From the October 2010 issue of Benefits Selling Magazine • Subscribe!

End of the road for minimeds?

I am not a deadhead per se, but Jerry Garcia's lyrics in the Grateful Dead tune "Truckin" come to mind when I think about the limited medical/mini-med industry. Twenty years is a long ride for a niche product, and I'm sure at least one reader has an "I remember when" limited medical case memory running through their head right now.

At this writing, things are as strange and tumultuous in our industry as they've ever been. By the time you read this, it's very likely the Department of Health and Human Services will have offered some clarity when it issues its interim final rules on grandfathering after the Aug. 27 conclusion of the comment period. The Patient Protection and Affordable Care Act theoretically dealt a blow to much of the limited medical industry when it stipulated that beginning Sept. 23, 2010, group health plans written before March 23, 2010, are eligible to be grandfathered, but must meet specific provisions outlined in the law.

Several of these provisions impact limited medical (sometimes referred to as limited benefit or mini-med) plans with co-insurance based features, especially the "no annual or lifetime limits" language.
After vigorous lobbying by various industry groups and corporations, however, HHS announced it might grant an exception to this legislation.

The major piece concerning limited medical plans centers on the waiver process that may be established for co-insurance based limited medical plans. We know very little about this process and how it will work (or not work) but this eventual ruling will provide enough structure for brokers and employers to begin setting the limited medical course for their clients/companies from today until Jan. 1, 2014.

Looking back
So let's take a brief trip back and look at the naissance of the limited medical industry and the impact it's had on group health insurance. There are essentially two paths in the limited medical world, and I've spent the majority of my time on the lesser-traveled side. Co-insurance based limited medical plans (also referred to as expense-incurred plans) got their start in the late 1980s.

The plans were invented as our economy began to experience the impact of a more service-based work force, price increases in health care and the inability of some employers to meet participation requirements in contributory plans. As I recall, the limited medical industry was born when an enterprising HR director of a large convenience store operation, a carrier ahead of its time and a willing administrator teamed up to find a solution.

The resulting product was a low-cost insurance program that operated with co-pays, deductibles and co-insurance sold on a voluntary basis to employers with more than 500 eligible lives. The product served a group of people who were not going to purchase an expensive major medical program, created a way for an employer to meet participation on its major medical programs by creating eligibility classes for the different benefit offerings, and introduced people to the health insurance system versus pushing them entirely to government-based programs.

Undoubtedly there were detractors then - just as there are today. How can you sell a program with such low limits to the employees? What if they think they are buying higher levels of coverage? What will you do when something serious happens? Those questions have never really gone away and have required most of us to reason that something is better than nothing.

Competitive advantages
The product began to gain acceptance in markets with large numbers of hourly workers, but eventually the entrepreneurs and carriers could not agree on how to approach the market together and competition was born.

Two of the earliest providers - Starbridge and SRC - made inroads with many large employers to provide this voluntary, low-cost coverage and became the largest players in the limited medical world. The only distinct disadvantage these carriers would encounter would be the inflationary pressure that accompanies any expense-incurred insurance arrangement. Vulnerabilities included administrative hiccups, product inflexibility and poor enrollment communications.

What helped the co-insurance based programs cement their market leader status? Co-pay eye candy. HR professionals can hardly resist a co-pay. Even if a plan had less benefit for the money, inferior enrollment communications and the strong likelihood of a rate increase in the future, the co-pay would win.

"My employees want the co-pay." "This plan looks more like our major medical." "The employees will understand the co-pay better" were frequent comments from employers who thought this was the easier path.

Eventually these two operations amassed enough business to be acquired by major health insurance carriers, which in many ways provided legitimacy for the entire limited medical marketplace. These carriers would eventually also fund a significant lobbying effort to create a waiver process for the co-insurance style limited medical plans, which I have found ironic. After all, these carriers sit at the table of health care reform and stand to gain enormously by the PPACA requirements. Yet, they are fighting to keep what they say is 1.4 million people covered on mini-meds? Strange, indeed. I wonder if Ron Williams knows what he is fighting for?

Not without controversy
I submit that as limited medical grew, it was the co-insurance based plans that drew negative scrutiny for the entire industry. They had a target on their back because they covered the most lives and were marketed by some of the largest insurance companies. Due to confusion about what the policies did and did not cover and what the limits really allowed (often only a single medical incident in a calendar year), many employees complained.

It was very difficult to decipher the Certificate of Coverage or the marketing materials to clearly understand the limits and the process for paying out benefits. Almost every negative, front-page article dealing with the controversy of limited benefit coverage came from a participant who did not understand their coverage in a co-insurance based limited medical plan. These plans were one of the targets of health care reform as evidenced by correspondence from the Senate Finance Committee to the aforementioned CEO of Aetna demanding explanation on how the program operated.

Meanwhile, back in the late 1980s, a group supplemental fixed indemnity plan was dusted off to help a group of entrepreneurs providing benefits to government contractors. Private employers who won Service Contract Act projects from the federal government were required to provide wage allocations for benefits for the employees. Problem was, the allocations were not enough to purchase major medical insurance benefits for the employees. Like their convenience store brethren, most of the workers in these hourly jobs were not going to purchase a major medical plan even if it were offered. Therefore, the employers sought out benefit packages that would match the wage allocation for benefits.

This was the birth of fixed-indemnity-style limited medical plans. These plans spent most of the 1990s serving employers performing Service Contract Act work and as they became known to more and more employers, firms began to ask about benefit availability for their non-SCA work force. This was the beginning of the limited medical industry's competition for hourly workers. Fixed-indemnity plans worked hard to gain credibility in the late 1990s. I remember an early meeting with a large brokerage firm in Chicago who is very successful with limited medical plans today. I began my presentation with facts, figures and a case for serving the hourly worker and was literally laughed out of the room. "You're selling that?!"

At the time, many brokers and consultants had not yet faced years of double-digit renewals that would eventually force most brokers to look at alternative medical solutions. In addition, the room did not include brokers with large clients with a significant hourly work force.

Early in the new millennium, fixed-indemnity programs gained traction, and with that came a flood of carriers to a market that seemed ripe for growth. This wave also included the high-commission seekers - we encountered brokers who would load the fixed-indemnity plans with unsustainable expenses that would hurt the overall credibility of the fixed-indemnity plans. It took several years for the market to rid itself of the producers who are always chasing fads in search of a quick profit.

A new direction
One of the strangest trends in our business began about 18 months ago when the "mid med" concept was born. In response to many employers dropping major medical coverage, carriers began designing products with benefits falling in between major medical and limited medical benefit plans. These plans were quickly shuttered after the reform legislation passed in March, but I applaud the carriers' efforts to provide a solution from a market-based point of view.

Fixed-indemnity plans easily made inroads into the large case market for several reasons. First, the benefits were much easier for employees to understand. Second, firms pushing fixed indemnity had to be more progressive and creative in product design and administration to gain attention. Third, fixed indemnity plans are a better insurance vehicle for consumerism because they empower consumers to talk to their providers and negotiate costs prior to treatment. Employees utilizing fixed-indemnity plans know exactly how much their plan will pay for a specific service, and, in reverse, providers know up front how the program will pay and then work with the patient to create the most effective use of their benefit.

This encourages participants to understand what medical services cost and, therefore, work with their providers prior to making a claim. Fourth - and a point that's quite important as we face the next stage for limited medical - fixed indemnity plans do not encounter inflationary pressure like expense incurred plans and, therefore, are more sustainable over the long haul. The biggest problem fixed-indemnity plans faced was the fact that they did not have a co-pay. How ironic that this is now a major positive.

Some of the largest limited medical cases installed today sit on a fixed-indemnity chassis. The brokers and HR departments that guided clients away from expense-incurred plans have been patting themselves on the back this year as a result of the uncertainty health care reform legislation has dealt to the viability of co-insurance based plans.

Stay tuned
The lobbying efforts to change the PPACA stipulations, resulting in confusing information and ambiguous renewal contracts released from these carriers has been enough for many of the other large expense-incurred limited medical plan customers to look for potential alternative solutions. Surprisingly, there are some advisers content to sit and wait for the government to tell them whether they will have to make changes before 2014.

As the answers begin to unfold this September, we'll undoubtedly see more movement in the limited medical world. Carriers already have pulled product from the market, adjusted strategies away from co-insurance based plans, and a few who did not want to invest heavily in lobbyists simply folded up their limited medical tents and left the playing field.

As brokers, you have to be asking yourself many questions, but the most important could very well be, "How do I want to recommend my client move forward on limited medical in this compressed time frame? Can I place my client in a product that can carry them to Jan. 1, 2014?"

Robust, viable limited medical solutions exist today that will not be impacted by the legislation, no matter what guidance the government provides, and easily can support clients of every size through 2014 and beyond. We're not sure what the future holds for limited medical - everyone in the industry is waiting anxiously for further clarification from the government.

Maybe we will all be singing a Beatles tune in a few weeks. Depending on your perspective it could be "Here comes the sun," or perhaps "Let it be."
Stay tuned for more.

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