The truth about limited medical plans and mini-meds
By William Hammet Sr.
Hammett Marketing Group LLC
Since 1998, my general agency has actively assisted health insurance agents in the implementation of hundreds of group limited medical plans, aka "mini-meds." I would like to weigh in on the present and future role of these plans and cut through some mythology, confusion and outright distortions surrounding them.
The group limited medical plan industry encompasses a number of very different plans and carriers. These plans provide core medical insurance to a broad range of varied consumers. The potential members’ perception of value and interest in enrolling in a limited medical plan depends on a number of factors, notably:
- The ability to afford your current health plan (high premium share)
- The ability to afford family inclusion in your group plan (premium share)
- The ability to afford to actually use your health plan (high deductibles)
- Amount employer pays towards premium
- Amount of acceptable out-of-pocket risk
- Access to first dollar benefits
- Length of probationary period (new hires)
- Insured’s likelihood of illness or injury (pre-existing condition)
- Availability of supplemental benefits (cancer, LTC, CI)
- Existence of financial barriers that may discourage access to health care
From our own experience, most CEOs, CFOs, HR departments and brokers have an opposite view of what their employees and their families actually desire. We attribute this disconnect to a tendency for all of us to apply our own perspective — lost in our own selfish view — to those we think we serve.
Two categories of limited medical plans
As mentioned above, there are many different types of limited medical plan designs, but only two categories. They are:
1. Expense incurred plans: These plans are closely associated with the term "mini-med" and are a derivative of major medical (traditional) insurance. These so-called mini-meds have been popular with employers and low wage workers for many years because they have extremely low premiums and are generally offered on a low weekly payroll deduction basis, making them seem very affordable.
These low premiums are actually a result of highly restrictive monthly or annual limits or “caps” on benefits. These caps, along with other financial barriers such as pre-existing condition limits, co-payments/co-insurance and deductibles, further reduce insurance company exposure.
An unanticipated consequence — although many think it is by design — of a “low cap” mini med, is the unfortunate tendency for it to be confused with comprehensive major medical coverage; this has proven to be a problem for all parties concerned.
Since these plans are target marketed at low income, high turnover groups, and often contain a pre-existing condition elimination period, enrollees have often left their jobs before they are even eligible for benefits. Even when claims are incurred and filed properly, they are, more often than not, rejected or delayed as a pre-existing condition — adverse selection due to chronic conditions is far more common with high turnover, low-income employee groups.
For many of us, the good news coming out of PPACA (health care reform) is that, as of November 23rd, most of these expense incurred mini-med plans will be tightly regulated under the “cap limit” rules. In our view, we will begin to see these plans exit the industry beginning in 2011.
2. Fixed indemnity plans: Fixed indemnity plans — also called supplemental/hospital, indemnity or defined benefit plans — serve the same general purpose as the mini-med plans described above, and also provide affordable benefits to the employer market.
Indemnity limited medical plans are filed, approved and thereby regulated differently than expense incurred (mini-med) plans, and are not subject to most of the cap limits imposed on mini-med plans. This significant difference allows indemnity limited med plans to continue to be freely marketed to new employers and, in many cases, to takeover (rescue) the existing expense incurred mini-med business.
Note: Indemnity plans are not easily confused with traditional insurance because they do not use traditional insurance terminology, such as deductibles, coinsurance, reasonable and customary, and coordination of benefits.
General differentiating features of fixed indemnity plans vs. expense incurred mini-meds
- First dollar benefits
- Terminology – No use of traditional insurance terms (deductible,co-insurance, copayments)
- No pre-existing condition limitations on outpatient services
- Easier to explain and understand (fixed dollar benefits for covered services)
- Claims can be more easily adjudicated (no pre-existing conditions)
- Similar premium amounts compared to mini-meds
- Generally higher payouts for hospital surgical claims
- Not subjected to federal law restricting annual or lifetime caps
- Direct assignment of claims to providers (not reimbursement to member)
It is our view that fixed indemnity limited medical plans offer a viable alternative (or improvement) to group expense incurred mini-meds. These plans are clearly less restrictive and confusing. The indemnity model has the additional advantage of being flexible enough to be offered as a supplement (first dollar foundation) for high deductible major medical plans.
We hope that this information will prove useful and new to many or will serve to clarify information for others, and help counter the myths and confusion brought about by recent political and media portrayal of the products under the heading "mini-med."