Insurance One Management, Inc.

Health Care Reform puts limits on Limited Benefit Plans (Mini-Med Plans):

In Health Care Reform on February 3, 2011 at 6:11 pm

Although limited benefit medical plans (also called “mini-medical” plans) have existed for nearly 30 years, healthcare reform is likely to bring about their demise by 2014, unless the law is changed or repealed. If your organization currently offers a limited benefit plan, here’s what you need to know now…and what to look for in 2014.

The Patient Protection and Affordable Care Act (PPACA) requires new or existing group health plans to provide minimum annual limits of at least $750,000 for “essential health benefits” in 2011.

The minimum limit increases to $1.25 million in 2012 and $2 million in 2013. For plan years beginning on or after January 1, 2014, group plans will no longer be able to put annual limits on essential health benefits.

By definition, limited benefit plans usually provide annual limits of much less than the new $750,000 threshold—sometimes as little as $2,000 per year. This means that limited benefit plans do not comply with the PPACA.

Limited benefit plans often offer lower-cost coverage to part-time workers, seasonal workers and volunteers who otherwise might not be able to afford coverage at all. For this reason, regulations implementing the PPACA allow waivers of the minimum annual limits requirement if compliance would “result in a significant decrease in access to benefits or a significant increase in premiums.” Health plans or insurers offering a limited benefit plan must apply to the U.S. Department of Health and Human Services for a waiver.  If your organization currently offers an insured limited benefit plan, your insurer has likely applied for a waiver. Waivers are good for one year, but will not be available for plans beginning after January 1, 2014.

When it receives waiver approval, a group health plan or health insurer must notify current and eligible members that their plan does not comply with the provisions of the Affordable Care Act. The Office of Consumer Information and Insurance Oversight (OCIIO) developed a model notice, which reads (in part) as follows:

The Affordable Care Act prohibits health plans from applying arbitrary dollar limits for coverage for key benefits. This year, if a plan applies a dollar limit on the coverage it provides for key benefits in a year, that limit must be at least $750,000.

Your health insurance coverage, offered by [name of group health plan or health insurance issuer], does not meet the minimum standards required by the Affordable Care Act described above. Instead, it puts an annual limit of: [dollar amount] on [all covered benefits] and/or [dollar amount(s)] on [which covered benefits – notice should describe all annual limits that apply].

In order to apply the lower limits described above, your health plan requested a waiver of the requirement that coverage for key benefits be at least $750,000 this year. That waiver was granted by the U.S. Department of Health and Human Services based on your health plan’s representation that providing $750,000 in coverage for key benefits this year would result in a significant increase in your premiums or a significant decrease in your access to benefits. This waiver is valid for one year.

If the lower limits are a concern, there may be other options for health care coverage available to you and your family members.

Other low-cost health options

Some employers that offered limited benefit plans in the past are switching to fixed indemnity plans on renewal. These plans qualify as a supplemental plan under healthcare reform—therefore, the minimum annual benefit limits under the PPACA do not apply.

For example, a hospital indemnity policy is a supplemental policy that pays cash benefits when the insured is hospitalized for a non-occupational injury or illness.

Unlike medical plans, which pay benefits according to expenses incurred, a hospital indemnity plan pays a flat benefit whenever the insured is hospitalized for a non-occupational injury or illness. Hospital indemnity plans may pay benefits on a per-confinement basis or a per diem basis. The first type pays a flat dollar amount for each hospital confinement, typically ranging from $1,000 to $2,000. Many plan sponsors select limits that correspond with deductibles on their major medical plan. The second type pays a fixed benefit for each day of hospitalization, usually about $100 per day. Each plan type has annual maximums.

Indemnity plans differ from major medical coverage in several ways. First, benefits go directly to the insured rather than the healthcare provider. The insured can use benefits however he chooses. The claim process for these policies is relatively simple—the insured simply provides proof of hospitalization, and the insurer will pay benefits. Under a major medical policy, insured individuals must file a claim with their insurer, which evaluates the claim to make sure it is covered, then makes payment directly to the healthcare provider as reimbursement. (Many providers will file a claim on behalf of the insured.)

Indemnity policies—like all supplemental policies—don’t replace major medical plans. They “wrap around” and complement basic health insurance.

If you are interested in providing lower-cost basic health insurance coverage to your employees, a high-deductible health plan linked to a health savings account (HSA) could offer a solution. High-deductible plans can provide coverage for catastrophic illness/accident, while workers can use funds in the linked HSA to pay for unreimbursed medical expenses.

Either the employer, the employee or both can make tax-exempt contributions to the HSA. However, the employee owns the HSA, so balances are fully portable. Balances can accumulate year to year indefinitely and tax-free.

You can further tailor your health benefit program by offering supplemental benefits to wrap around the basic health plan. These programs, such as hospital indemnity plans, pharmacy indemnity plans and others, can help bridge the gaps in high-deductible health plans. Many are available on a voluntary (employee-paid) basis. For more information on the many health benefit options available, please contact us.

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The information presented and conclusions within are based solely upon our best judgment and analysis.  It is not guaranteed information, but is intended to provide accurate and authoritative information in regard to the subject matter covered.  It does not necessarily reflect all available data, and is provided with the understanding that we are not rendering legal, accounting, or tax advice.  Any web links/addresses are current at time of publication but subject to change.  This material is being reproduced with the permission of the publisher via a paid subscription by Insurance One Management, Inc. dba Don Crawford & Associates, Midland, TX.

©2011 Smart’s Publishing – Employee Benefits Report – Volume 9, Number 2 – All Rights Reserved. – Website: http://www.smartspublishing.com

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  1. Although this is a reasonably good article (and one of the few) that discusses the different Limited Medical plans models. There are several inaccuracies within the article itself.
    Indemnity Plans Pay much higher (inpatient) day levels than implied, also most payment go directly to the provider NOT the insured. There are other smaller errors that I would be happy to point out and clarify. My firm has been in this professional space for over 12 years, we think we know this business pretty well and would be happy to share our knowledge.

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