Hospital indemnity programs expand options
Hospital stays do not always go according to plan, and every day a patient needs remain in a facility is another charge to the bill. Circumstances such as unforeseen extensions in stay are just one reason why advisers should communicate the importance having a hospital indemnity plan for supplemental coverage.
To keep clients and their employees engaged in the product, Bill Bade, consulting actuary for Milliman, shares new avenues his company is exploring in order to stay ahead of ACA regulations and maneuver around current restrictions.
“Back on June 10, the federal government released a proposed rule that would limit the types of hospital indemnity plans that could be sold in the market. That rule also applies to some other lines of business like short-term medical and expatriate plans, but what we were really concerned about was hospital indemnity,” Bade says. “What we found is that there were industry groups that were devoted to critical illness and other types of products, but there really wasn’t a group that was devoted to hospital indemnity, so we felt like there wasn’t really much of a response that there should have been to the government.”
Bade refers to the fixed indemnity, disease-specific and supplemental policies. These new regulations provide that a hospital indemnity or other fixed indemnity insurance policy under a group health plan provides excepted benefits only if:
- The benefits are provided under a separate policy, certificate or contract of insurance.
- There is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor.
- The benefits are paid with respect to an event without regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor.
The regulations further provide that to be hospital indemnity or other fixed indemnity insurance, the insurance must pay a fixed dollar amount per day, or per other period, of hospitalization or illness regardless of the amount of expenses incurred.
Bade says the proposed regulations could restrict consumer choice in the market by limiting the types of plans being offered. As a result, Milliman issued a response to the proposed regulations explaining why these plans are important and why the current plan designs offer consumer flexibility.
“The federal government was trying to pass this rule through three agencies; the Department of Treasury, the Department of Labor and the Department of Health and Human Services,” Bade says. “The federal government has not come back with an official ruling yet, so the industry is really in limbo over what the government decides to do.”
New advancements for hospital indemnity
Since the beginning of healthcare reform, roughly eight years ago, many major medical companies have begun to move into the hospital indemnity and overall voluntary benefits space because of larger profit margins. As a result, this attracted new distribution partners which started the production of simple products such as accident and critical illness.
Now, with increased maturity these partners are offering newer and more complex products into the hospital indemnity space. Depending on what market someone might work in, clients can have the option to choose from products associated with HSA specific plans or non-HSA products.
“Some hospital indemnity plans are compatible with the HSA offered by an employer, so if an employer is offering a HSA throughout the year then the government restricts what benefits you can have on the hospital indemnity product without impacting tax payment by the employee,” Bade says. “If the employee has a non-HSA compatible hospital indemnity plan with an HSA plan they can potentially be paying higher taxes than if you had an HSA-compatible plan.”
In that large market space, where most employers offer an HSA, the options for what a hospital indemnity plan offers can be slimmer than a non-HSA plan. HSA compatible plans typically offer hospital admission, hospital confinement, ICU confinement and accident-only benefits, he says.
In the small market, Bade adds, for other employers who do not offer an HSA, there is much more creativity. These products can range from senior care, pet care, family care, diagnostic services, outpatient x-rays, prescription drugs and up to 40 or more benefits that people can file on their hospital indemnity program for instances when they are not in an HSA.
“They are not going to offer all at one time, but the employer would have the decision to mix and match what benefits make the most sense for their employees,” Bade says. “That’s where, on the sales end, you have this flexible and creative plan that you can cater to your client’s needs.”