Growing deductibles, greater co-insurance shares, larger co-pays. The result? Higher out-of-pocket medical costs for employees. To help employers lessen the impact, more brokers are turning to a tried and true solution—gap coverage.
David Fesmire had a problem. He had just received the renewal offer on a client’s major medical policy. It wasn’t good news—a 34 percent rate bump. He knew his client and his client’s employees couldn’t afford such an increase so David, owner of Coverage Solutions Group in Nashville, Tenn., reviewed his options.
Major medical carrier concerns
The use of gap coverage has drawn the attention of the major medical carriers, and rightly so. Improper use and design of a gap plan can cause utilization issues with the major medical coverage.
In Fesmire’s client’s case, the gap strategy included lowering the premium cost by increasing the deductible. When participants are responsible for more of their initial medical expenses, they’re more prudent when it comes to using their health care. This works for major medical carriers because they historically have seen less utilization in plan designs with higher deductibles and are willing to offer the lower premiums. It also works for employees as far as the premium amounts are concerned, keeping their costs at a more affordable level. According to PricewaterhouseCoopers, employees continue to shift to high-deductible plans with 17 percent of employers reporting their most-enrolled plan for 2011 was a high-deductible plan (up 4 percentage points from the previous year).
In Fesmire’s case, he proposed an increase on the major medical plan’s deductible to $5,000, resulting in a net decrease in the plan premium. He then designed a fixed indemnity limited medical plan, which included fixed-payment coverage for outpatient surgical facilities, daily inpatient hospital stays and hospital admission. The combined premium for both the major medical and limited benefit medical plan was only $20 greater than the previous year’s single rate, and the family cost was $150 less than the projected renewal premium.
Although the gap plan was a voluntary election for participants, 30 percent signed up for the coverage.