When I started in the group benefits business in 1987 it was not uncommon to find health plan deductibles of $100 or $250. A co-pay to see a doctor was $5 or $10. Health plan premiums were a fraction of what they are today.
Well here we are on the eve of 2015 and health plan premiums, deductibles, and out-of-pocket costs are higher than ever and will continue to rise. This is a big problem. Employers are having a hard time continuing to pay for health plan premiums; and employees are having a hard time dealing with higher deductibles and out-of-pocket costs.
It might (or might not) be because of the Affordable Care Act, but there are employers canceling health insurance for employees; while some employers are reducing certain employees to working less than 30 hours a week to avoid offering mandated health insurance coverage. This is the result of health insurance prices that have climbed so high.
The employee medical debt problem
According to a new report by the Consumer Financial Protection Bureau nearly 20% percent of U.S. consumers with credit records 42.9 million people have unpaid medical debts.
The takeaway...people might have health coverage but high out of pocket costs harm many.
There are solutions
I just helped a health insurance broker save a group client $250,000 by finding a health plan with a much higher deductible and filling it in with a medical gap insurance program. The employer saved a very significant amount of money and the employers were able to keep the same deductibles with no net increase to out-of-pocket costs.
A medical gap plan is a group supplemental medical expense insurance plan designed to cover deductibles, co-insurance and co-payments. This helps establish a multiple year strategy to manage group benefit costs. It can also provide a more effective way to protect employees and dependents.
Medical gap insurance works like this...if the group can find an alternate medical plan with a higher deductible that can reduce rates by 15% to 30%...and then buys a medical gap insurance plan that covers the plan changes, the group has the opportunity for significant savings and the employees do not have to face major plan reductions. That can make a huge difference to many firms.
Value Proposition for Employers
"There are two reasons to use gap programs: Reduce the costs of the health plan and improve benefits for employees, says Dan McNeill, a long time industry veteran.
A properly structured medical gap plan will do at least one of the above in most cases.
I believe that medical gap plans will be part of every health plan renewal by creative benefit consultants. The process is:
- Get renewal options with much larger deductibles and out-of-pocket costs
- Quote alternatives & illustrate medical gap options for the employer
- Communicate new plans to employees
This method can also reduce future Cadillac tax liability when properly structured and I will write about this in a future article.
It might not be the solution in every situation, but the medical gap insurance concept should be part of every renewal discussion.
Peter Toth has been in the employee benefits business for more than 20 years and is managing director of VoluntaryBenefitPrograms.com. Reach him at Peter@voluntarybenefitprograms.com or (646) 526-4290.
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