Limited Medical Separating Myth from Fact

Since 1998, my general agency has actively assisted health insurance agents in the implementation of hundreds of group limited medical plans aka “mini meds”. I would like to weigh in on the present and future role of these plans and cut through some mythology, confusion and outright distortions surrounding them.

The Group Limited Medical Plan industry encompasses a number of very different plans and carriers. These plans provide core medical insurance to a broad range of varied consumers. The potential member’s perception of value and interest in enrolling in a Limited Medical plan depends on a number of factors, notably:

 

  • The ability to afford your current health plan (high premium share)
  • The ability to afford family inclusion in your group plan (premium share)
  • The ability to afford to actually use your health plan (high deductibles)
  • Amount employer pays towards premium
  • Amount of acceptable out of pocket risk
  • Access to first dollar benefits
  • Length of probationary period (new hires)
  • Insured’s likelihood of illness or injury (preexisting condition)
  • Availability of supplemental benefits (Cancer, LTC, CI)
  • Existence of financial barriers that may discourage access to health care

Our firm has operated in this professional space for over 14 years. In that time, we have seen a slow but growing willingness by workers to “trade off” catastrophic protection in exchange for access to first dollar benefits. Although it is demonstrably true that many employees confuse limited medical plans with more traditional major medical insurance, when these plans are adequately explained and workers understand the risks and rewards (access in exchange for risk) the majority will take the limited medical option and fully understand it’s limitations.

From our own experience, most CEO/CFO/HR and Brokers have an opposite view of what their employees and their families actually desire, we attribute this disconnect to a tendency for all of us to apply our own perspective (lost in our own selfish view) to those we think we serve.

Two Categories of Limited Medical Plans

As mentioned above, there are many different types of Limited Medical plan designs, but only two categories, they are:

(1) Expense Incurred Plans – These plans are closely associated with the term “Mini Med” and are a derivative of major medical (traditional) insurance. These so called “Mini Meds” have been popular with employers and low wage workers for many years, because they have extremely low premiums and are generally offered on a low weekly payroll deduction basis, making them seem very affordable.

These low premiums are actually a result of highly restrictive monthly or annual limits or “caps” on benefits. These “caps”, along with other financial “barriers” such as: Pre-existing Condition limits, Co-Payments/Co-Insurance and Deductibles further reduce insurance company exposure.

An unanticipated (although many think it is by design) consequence of a “low cap” mini med, is the unfortunate tendency for it to be confused with Comprehensive Major Medical coverage, this has proven to be a very real problem for all parties concerned.

Since these plans are target marketed at low income, high turnover groups and often contain a preexisting condition elimination period, enrollees have often left their jobs before they are even eligible for benefits. Even when claims are incurred and filed properly they are, more often than not, rejected or delayed as a pre-existing condition (adverse selection due to chronic conditions is far more common with high turnover low-income employee groups)

To many of us, the good news coming out of PPACA (Health Care Reform) is that, as of November 23rd most of these (Expense Incurred mini med plans) will be tightly regulated under the “Cap Limit” rules. In our view, we will begin to see these plans exit the industry beginning in 2011.

Fixed Indemnity Plans (The Ones You Don’t Hear Much About)

(2) Fixed Indemnity Plans – (aka. Supplemental/Hospital Indemnity or Defined Benefit plans) Serve the same general purpose and also provide affordable benefits to the employer market, as the mini med plans described above.

Indemnity limited medical plans are filed, approved and thereby regulated differently than Expense Incurred (mini med) plans and are NOT subject to most the “cap limits” imposed on mini med plans. This very significant difference allows Indemnity Limited Med plans to continue to be freely marketed to new employers and in many cases to takeover (rescue) existing expense incurred mini med business.

Note – Indemnity plans are not easily confused with traditional insurance because they do not use traditional insurance terminology such as: Deductibles, Coinsurance, Reasonable and Customary and Coordination of Benefits (less confusion)

General differentiating features of Fixed Indemnity plans versus Expense Incurred mini meds:

 

  • First Dollar Benefits
  • Terminology – No use of traditional insurance terms (deductible, co-insurance, copayments)
  • No pre-existing condition limitations on outpatient services
  • Easier to explain and understand (fixed dollar benefits for covered services)
  • Claims can be more easily adjudicated (no pre-ex)
  • Similar premium amounts compared to mini meds
  • Generally higher payouts for hospital surgical claims
  • Not subjected to Federal Law restricting annual or lifetime caps
  • Direct assignment of claims to providers (not reimbursement to member)

 

As a side note – Often these plans are confused with so-called “Work Site Benefits”. (Payroll deducted specified illness plans such as offered by AFLAC, Colonial or Allstate) Limited Medical Plans differentiate themselves from Voluntary Worksite products in three ways; They are guaranteed issue, have one rate (not age banded for rates purposes) and are more likely paid for by employers. Limited Medical and Work Site plans operate well, side by side, but are not the same thing.

 

It is our view that, Fixed Indemnity Limited Medical plans offer a viable alternative (or improvement) to group Expense Incurred mini meds. These plans are clearly less restrictive and confusing. The Indemnity model has the additional advantage of being flexible enough to be offered as a supplement (first dollar foundation) for high deductible major medical plans.

We hope that this information will prove useful as new (to many) or clarifying information (to others) to counter myths and the confusion brought about by recent political and media portrayal of the products under the heading Mini Med.

William C Hammett

President

Hammett Marketing Group, LLC

619-301-7460

bill@hammettmarketing.com

www.hammettmarketing.com

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: