hey’re growing.
No longer the fringe temporary benefit coverage they
once were, limited coverage medical plans have gained enough ground to become a
proven tool in the HR arsenal to reduce medical costs. There are now some 30 carriers
peddling these offerings, and big-name retailers and restaurants are buying.
But despite past growth in this market, the future may
be more complicated for limited medical plans and the employers that use them.
The concept of limited medical plans is simple. The
best plans usually (but not always) allow the employee to go anywhere for care and
have low co-payments.
There are generally no pre-existing condition limits
and no physicals. Like any group plan, limited medical plans must comply with HIPAA
and COBRA to be offered as group coverage. The products are fully insured and have
monthly premiums in the $100 range.
With employers spending on average $7,000 in health
care costs per employee annually, the prospect of offering coverage for under $2,000
is something that has made limited medical plans a growth product for health insurance
companies.
As of two years ago, there were more than 1 million
holders of these plans, and experts estimate the market to grow as much as 20 percent
annually in coming years.
There is a catch, though. These plans have total annual
coverage limits as low as $1,000 but more typically in the $5,000 to $15,000 range.
There’s a shell game in how plans define their maximums,
but in general, an employee with a stomachache or a broken leg will probably be
covered by these plans. If an employee has a heart attack or a bone marrow transplant,
he will quickly hit the policy limits, and will owe doctors and hospitals one heck
of a lot of money.
As Phil Wheeler, president of the advocacy group Citizens
for Economic Opportunity, told the Hartford Courant newspaper in 2006, "These plans
are designed not to be there when you need them. It’s like having an empty fire
extinguisher on the wall."
The history of limited medical plans reflects the market
niche they were created to fill. They were designed for part-time employees, and
to provide coverage to new full-time employees before they become eligible for coverage
under the employer’s traditional medical plan.
If an employee had coverage with a prior employer, the
cost of COBRA during this interim period could be a deterrent to changing jobs.
A limited plan with a $5,000 cap is generally sufficient short-term coverage, and
cheap with its $100 premium.
Offering this as permanent coverage to part-time employees
has merit for those employers that previously offered nothing to such workers. It
doesn’t adversely affect the employer’s compensation cost structure, and it extends
coverage beyond the full-time employee group. It all seems quite noble.
But fast-forward to the present. Managing health care
costs is redefined as controlling your increases. Let’s face it: The only way to
save money is to spend less money. That means someone out there has to receive less
money. Who’s it going to be? Limited medical plans play several roles in bringing
costs down, but as their impact increases, so do the consequences.
Some employers, especially those with high turnover,
are increasing the waiting period before new hires are eligible for health care
coverage to 12 months and are offering them limited medical plans during that period.
Some are scrapping their traditional plans altogether and replacing them with these
limited offerings for full-time employees.
That’s where I see a long-term problem.
This is like rolling out an "un-welcome mat" to job
seekers with disabilities or those with sick family members—a group for whom benefits
are particularly important. Do limited medical plans sound like an Americans With
Disabilities Act violation?
They’re not, says the Department of Labor, at least
not yet. In a candid chat with a DOL official in October, I was told that the agency
is looking at these limited benefit offerings, but it can scrutinize them using
only existing laws and standards.
If agency sees equal coverage for maternity, fully disclosed
plan limits and HIPAA and COBRA compliance, the plan is OK. Some states, like Massachusetts,
have determined that limited coverage medical plans do not meet their minimum coverage
standards and have refused to license carriers to sell these plans, but at the federal
level the coast is clear.
After all, there is no fundamental difference in a $1,000
or a $1 million maximum coverage limit. These are simply limits chosen by employers,
as is their right under ERISA.
So what’s my problem with these plans? As more employers
reduce their coverage to limited benefits, employers who do not follow suit are
going to look like the Statue of Liberty to job seekers with health concerns: "Give
me your tired, your poor, your huddled masses yearning to breathe free, the wretched
refuse of your teeming shore … " and we employers will pay their medical bills.
The underwriting term here is "anti-selection," and the cost goes far beyond simply
paying for medical coverage.
Healthy young workers are much less concerned with benefits
and more with wages. This vital segment of an employer’s population will move toward
companies that offer slightly higher wages because their compensation structure
is linked to these low-cost limited plans. Older workers, who use more health care,
as well as those with chronic conditions, will migrate to companies offering better
benefits.
This could potentially affect millions of employees.
As carriers hard-sell their limited products, this shift will become a measurable
statistic affecting the cost of disability, life insurance, dental, vision, absenteeism
and other costs.
As if that’s not enough, you can’t honestly believe
that workers earning $10 an hour are actually going to pay a $50,000 or $250,000
medical bill. As more bills go unpaid, prices will rise for those who do pay.
A counter-argument is that by covering people who previously
weren’t covered, employers help to reduce the number of people who are uninsured.
Obviously if you are providing limited medical insurance to someone previously uninsured,
you’re helping. But if employers looking to cut costs choose only to offer limited
medical plans to employees, where does that leave people with chronic health issues?
Sick people covered by traditional plans will be less
likely to leave those jobs through normal attrition. This would be a double whammy
few employers could afford.
The upshot of these plans is that employers who recognize
the flaws of limited medical plans may nonetheless have little choice but to embrace
the plans or be left to insure chronically sick employees who have no other way
to receive health insurance. If this trend were to continue, companies with more
comprehensive coverage would have to scale back to limited plans to avoid becoming
the employer of choice for the chronically ill.
Workforce Management Online, October 2008 -- Register Now!
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