Published on : January 15, 2014
Is There a Future for Voluntary Medical Benefit Plans in the Post ACA Era?
Is there a future for voluntary medical benefit plans in the post Affordable Care Act (ACA) era? Will employees use their disposable income to buy these benefits? Will employers make these benefits available to their employees? These questions and many more remain unanswered. The answers will unfold in the months and years to come. Many competitive forces and political changes will occur that will shape these answers. So how is one to predict a bright or gloomy future for voluntary medical benefit plans?
I believe there are two schools of thought. One is a bright future for voluntary medical plans and the other is a gloomy and uncertain future for these plans. Which is more likely to happen? No one iscertain but I will present both schools of thought and why I think one will prevail over the other. Let us first be optimistic and look at a potential bright future for voluntary medical benefit plans. In this scenario, the future is filled with many plans and withnew innovative benefits. As we know, Obamacare has eliminated “mini-med plans.” Many thought these plans would be spared when President Obama recently put forth a new Keep Your Health Plan Act of 2013. It appeared that this Act was designed specifically for mini-med plans and the thousands and thousands of employees currently enrolled in these plans. However, as it turned out they specifically excluded grandfathered mini-med plans sponsored by employers. As a result thousands and thousands of employees, mostly part time employees, where excluded from keeping their plan. Insurance carriers, TPAs, consultants and administrators are scrambling to design, create and implement new products to replace the mini-med plan. Some of these new plans meet ACA requirements while others do not.
ACA has created anew market in the voluntary medical benefits arena. Some carriers are exploiting this new market while others are waiting to see how the market expands or contracts before jumping in. Somecarriers are reintroducing fixedbenefit plans. These plans provide a fixed dollar amount forthe most commonly used benefits: office visits, hospital stays, surgical procedures, x-ray and lab, accident coverage, emergency room and in some cases prescription drug coverage. These plans do not meet the minimum essential benefits or individual mandate criteria put forth by ACA. However, employees, employers, brokers/consultants and administrators believe there are a large number of Americans that will choose not to buy health insurance via the State or Federal Marketplace. Instead they will buy a fixed benefit plan and willingly pay a nominal tax/penalty ($95 in year one). Again, these plans provide limited benefits but for many Americans these plans work well. The price point is very attractive especially to part-time employees who may be earning minimum wage and cannot afford an ACA compliant plan even after subsidies. Employees enrolled in these plans also enjoy the benefit of payroll deduction, a very convenient feature of these voluntary plans as compared to the individual Marketplace plan that requires a credit card or automatic checking withdrawal. I will not comment on the Federal government Marketplace website as I believe we all know what an unusually large undertaking it is for the government to produce an education and enrollment system within 18 months. It has taken the private sector many years to develop, fine tune andperfect their various systems. However, I would be remiss if I did not mention the slow start to the enrollment season for State and FederalMarketplace.
Voluntary medical benefit plans will not only be attractive as an alternative to ACA compliant plans but I believe they will be very attractive as a supplement to these plans. So what does this mean? Employees enrolled in an ACA compliant plan, or in their employer, sponsored health plan will still see the value in buying a voluntary fixed benefit plan. There is an enormous groundswell towards high deductible health plans. Many employers large and small have migrated to these plans and most of the State and Federal marketplace plans in the bronze and silver categories have a high deductible. Voluntary benefit plans can be used to offset a high deductible making it a perfect supplement to Marketplace plans and/or employer-sponsored health plans. At the very least, hospital indemnity plans will become very popular in the post ACA era. A hospital indemnity plan is very inexpensive, usually between $3-6/week for a $1000 hospital benefit plus $100 a day. For example, if hospitalized for 5 days this benefit would pay $1000 lump sum up front and $100 a day for 5 days or total of $1,500 dollars. This money could be used to offset the hospital expenses that would accumulate toward a high deductible thus reducing out-of-pocket expenses. This plan would appeal to all demographics. All Americans: young and old, single and family, male and female who would be benefit from offsetting their deductible expense. This type of hospital plan is a perfect fit. In my estimation, the eligible population for these plans include: part time employees, full-time employees that prefer to pay tax/penalty instead of buying an ACA compliant health plan, and full-time or part-time employees that buy an ACAcompliant health plan or remain on their employer sponsored plan but want to supplement their benefits with a fixed benefit plan. When we consider all these eligible populations, the future is bright for voluntary limited medical benefit plans. Some carriers have gotten even more creative and developed voluntary medical benefit plans to compete with ACA compliant plans. These “first to market” plans are at 50% actuarial value that makesthem less expensive than the least expensive Marketplace bronzeplan, which is at 60%ofactuarial value. Most insurance carriers offer this type of plan on a self-funded basis, which is not always attractive to employers. However, some carriers entering the market will offer such an arrangement on a fully insured basis, which I believe, will be very attractive to employers. The introduction of these new products is very exciting and I expect them to be well received by the voluntary benefits marketplace. These products and others will continue to evolve and meet the needs and demands of this new and ever changing marketplace.
Now let's talk about the other school of thought, the one that says the future for voluntary medical plansis not so bright in fact,it is gloomy and dark. Let's examine what maybe a dying market in the voluntary space. No one knows for sure what the future will hold but I think it is important to look at, evaluate and at least consider this potential outcome. Some say the mini-med plan is dead. Obama killed it and there is no future for voluntary medical benefits. Some sayvoluntary benefit plans were only designed for a limited and inconsequential population and now all of these plans are sun setting. In fact, if a plan renewed in 2013 and it is grandfathered it can be extend toits next renewal in 2014 but not beyond that point. So what is to become of these voluntary medical plans known as mini-med plans? Will they die a natural death? Under Obamacare, Americans are encouraged to go online and sign upfor health insurancevia State of Federal Marketplace. We are warned to getinsurance now otherwise there will be tax consequences/penalties to pay. The penalty is $95 in year one but this penalty will increase in future years. There are subsidies to be had for those thatqualify. These subsidies will help offset some of the premium. There are some that say health insurance premium is such a big expense for many Americans and after they are done paying this premium for an ACA compliant plan there will be nothing left over to buy additional voluntary benefits. Others saybuying additional voluntary benefits to offset a high deductible is counterproductive. The reason one buys a high deductible planis to reduce premium and buying additional insurance to offset the deductible, in theory, defeats the original reason for buying a high deductible plan. Some employers will say that although voluntary benefits do not rely on employer contributions there are some soft costs associated with implementing and administering voluntary benefits plants. This is true. There are eligibility files and payroll deductions slots that need to be created and maintained,as well as administrative costs associated with overseeing the management of the plan. Some employers say voluntary medical benefit plans can mislead employees to think they are buying a traditional medical insurance plan. Then at time of claim, the employee is disappointed to learn that the plan is limited in scope and payment. These issues need to be considered regardless of whether they are real or perceived. They need to be examinedand addressed when evaluating a voluntary limited benefit plan.
So I ask you,which school of thought do you subscribe to? Do you believe the future for voluntary medical benefit plans is bright and sunny? Do you believe employers and employees will see the value of these plans and enroll in these programs? Or do you believe employees do not have enough disposable income to support a voluntary benefits program. Which one is correct? No one really knows for sure. As I mentioned earlier, the answers will play out in the months and years to come. Political changes, new products and new laws will all influence the future of voluntary medical benefit plans. We as employers, employees, providers, carriers, consumers and brokers/consultants will all have a hand in shaping the future of these plans. Will they flourish in a new era or will they become extinct like dinosaurs only to be studied in the classroom and remembered for what they used to be. I believethese plans have a bright future. They may not be for everyone but for many Americans these plans provide a great value.They provide flexibility to address various needs of a diverse employee population. Instead of one-plan fits all, voluntary benefits can be tailored to meet the individual needs of many. They will evolve and will continue to be part of the solution to the American healthcare crisis. I believe strongly that these plans as well as new ones yet to be developed will be a critical component to the evolution of our healthcare system. The voluntary market is alive and well and will continue to flourish in the coming years.