Home > Employee Benefits > Consider supplemental health insurance when moving to a high deductible health plan

Consider supplemental health insurance when moving to a high deductible health plan

The employer sponsored health insurance marketplace has been under a very bright spotlight lately, with the focus on provider costs, insurance premiums, access to quality care, and employer provided coverage. In response to this, many insurance brokers are providing their clients alternative options to fully insured PPO and HMO plans. The most common alternative options are High Deductible Health Plans (HDHP’s), with the employer funding a percentage of the deductible, or Self Insured options. Here we focus on HDHP’s and their funding arrangements.

What is the most effective way to assist employees with funding their high deductible health plan? The most common solution is  to simply provide Healthcare Reimbursement Accounts (HRA’s) or Health Savings Accounts (HSA’s). These two savings account options have proven to be an effective means of funding high deductibles and are clearly the most popular, but what about providing an insurance option for the high deductible plan through a limited benefit medical plan? By providing a Limited Benefit Medical Plan as a supplement to the comprehensive high deductible medical plan, the employer reduces their cost volatility that exists within funding HRA’s and prohibits their employees from abusing employer funded HSA’s. The Limited Benefit Medical Plan protects employees against out of pocket costs by providing dollars to employees for services typically subject to deductibles. The employer pays a level premium, thus stabilizing their costs, and is assured that the money is being used for health services.

Limited Benefit Medical Plans pay employees directly for specific health services. Examples of payment for services include:

  • hospitalization
  • surgical and anesthesia
  • outpatient physician office visits
  • outpatient diagnostic x-ray and labs
  • off-the-job accidental injuries
  • wellness visits
  • emergency room services
  • prescription drugs

As you may conclude, these are the most common services subject to out of pocket deductibles. The benefit amounts, or benefit payments, can be adjusted depending on the deductible exposure and the employer budget. These plans can also be offered on a voluntary employee funded basis, with no impact to the employer’s bottom line.

The last, and most often overlooked, advantage of a Limited Benefit Medical Plan is the way they pay benefits. Employees will receive indemnity payouts for covered services, or essentially be paid for going to the doctor or receiving medical services. This method of payment encourages consumerism as well as increases the intrinsic value of the health insurance plan. The more cost conscious the employee is with where they receive the care, the more benefit dollars they can keep in their bank account. And when the deductible is satisfied, the employees enjoy payments that can be used for hidden costs of seeing healthcare professionals (i.e. missed work, travel expenses, etc).

As health insurance continues down the path of increasing costs and changing plan designs for affordability, ask your consultant about Limited Benefit Medical Plans. These plans are a great solution for bridging the gap between first dollar coverage and HDHP’s.

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William Gallagher Associates is a leading provider of insurance brokerage, risk management and employee benefits services to firms with complex risks and dynamic needs, within industries that include technology, life sciences, financial risks, health care, renewable energy & clean technology, and environmental services. WGA has offices in Boston, MA; New York, NY; Hartford, CT; Princeton, NJ; Columbia, MD; and Atlanta, GA.

  1. Jeff Bolmeyer
    August 5, 2011 at 9:33 am

    Jim:

    Do you get any traction from your clients with this 1970s approach to plan design. We use to call them “Base Plans with Superimposed Major Medical” back then. We even had $50,000 per disability indemnity major medical plans, the “Mini Major Med” plan of its day.

    There is far more value in helping an employee understand how to budget for routeine medical expense for their families then to sell them a high expense ratio product like a limited benefit medical plan. An HSA is the perfect vehicle to do it with. And, when you put a dollar in your HSA account you don’t have some insurance company taking between $0.20 and $0.40 off the top to pay expenses, taxes, commissions and profit before you even get to use the plan. To my way of thinking, 100 cents on the dollar into an HSA is a much better way to go.

    Plus, benefits administration is more compacated today then ever. Why would anyone introduce a limited benefit indemnity medical plan into their Section 125 plan, have to include it in COBRA, have to conform with all manner of annual employee notices and limited benefit plans are going away in 2014? If it were not for Health Care Reform waivers they would already be gone.

    Let the Auto Club, AARP and other direct mail institutions continue to sell Hospital Indemnity insurance through the mail and if individuals wish to buy it outside of the employment relationship, I have no problem with that.

    The Limited Benefit Medical Plan has no place in the employer’s tax advantaged benefit offering IMHO.

    Best,

    Jeff Bolmeyer

  2. August 5, 2011 at 10:47 am

    Jeff,

    Thanks for the comment! I admire the passion in your belief of HSA’s and am happy this entry created some discussion.

    Let me preface my response by saying William Gallagher Associates benefits department strongly encourages HSA’s and HRA’s. In fact, those solutions are what our Account Executives lead with when discussing funding mechanisms for HDHP’s. The intention of this blog entry is to introduce an insurance option.

    There are instances when HSA’s and HRA’s might not be the right fit. Consider VC and PE firms who own small high tech companies and contribute to HSA’s. The demographics of high tech employees coupled with the frequency of job changes doesn’t benefit placing an HSA in that type of organization. Why would they want to pay into an employee HSA account knowing the odds of them leaving the company are very high? The employee can simply walk with the account, take a PPO plan from their new employer, and spend the HSA money for whatever they see fit. Tax penalty? Who cares about a tax penalty when it’s money they never had to begin with? If the employer pays for an insurance product, yes, they pay for some insurance, but they know the money is being used for health services and not completely wasted. Of course this is for employer funded options. With regards to 100% employer funded of HRA’s, it’s simply a constant premium vs. potential volatility. You also mention administration. I could write a 5 page response about some of our client’s nightmare TPA experiences with regards to HRA’s specifically.

    Again, it’s just an option. Limited benefit medical plans are indemnity plans and thus will be around for a lot longer than 2014. The traditional mini-med plans are going to be obsolete due to their reimbursement method of payment and the benefit caps imposed on certain services. You are correct in writing that healthcare reform will eliminate the old mini-med plans. Indemnity plans, however, pay a certain benefit amount based on the services rendered and will not be eliminated in 2014.

    I appreciate your comments and to answer your question about traction, we have just started presenting these plans as an option. Most employers will choose the HSA’s and HRA’s, but some see value in providing a product that will pay their employees for services. Again, this encourages consumerism, because if I know my limited benefit medical plan is paying me $250 for a MRI, I’m going to try to find a place that charges equal or less than that amount. No cost to me and $250 deducted from my deductible.

    Best of luck for the rest of 2011. Your clients and prospects are in great hands with your strong beliefs in such a valuable deductible funding mechanism.

    Jim

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