Reprinted from Health Insurance Underwriter, January 2009

Consumer-driven health care, Health Savings Accounts in particular are powerful tools for containing cost increases in medical insurance. However, in the worksite market, especially in the blue-collar segments of that market, Health Savings accounts are not always applicable.

Over the last few years, supplemental carriers have redesigned GAP critical illness and accident products to address more effectively the out-of-pocket costs borne by employees with high deductible plans. Having supplemental products underneath a HDH P is now a viable alternative for some accounts.

This article explains the evolution of those products, their application to HDHP’s and their relevance to brokers in terms of marketing and evaluating alternative plans. It seems counterintuitive but some employers are realizing large annual savings by going to HDHP and providing the underlying supplemental GAP critical illness and accident coverage. The cost differential between traditional medical plans and the HDHP is more than enough to pay for the supplemental products.

From Individual to Group Contracts

Perhaps the most important trend in worksite products recently has been the move from individual contracts to group contracts. Group contracts to provide more flexibility for employers and lower cost for employees. Many traditional worksite producers are hesitant to use group products because of their lack of portability. I think this is of little relevance when using these products to complement HDHP’s unless the underlying medical plans are portable. Both can be subject to COBRA and, as medical plans become more portable (as stipulated in much pending legislation on both state and federal levels); the group voluntary contracts will also become more portable. In fact, some group voluntary carriers currently have a portability or conversion feature in their products.

Gap Plans and Health Savings Accounts

Most GAP plans are not Health Savings Account compliant. There are some traditional hospital indemnity plans that can be sold alongside a Health Savings Account, but the coverage is not as comprehensive as most employers would like because traditional hospital indemnity products provide no benefits for doctor office visits, diagnostic testing, outpatient surgery, etc. IF these benefits are included in the hospital indemnity policy, it is no longer Health Savings Account compliant. This leaves the employer implementing a HDHP plan with four basic choices:

1. HDHP with employer financed Health Savings Account
2. HDHP with employee funded Health Savings Account
3. HDHP with employer funded supplemental products
4. HDHP with employee funded supplemental products

Of course, there may be some overlap among these options.

Plan Design Alternatives

Most of the GAP plans available from voluntary carriers with Best ratings of A- or higher are built on the hospital indemnity ($500 - $5000initial admission benefit) chassis with one or some of the benefits:

• Doctor-office visit ($25 to $ per visit, annual limits)
• Diagnostic testing ($250 to $1000 per test, annual limits)
• Outpatient surgery ($250 to $3000 per surgery, annual limits
• Wellness benefit ($25 to $125 per year)
• Rehabilitation Unit benefit ($50 to $100 per day annual limits)
• Emergency room benefit ($150 to $250 per visit, annual limits)
• Intensive care benefit ( $300 to $800 per day, annual limits)

The internal limitations on these benefits definitely leave “gaps and holes” in the coverage, but frequently these are not as great as the gaps and holes left by a Health Savings Account, depending on the plan structure.

Critical Illness and Accident Coverage

In addition to GAP plans, many employers also provide a low-benefit ($5,000 to $10,000) critical illness policy pays a lump sum upon diagnosis of cancer, heart attack, stroke, Alzheimer’s, etc. This provides the insured cash for expenses and treatments before the HDHP benefits begin. Accident coverage also provider’s first dollar benefits to the insured for medical expenses related to accidents. With employer funding, all these options should be economical and guaranteed issue, frequently with no pre-existing conditions clause.

There are several pitfalls to this option that should be considered:

• Gaps and holes will remain in the coverage; even though these may be less than in an employee funded Health Savings Account.
• Most supplemental carriers pay off of the major medical EOB. This may put the insured in a position of having to pay up front, and then be reimbursed.

Advantages to this approach are:

• The initial and obvious benefit of this option is greater employer and employee choice. It is no panacea for the cost problems facing the health insurance industry, but it does provide a different approach to be considered and analyzed.
• If medical costs continue to rise and the employer needs to shift costs to employees, the supplemental products can be converted to voluntary products.

Computerized Comparison of Alternatives

There are spreadsheet programs that are quite valuable in helping brokers and employers analyze alternatives. These display the current plan, the renewal quote and the new HDHP option and calculate the projected savings to both employer and employee. Then the supplemental costs and benefits are added to demonstrate which options are most cost efficient and which options provide the greatest benefits.