Buyer Beware: Not All Limited Benefits Plans Are the Same 

With the number of uninsured workers growing, employers have had a change in attitude about limited benefit plans. A product once viewed as a bare-bones plan is now seen as a viable solution to today’s health care problems. Retailers, restaurateurs, and staffing companies have come to recognize that limited benefit plans represent the choice between doing something and doing nothing at all.

A Kaiser Commission on Medicaid and the Uninsured estimated that over 45 million Americans lack health insurance today. Of that group, eight in 10 are in households where at least one family member is working — 70 percent with one or more full-time worker, and 13 percent with part-time workers.

Limited benefits plans offer advantages to both employers and employees. Brokers should understand and recognize the true value of a limited benefits plan and convey that understanding to their worksite clients.

Health care for uninsured employees

Many workers either cannot afford health insurance or have employers that do not offer them health benefits. Even for those who do have coverage, if wage increases do not keep pace with out-of-pocket premium increases, it creates a growing population of uninsured employees and increases the adverse selection risk on their core plans.

Another less apparent impact on the employer is that individuals without access to health insurance are up to three times as likely to put off seeking treatment — even for serious conditions — as insured populations even if they lack health coverage for only a limited time. This can lead to lost productivity and lost workers when conditions worsen to a point where employees can no longer do their job.

By focusing on this segment of our nation’s workforce, limited benefit plans provide alternatives for groups such as:

• Full and part-time employees working for an hourly wage or on a seasonal basis

• Newly hired employees who must fulfill a waiting period before becoming eligible for the employer’s medical plan

Limited benefit plans are designed to cover first-dollar expenses associated with non-work-related accidents and sicknesses up to specified benefit levels. The term “limited” refers to the significant limits on the total amount of benefit the plan will pay for in a coverage year. At the same time, the first-dollar coverage serves to meet the majority of routine and unexpected health services that a typical worker faces in any given year. For many plans, these benefits are offered as part of a package that includes medical, dental, vision, term life, and short-term disability coverage.

Investigate plan designs carefully

So what’s the confusion? Limited benefit products are often lumped in an arena that includes discount cards and fixed indemnity plans. Most fixed indemnity plans are filed as an ancillary or supplemental product and pay a flat amount based on the type of service, which is typically an arbitrary dollar amount based on the carrier’s pricing schedule. For example, $100 a day for 100 days in the hospital is often shown as a $10,000 inpatient benefit under those plans. Given the average two-day hospital stay, the full $10,000 is rarely paid.

A limited benefit product should have certain features that are found in a traditional major medical insurance plan. It should be guaranteed issue, subject to HIPAA, and include all state-mandated benefits. In addition, the product should provide credible coverage toward pre-existing condition exclusions and waiting periods.

Given the distinctions between these two approaches, brokers and employers should carefully investigate plan designs. Here are a few points to consider.

• True discounts. Many plans claim to offer discounts but require the member to pay the full out-of-pocket cost at the time of service and submit a claim for reimbursement. Employers should instead consider products designed like a usual and customary plan, where members pay only the appropriate copay at the time of service. After the provider submits a claim and is paid, the member is then responsible for any deductible, co-insurance, and allowable charges in excess of their annual medical expense benefit maximum.

• Administrative costs. The population that is not covered under an employer’s core coverage generally has much higher turnover and, since these limited medical plans are generally offered on a voluntary employee-pay-all basis, the employer may need to take on significant additional administration such as billing and premium collection and reconciliation. The best option to keep the group rates stable for this uninsured population is to have payroll deductions taken; there are plans that will allow sponsors to send deduction information each pay period, eliminating all bills.

• Reporting. The only way to determine whether employees are receiving a benefit from the plan offered is by asking for loss ratio information, claims, and participation reporting. Any program that will not openly provide that information should not be considered.

J. Robert Bruce is head of Strategic Resource Company (SRC), an Aetna Company. SRC administers group medical and other voluntary benefits for employees, particularly those paid on an hourly basis. For more information, contact Mr. Bruce at brucej@aetna.com.