Why gap plans should be sold ‘hand and glove’ with major medical

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As deductibles skyrocket, so has demand for gap plans, which cover the costs between what high deductible major medical plans pay and what an employee has to pay out of pocket.

In 2016, 29% of group health plan enrollees had a high deductible health plan, up from 17% of workers in 2011. The average annual deductible for single coverage was $2,031 and $2,295 for HSA-qualified HDHPs, according to the Kaiser Foundation.

However, 69% of Americans have less than $1,000 in savings and 34% of Americans have no savings at all, says a survey from GOBankingRates. Additionally, a study from Harvard University found 62% of personal bankruptcies were caused by a medical expense and half of those people had medical coverage.

That’s why gap plans, built around major medical plans, are critical, explained Peggy Hayes, vice president at Jackson, Miss.-based worksite marketing company American Public Life at a recent industry conference.

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The plans, first introduced in 1990, do have limitations, and are not intended to pay for 100% of the out-of-pocket costs. “The reality is no insurance is designed to pay for 100% of everything,” Hayes said.

To understand more about the plans, EBA spoke with Hayes after the conference. What follows is an edited version of the conversation.

EBA: Can gap plans be sold as voluntary outside traditional enrollment?

Hayes: I think gap can work as a voluntary benefit, but I don’t think it is going to work as a voluntary if it not sold as part of the enrollment of the major medical. You should look at gap as being hand in glove with the major medical product.

Normally, if you are enrolling benefits like disability insurance or critical insurance or life insurance, you are talking about a different set of needs. With a gap product, you need to be talking about deductibles and co-insurance and medical out-of-pocket expenses. That really needs to be part of the discussion you are having while a person is making their decision on which medical product to buy.

EBA: Why should brokers and employers offer this product?

Hayes: Employees don’t have savings to rely on to pay medical expenses. If employees delay getting medical treatment because they can’t afford it, that is a terrible situation for somebody to be in. When you can build a gap product that helps to fund some of that out-of-pocket exposure, that is an excellent benefit.

For brokers, it there an opportunity to make money? Yes, there is varying compensation. Gap plans pay a compensation that is generally a good bit higher than what the compensation would be on major medical insurance. If you are able to drop your major medical premium a little bit and then add in a gap product, you make money off of that.

For employers, it can allow them to offer a richer medical plan at potentially lower cost. As an employer, if you can provide some first-dollar coverage to your employee for certain health events, that is a great benefit. If you can also use gap product to help control your monthly expense for offering health insurance that is a great benefit as well.

EBA: How were gap plans impacted by the Affordable Care Act?

Hayes: The lasting impact is that we have seen deductibles go higher and higher since 2010. We have seen employers moving away from HMOs in droves, moving toward high-deductible plans with a tremendous amount of out-of-pocket exposure because the cost of healthcare has continued to escalate.

The ACA did a lot to improve access to healthcare, but it really did nothing to drive down the expense of providing healthcare — not health insurance — to people. It doesn’t cost you less to get an MRI today than it did in 2010. As healthcare expenses have gone up, the cost of insuring those expenses has also gone up, so what employers do to react to that is raise deductibles, raise co-insurance, raise out-of-pocket maximums, and that creates a larger gap.

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