What Is First Dollar Coverage?

First dollar coverage is a type of insurance coverage that pays out and protects policyholders from day one or with the very “first dollar” billed. With these types of plans or built-in plan elements, as the case may sometimes be, there is no cost sharing between the insurer and the insured.

This post covers what first dollar coverage is, its limitations and benefits, and more.

What Is First Dollar Coverage?

First dollar coverage insurance policies don’t have a deductible, nor do they require copays or other out-of-pocket expenses before coverage commences. As a result, the insurer covers the entire payment when an insurable event occurs. That means that the insured doesn’t pay anything out of pocket, and the insurance company covers the whole expense related to the loss—there is no financial pressure placed on the insured.

You can typically secure first dollar coverage policies for car, health, and homeowner’s insurance. First dollar coverage can also be in other types of insurance, like professional liability insurance and business insurance.

Generally speaking, first dollar coverage is more prevalent and popular with health insurance policies compared to car and home insurance. This is in part due to the insurer covering the cost of all covered medical services for the insured with first dollar medical policies.

It’s common for first dollar coverage to be a subtype of insurance offered in a comprehensive insurance package. It’s not generally intended to be a stand-alone policy. It’s also common for plans to be hybrid plans, with some costs covered at first dollar and others covered after a deductible is met.

What Are the Limitations of First Dollar Coverage?

Though it’s nice to have a policy where you don’t have to pay anything out of pocket, there are some limitations to first dollar coverage, including lower payouts, higher premiums, and driving up costs due to misuse.

Lower Payouts

Since the insurer covers the entire cost of a loss and bears all the risk, the maximum payout or coverage under first dollar policies is typically lower than other similar types of insurance policies that have a deductible or copayment. In other words, with a first dollar policy, there is a limit to how much the policy will pay out compared to other deductible-first policies of that type, such as health insurance. The lower payout is partly why many opt for copay and deductible plans vs. first dollar plans. Also, generally speaking, the higher the payout, the higher the premium.

Higher Premiums

As with most insurance policies, the higher the risk to the insurance company or insurer, the higher the premium payments for the insured. As mentioned, the insurer is taking on a higher risk by covering the entire cost of the loss and therefore charges the customer more to help offset the risk. Due to the higher premiums, first dollar coverage tends to be less prevalent in the car and home insurance sectors.

Driving up Costs

Some criticize first dollar plans, indicating that many misuse or overuse first dollar policies, specifically in the healthcare industry. As a result, the costs of medical products and procedures are driven upwards. The unintentional result is those needing medical care are not getting it because they can’t afford to cover the costs of medical procedures or the premiums of first dollar policies. On the flip side, many argue that a high deductible could prevent people from seeking medical care, even if they truly need it, making their problem or health issue worse and more difficult and costly to manage down the road.

How Do First-Dollar Insurance Policies Work?

Here are some examples and explanations of how first-dollar policies operate.

First Dollar Car Insurance Example

Let’s say you’re in a car accident and need to repair your car. You take your car to the shop, and you’re told that the cost of your repairs is $3,000. If you have a traditional car insurance policy with a deductible, you’ll have to pay the deductible amount, and your insurance company will cover the rest. If your deductible is $1,000, for example, you’ll be responsible for $1,000 of the costs out-of-pocket, and your insurance company will be responsible for $2,000.

With a first dollar car insurance policy, you won’t be responsible for any portion out of pocket. Instead, your insurance policy will pay the entire $3,000, assuming your cap is higher than that.

First Dollar Medical Coverage Explanation

First dollar insurance policies are not typically meant to be one’s sole insurance policy. Instead, they’re often purchased as a supplement to one’s major medical plan or to provide peace of mind for immediate payout for certain expenses before your primary plan kicks in.

Oftentimes, first dollar medical plans are basic plans that cover routine screenings and standard procedures, like lab work and x-rays, at full cost. A person’s primary insurance would then cover major medical procedures, like surgeries, subject to the plan’s copays and deductible.

Affordable Care Act qualifying medical plans have first-dollar coverage for standard preventative care visits, like well-women exams and screenings. Even if you haven’t met your deductible for the year, your medical plan pays for these services at 100%.

Medicare Supplemental Insurance, also referred to as Medigap, is a policy you can purchase when you have a Medicare Part B policy that’s current. Some Medigap policies offer first dollar coverage features that can go towards out-of-pocket Medicare Part A and Part B costs, such as coinsurance and deductibles.

First Dollar Homeowner Insurance Example

If you happen to have damage to your home from a water leak, you’ll seek a professional to quote you on the cost of repairs. Let’s say the repairs cost $5,000, and the type of damage making repairs necessary is covered under your homeowner’s policy. In this case, if you have a first dollar policy, the insurance company will cover the entire $5,000 without you having to pay anything for the repairs.

Is a First Dollar Policy Right for You?

First dollar policies can work well for those that don’t have a lot of cash savings to help cover the cost of a deductible if you’re in a car accident. The same holds true for medical-related expenses—if you don’t have much cash saved up or access to a flexible spending account (FSA), health savings account (HSA), health reimbursement account (HRA), or similar, a first dollar policy can serve as supplemental insurance to help cover some of the up-front costs of certain medical expenses. Also, if you don’t have funds to cover the premiums for major medical insurance, you might opt for an affordable, basic first dollar policy, so you have at least some level of medical coverage.

Where Can You Find First Dollar Policies?

Many insurance companies offer first dollar policies. You can do an online search to compare companies and plans or call insurance companies directly to learn more. You can also choose to work with an insurance broker to identify plans that fit your criteria through their extensive network of providers. That way, you’re not having to sift through all the details, comparisons, and fine print on your own, saving you a lot of time and energy.

First Dollar Plans: A Recap

•            First dollar coverage pays from the first dollar billed—they come with no copays or deductibles.

•            The insurer pays for all costs after an insured event happens up to the payout limit.

•            First dollar insurance is most prevalent in the health insurance sector, though it can also be found in car and homeowner insurance plans, among others.

•            They come with a higher premium compared to similar types of plans with a deductible.

•            First dollar plans tend to have a lower payout compared to plans with similar premiums.

•            These plans might be a viable option for those without access to a cash savings or health savings plan account.

•            They’re often meant to be supplemental health insurance policies vs. one’s primary medical coverage.

•            You can secure first dollar policies from many major insurers.

•            Insurance brokers can support one in securing first dollar insurance more easily.

•            More people are likely to seek medical care following a serious injury, accident, or medical condition since there’s no pressure to cover the costs of care for the insured.

Insurance Brokers and First Dollar Coverage

If you’re interested in learning more about first dollar plans or if you think such a policy might fit your needs, consider working with a professional broker to assist you. Insurance brokers are experts in the insurance business, and they can help you navigate whether a first dollar policy would be a wise investment or a waste of money based on your personal circumstances.

Brokers also have access to hundreds of insurance companies and their policies to bring you a variety of options with competitive pricing. Health insurance regulations and plans change from year to year, and insurance brokers can guide you through those changes when needed.

Contact KBI today to discuss first dollar insurance and which policies, if any, might be best for your needs.