered by your major medical policy after the deductible has been satisfied.

Now let’s look at how that same medical gap plan would pay benefits for another, less-costly eligible expense.

If you break your arm and incur the average costs of $2,500 for non-surgical treatment,[4] your medical gap policy will pay $2,500. As long as you continue to pay your gap health insurance premiums, your policy will have $7,500 available to be paid as benefits for future expenses associated with an eligible illness or injury.