PPACA fueling gap insurance sales

A gap in one of the many rock formations at Arches National Park in Utah. A gap in one of the many rock formations at Arches National Park in Utah.

As employers explore ways to contain health care costs while complying with the PPACA, many also are looking to help their workers finance the higher co-pays, deductibles and premiums that can be a result of changes to their health care benefits.

In some instances, they are choosing what’s known as gap or bridge insurance. This covers some of the out-of-pocket health care costs that are increasingly difficult for employees to shoulder, including deductibles that can go as high as $10,000.

“Back in the 1990s, the cost of health care coverage was pretty manageable for most people. But starting about 1999, there’s been a steady increase in health insurance premiums,” said Stephen Parrish, marketing director for Crescent Medical Bridge, a Columbia, S.C., program manager for several carriers including Companion Life. “Employers have been struggling to find solutions. They can move to medical plans with higher out-of-pocket costs, and sure they save some money, but then they have some angry employees.”

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Gap insurance, Parrish said, has helped alleviate the anger, and it looks as if the trend toward gap insurance purchases will continue post Patient Protection and Affordable Care Act implementation as HR officials and company executives consider cost and health benefit quality in their employee offerings.

Parrish said that looking ahead, his company is aiming to turn bronze health care plans, or the baseline tier under PPACA rules, into titanium plans, which exceed the PPACA top tier of platinum.

“Employees will be looking at zero out-of-pocket expenses,” he said.

Many gap insurance products are sold through the workplace as part of voluntary, pre-tax cafeteria plans, with employees financing the full cost. But employers can also pick up the tab, generally coupling it with lower-priced, high-deductible health care plans. Parrish said companies often find that it can be cheaper to switch to a high-deductible health care plan and pay for gap coverage than to pay for a lower deductible health care plan. As an example, he said he was meeting with potential clients in Birmingham this week that presently pay $450 a month for a single premium. He was showing them a plan that could cost $290 a month, plus a $70 per month gap plan for a monthly per-employee savings of $90.

Dick Chelten, president of the Beverly Hills, Mich.-based Chelten Benefits Group likens gap insurance to the Medicare strategy.

“Seniors get a basic benefit plan through Medicare and then are free to supplement their Medicare coverage with additional ‘Medigap’ insurance,” Chelten said. “Similarly, employer groups can use the same strategy for their workforce: offer low-cost, high-deductible plans plus supplemental gap insurance coverage.”

The typical gap plan is written for $3,500 or $5,000. Industry research shows that 86 percent of all health care claims total less than $5,000 per year, and so in theory, could be handled with most gap plans.

But not everyone in the HR world can be counted as a fan of gap insurance.

“Very few of our employers are offering gap insurance,” said Steve Goulet, principal and senior vice president of Ascende’s health and welfare division.  Ascende is a Houston-based human capital consulting firm.

Goulet said Ascende’s clients typically are larger, employing between 100 and 10,000 employees. For them, gap insurance doesn’t pencil out.

“A large portion of the premium for gap insurance goes to things other than to pay the claims, like high broker agent commissions and high advertising fees,” Goulet said.

Goulet pointed out that the PPACA requires that premiums be used mostly to cover for actual health care claims. Gap insurance does not have those same requirements.

For his part, Parrish said he believes there will continue to be an uptick in gap insurance. His company, for instance, is releasing its own self-funded insurance product at the end of the month, which will have a higher deductible that can be paired with gap insurance. He anticipates it will be very popular among his clients, which tend to be small- to mid-size organizations.

Much of the sustained and growing interest in gap insurance comes from businesses that traditionally have not been large enough to self-insure but want to provide coverage for 10 to 250 employees and their dependents, said Jeff Allen, an independent HR consultant in Trenton, N.J.

Historically, concerns about the financial risks have discouraged most small firms from self-insuring, said Amado Cordova, a senior engineer at RAND, a think tank that seeks to influence policy and decision making through research and analysis.

Cordova said that if the PPACA does lead to big premium increases, it’s likely small employers will find self-insurance more attractive.

Said Parrish: “What I’m hearing as I travel across the country is that (the PPACA) is going to demand that people do something different, whether it’s dropping their coverage altogether or looking for a different plan. I believe they will discover gap insurance if they haven’t already and determine we’re a good alternative.”

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