April/May 2009



By Jim Kirke, Director of Sales for National Accounts, Fringe Benefit Group

There are basically two types of limited medical benefits: co-insurance and indemnity-based insurance. In some cases, people are mixing the two, but all limited medical plans are made up of these types of benefits. This is quite interesting because we begin to enter into an area in which people have strong biases.
     Approximate weekly rates for an indemnity-based plan: 

Employee $25.23
Employee + Child $45.31
Employee + Spouse $62.93
Family $68.47

     Overall, people like several things about indemnity- based limited medical plans: 

1. Small Group Availability –  Many indemnitybased plans will write down to five lives (and some plans will even write fewer than five). 
2. Flexibility –  Several ways to create a plan  a.  Pricing and commission b.  Plan design – Lots of options to meet client needs and price points, lowest-cost plans in the marketplace today are indemnity based. c.  No steerage – Benefits pay the same whether in or out of network, allowing employers with disparate populations to provide a similar benefit to all employees. Employees are free to choose any provider.
   
3. Simplicity –  Benefits are easy to understand.
   
4. Stability –  Indemnity-based plans are much less affected by trend costs, both medical and inflationary.
   

     What are some of the cons of indemnity-based limited medical plans?

1. Some brokers/consultants/HR managers won’t look at them because they believe if it does not have a copay, then it won’t work in their population.
2. They pay a specified sum, regardless of the actual cost of the good or service.
   
3. It is difficult to analyze when compared with co-insurance based plans. Even though the benefits in an indemnity plan may be greater, comparing the two on a spreadsheet is problematic.
   

     Approximate weekly costs for co-insurance based plan: 

Employee $20.92
Employee plus one $53.13
Employee plus family $75.59

     People like several things about co-insurance based limited medical plan styles.

1. First and foremost, it looks and feels like a plan they are accustomed to utilizing. People feel comfortable explaining the benefits, and many HR professionals like the look and feel of a co-insurance plan.
2. Several co-insurance based plans are tied to or owned by large health insurance carriers.
   
3. In catastrophic claims scenarios, co-insurance based plans can provide more coverage. The perception sometimes is that they always do.
   
4. Certificates of creditable coverage.
   
5. Wider acceptance in state departments of insurance.
   

     There are also several reasons brokers and benefits professionals do not like co-insurance based limited medical plans.

1. Plans can be confusing for employees to understand.
2. Outside of network coverage gets less benefit.
   
3. Carriers are tied to or owned by large health insurance carriers.
   
4. Inflationary pressure and medical trends affect plans.
   
5. Underwriting can be more complex.
   

     Regardless of where your preferences may lie, the current economic situation combined with the rising cost of health care (and therefore health insurance) that we have experienced over the last 10 years provide ripe opportunity for executives and benefits professionals to better understand the entire limited medical landscape.