By Elizabeth Galentine
November 1, 2010
When news leaked recently that McDonalds had notified federal regulators that it may have to drop its limited medical health care plan in response to health care reform, the resulting media blitz brought national attention to the “mini med” market. The fast food chain denied any such intent to drop coverage; just that it was seeking more information on how its plan would be affected by medical loss ratio requirements. Even so, within a few days McDonalds (along with at least 28 others) received a waiver from the Department of Health and Human Services, saving the company’s plan from the Patient Protection and Affordable Care Act ax for at least a year. Plan sponsors must apply for the waiver annually until state health care exchanges go live in 2014.
Although final regulations had yet to be released at press time, in the weeks since the McDonalds commotion it has been widely publicized that HHS intends to be flexible with these plans. Still, questions abound about the future of limited medical.
Plenty of renewal contracts are coming out with language like this carrier’s fine print: “This renewal proposal is for illustrative purposes only and is subject to withdrawal or modification.”
Not to mention the fact that waivers only apply to existing plans. All new plans will have to comply with PPACA’s provisions that major medical plans are required to offer annual benefit maximums of at least $750,000 for plan years beginning on or after September 23 of this year – and that number will grow to $2 million by Sept. 23, 2012.
“I think the government wants to be flexible. I don’t think they want to see anybody losing coverage. However, it just sort of speaks to that they really don’t know the market. They really don’t know what’s out there, and so they get [employers] like McDonalds saying they’re going to drop coverage because they don’t have options,” says Tom DeNoma, associate vice president, Nationwide Specialty Health. “They do have options.”
Here, carriers share how the limited medical market will remain a viable alternative for post-reform plan sponsors, employees and the brokers who serve them.
Riding the waiver
In the 24 years John Foley has been in the insurance industry he’s never seen anything as confusing to the public as health care reform – “especially as it relates to limited medical. There’s a lot of people every day that I talk to who have been misinformed or confused,” says the senior vice president of domestic markets for Pan-American Life Insurance Company.
Pan-American has sold both of types of limited medical plans – fixed indemnity and expense incurred – but just stopped selling its two-year-old expense incurred plan, CommonSense, effective in September to be in compliance with PPACA. The company’s indemnity plan, PanaMed, has been on the market since 1990 and remains available. Such fixed indemnity plans qualify as a supplemental plan under health reform and therefore are not affected by reform. “So we’re totally focused on our indemnity product and our ancillary products,” says Foley.
For the Pan-American customers on the CommonSense reimbursement plan, the carrier convinced a number of them to shift to a September 1 plan year “to basically speed up their renewal so that they have a chance to wait for all of the rulings to be clear,” Foley explains, “so that most all of the impacts from health care reform don’t impact them until their renewal next year.”
About 30% of Pan-American limited medical customers are on the reimbursement plan, “but a significant number of those have actually already chosen to go to our indemnity plan upon their renewals,” says Foley.
CIGNA Voluntary is primarily in the expense-incurred camp, although the carrier does have a few fixed indemnity clients. According to Mark Bailey, senior vice president, CIGNA Voluntary received a waiver for its entire book of business – about 1,700 employers and 250,000 customers. “The response by the Secretary [of Health and Human Services] to grant the waivers was really in recognition of the fact that we need to make sure that these people don’t get shoved out of the insurance pool and into the ranks of the uninsured until we have the exchanges and the subsidies built in 2014,” says Bailey. “So it really was recognition that there was probably a timing problem between when the limits should kick in and when other options for these people are going to be available.”
Before CIGNA Voluntary received its waiver, Bailey was hearing a lot of concern from brokers. After the waiver was announced, “we were getting a lot of phone calls, e-mails, shout-outs saying, ‘You got that? It looks like we can continue to offer it to our clients,’” he says. “I think getting that waiver went a long way to making them feel better about things.”
When he first heard that waivers might be coming, David Fry, vice president of select benefits and group senior actuary for Symetra Financial, thought the process to receive one would likely be somewhat difficult. As a carrier offering only fixed indemnity plans, “before all the waiver information was released, we saw a much bigger opportunity” to gain new clients deciding to switch from an expense incurred plan, says Fry. “We still think there’s a big opportunity there, it just seems the waiver process is much easier than we anticipated it would be.”
Health and Human Services’ Office of Consumer Information and Insurance Oversight is in charge of the waiver application process. In a September memorandum, OCIIO stated waiver applications must include the terms of a plan seeking a waiver, number of people covered by it, a brief description and supporting documentation of why compliance would result in a significant decrease in access to benefits or significant increase in premiums, and an attestation signed by the plan administrator certifying these facts and that the plan was in force prior to September 23.
“I just think that it’s being granted pretty liberally at this point,” says Fry.
The availability of waivers “went a long way to give employers some confidence and some assurance that they can continue to offer the plans,” says CIGNA Voluntary’s Bailey. “Especially since we’re in the fall and it’s open enrollment time and they’re starting to produce all their publications and go through all the process of open enrollment. They just want some certainty that I’m going to enroll people and these plans are still going to be around.”
Still, Symetra is hearing from employers who don’t want to worry about the annual reapplication process for the waiver and would rather switch to a fixed indemnity plan. “The employer is worried about, ‘What is the process over the next three years? This removes the questions that I have to deal with so I can focus on 2014 and how to put myself in a good position for that,’” says Fry.
Indemnity and beyond
In the vernacular of insurance, most people refer to all limited medical plans as “mini meds,” but Tim Adkisson, national sales vice president, Select Benefits Distribution with Symetra, says it’s important to draw a distinction between the two, “because the fixed indemnity product is so different and distinct.”
Adds Fry, “the major med obviously are expense-based plans and I think the title ‘mini med’ came from that. It very much looks, acts and feels like a major med plan where you have coinsurance, you have deductibles. So if you have a $10,000 bill they’ll pay an expense up to a limit. And they’re called minis because they have much lower limits than major med plans.”
With fixed indemnity plans, the payment structure is based on the benefit level a client chooses. The client receives a predetermined payment for hospital visits, doctor’s appointments and other health-related events, regardless of the final bill amount.
The expense reimbursed product has been viewed highly by CIGNA Voluntary clients “because it’s designed to cover the expenses of the medical event as opposed to simply reimbursing a dollar amount for a specific activity,” says Bailey.
However, the fact that it is a major medical lookalike program is also why it’s a health reform target, while fixed indemnity plans are not, says Nationwide’s DeNoma. “Frankly, the health care regulation really did not affect the limited medical indemnity market. That remains untouched,” he says. “So the good news is employers still have options to serve that mix of constituents.”
Nationwide offered both types of limited plans, but the carrier’s expense-incurred option didn’t have much time to get off the ground before health reform took place. Only one group had enrolled in the plan before PPACA. “Unfortunately, with the new regulations we really didn’t get enough time to launch it,” says DeNoma. “That was the complexity of the new legislation; it really wiped out that segment of the market and now employers and brokers and everybody are scrambling on how to address that need.”
Although the fixed indemnity product has a different structure than the expense incurred, both limited medical plans serve the same needs of the transitional or part-time worker, says DeNoma. It’s an ever-growing market, thanks to rising health care costs that have led employers to raise eligibility requirements for major medical plans. Employees who used to qualify for major medical at 20 hours a week typically now must work at least 30. “That whole workforce has exploded over the last 10 years,” says DeNoma.
One point about fixed indemnity plans that Symetra’s Adkisson likes to emphasize with brokers and employers is that they pay a first-dollar benefit – an important consideration for low-wage, hourly, part-time and seasonal employees that are not necessarily poor, but are often cash poor. “Someone in that situation, $10/$20 co-pay, $100 deductible, that could be a barrier for them wanting to go to the doctor,” says Adkisson.
Also, because employees know they’ll be getting a fixed dollar amount up front, they are much more consumer-oriented when it comes to choosing health care providers, Adkisson adds.
It’s akin to the movement toward consumer-driven health care plans in the major medical market. “There’s a lot more clarity in the system when you have it spelled out. And that’s probably been one of the problems with our system, because nobody really knows the true cost of health care,” says DeNoma. “The good news is a lot of proactive employers and brokers are saying, ‘I can reach the same result with an indemnity-based limited medical plan.’ And we’ve seen a lot of switching into that segment of coverage.”
When advising brokers on how to prospect for business with the product, Symetra asks if they receive a full census of employees or one with only the major medical eligible population. “If it’s just the eligible population, you’re probably missing out on some coverages that can be offered to that employer,” says Adkisson. “What I’ve found in this industry is many employers want to cover and even pay for coverage for these employees. No one has shown them a less expensive alternative for them to use.”
Pan-American’s Foley understands this is a challenging time for brokers in helping clients comprehend health care reform. “It’s also a time, because of that, where the value of a broker is really emphasized,” he adds. “So I think in some ways almost counter-intuitively it’s a great time to be a broker.”
Symetra distributes its product through brokers, and the biggest message the company continues to send is the difference between the expense incurred and fixed indemnity plans. “But even more fundamental than that, a lot of brokers still cringe when they hear ‘mini med’ and limited benefit plans,” says Adkisson. “I think it really needs to continue to be brought out that these plans are there to cover folks where it’s just not feasible from a cost standpoint to provide them major medical.”
Foley has spent the last six months meeting with brokers and large accounts to communicate the fact that Pan-American’s PanaMed fixed indemnity plan is still available. Through luncheons, Web seminars, phone calls and meetings, Foley works to not only get the message across but also reinforce the difference between the two types of limited medical plans. “What we found most useful was to actually give them real examples,” he says. “Somebody had this medical challenge. Here’s how it would work with a reimbursement plan and here’s how it would work with an indemnity plan.”
Because brokers are naturally familiar with the expense-incurred structure of co-pays and deductibles that mimics major medical plans, a challenge for Foley has been to get them to embrace the fixed indemnity format. “They look at ours and they would consider it confusing. But then when we get to the employee or the employer level, the exact opposite happens,” he says. “You have someone who’s never had coverage. So do you think it’s easier to understand co-pays, deductibles, maximum out-of-pockets, or ‘I get this if I do that?’”
People who haven’t been on an indemnity plan most often want to know if they’ll still get the network discount of a PPO, which they do with the PanaMed product, Foley adds.
According to Foley, Pan-American is in the process of developing a relationship with a partner company that will allow customers to check out a Web site listing medical facilities in their area and the price structure for medical procedures at those locations. In their talks with participants during enrollment and over the course of the year, Symetra finds that many in the limited medical demographic are already used to shopping for care. “They know which clinics and which providers offer which services for the price,” says Adkisson.
Clarity is key
The limited medical field has run into problems in this past with the expense incurred product looking like a major medical plan but not having the same coverage levels. For that reason, the fact that expense incurred plans have the same structure as most major medical plans is both a positive and negative feature. “I think a lot of employers for whatever reason really wanted that lookalike for their employees of a major med,” Nationwide’s DeNoma adds.
The potential for confusion is one of the reasons CIGNA decided to keep CIGNA Voluntary separate. Both the sales force and account management teams are separate and the claims and calls to CIGNA Voluntary are handled in a self-contained operation in Phoenix, according to Bailey. Another reason for the separation is that many of the people using the product have never had health insurance before. “So they’re not necessarily equating it to major medical,” says Bailey, “but they don’t know what a network is and they don’t know what a co-pay is and they don’t know, ‘Why do I go to the doctor as opposed to the emergency room?’”
In accordance, CIGNA Voluntary call center representatives are trained extensively on how to understand the demographic “and talk to them in the terms that they would understand,” says Bailey. For example, terms such as “provider” and “co-pay” translate into “doctor” and “the share that you’re going to pay.”
At every turn, CIGNA Voluntary reminds participants that it is a limited plan – in print materials, phone interactions and at cignavoluntary.com. “It’s not fool-proof, it’s never going to be fool-proof, but we take very painstaking steps to make sure people understand how this plan works, what’s covered, what’s not covered and where their limits lie,” says Bailey.
Opportunity in exchange
Foley has had many discussions with brokers wanting to know if the commission structure of Pan-American’s fixed indemnity product will be changing. Because it’s excepted from PPACA, it hasn’t changed at all. “I think there is likely to be pressure [on commission levels] and already has been from some carriers as they try to meet the minimum loss ratio requirements and that’s a great concern for brokers,” says Foley.
Medical loss ratio requirements that up to 80% of premiums be spent on medical costs and not administrative expenses are particularly disruptive for limited medical plans that experience extremely high turnover and require a greater amount of educational material. CIGNA is fortunate that its large book of business will likely keep the final MLR regulations from hurting CIGNA Voluntary’s limited medical business, but Bailey is still grateful that HHS Secretary Kathleen Sibelius has “worked very closely with the industry to understand why the particular percentages don’t necessarily translate to a limited medical program.”
Then there’s the issue of the role limited medical plans will play in state health exchanges come 2014. “There was a lot of ‘the Secretary shall determine’ language in [PPACA],” says Bailey. “So as those become clearer we’re able to analyze it. But we are certainly looking at what it would take to operate in the exchange.”
Symetra is thinking post-exchange as well. “We see that our plan will continue to be a very viable piece of the solution or the package offered to employees,” says Fry. “We’ll still have part-time workers, we’ll still have the high deductible plans where we fit underneath and we very much plan to keep going in the future.”
In fact, Symetra is currently in talks with brokers and state commissioners about how a fixed indemnity plan might be included with other services in the exchange. In the last couple of years Symetra has seen an increasing number of employers offer their fixed indemnity product underneath a major medical plan to supplement the increased out-of-pocket costs for employees. “There might be some opportunities there where we’re not the only solution but we’re part of a broader solution,” says Adkisson.
DeNoma agrees that the market will remain viable. “However, we still don’t know where the gaps of coverage are going to be in the future,” he says. “I think the limited medical indemnity-type platform will give us a better basis on how to address future gaps.”
Limited medical by the numbers
Average percentage of those eligible who enroll: 10% – 15%
Turnover of this population: 100%
Approximate employee cost: 1 – 2 hours of pay/week
Amount average American pays/year for health care: less than $2K
Typical range of coverage amounts per year:In-patient care e $2K – $5K
Outpatient care $1K – $2K
Emergency room care $500 – $3K
Prescription drugs $300 – $1K