Recently I have seen a surge in customers that have limited benefit indemnity plans. Many times these plans are pieced together with several policies to create a “health insurance package”. In most cases, the indemnity insurer has contracted with a large insurer to use their network of doctors further confusing the customer. Plan names like Cigna PPO and Aetna PPO often contribute to the belief that the consumer is purchasing a full coverage health insurance policy from Cigna or some other reputable insurance company. Often times the consumer can use the large insurer’s network of doctors but has a plan made up of several supplemental policies designed to pay a set dollar amount for various medical occurrences. One popular plan even has a rider that allows the insured to purchase a short-term health policy in the event of an illness. Often times people don’t realize that no profitable company is going to just let you sign-up so they can start paying your medical bills. There is typically a huge premium increase for those that exercise this option. So the question is why do some choose this option? Many times it’s a misunderstanding of how the benefits work. Fast-talking salesman constantly circling around to the benefits (cost, network, etc) have made these plans huge money makers for their companies and reps. With the Trump administrations loosening of the Affordable Care Act laws you’ll likely see more options like these in the future. I for one agree that consumers should have more options, but it’s important to know what you are buying. Here’s a little background on limited benefit indemnity plans.
The U.S. Court of Appeals for the District of Columbia Circuit overturned a 2014 Health and Human Services rule restricting the sale of fixed-indemnity insurance plans that pay policyholders fixed dollar amounts to cover medical services regardless of how much the provider bills are. These plans, that are cheaper to purchase than comprehensive plans but exclude pre-existing conditions, do not conform to Affordable Care Act standards. HHS had allowed the purchase of such indemnity plans to those who also had plans that complied with the ACA’s minimum essential protection standard. It also had mandated that insurers completely inform people that these plans weren’t an alternative for comprehensive protection and would keep them exposed to the ACA’s income tax penalty. However, a federal judge eventually blocked the ACA coverage requirement, calling the HHS guideline “administrative overreach.” Nevertheless, the judge did not toss out the rule needing indemnity insurers to notify customers about the restrictions regarding the protection and their liability when it comes to ACA income tax penalty. It is estimated that up to 4 million people now have fixed-indemnity policies without accompanying comprehensive protection.
Many industry officials are concerned about the purchase of these plans because they provide skimpy coverage and might be sucking younger, healthier customers out of comprehensive insurance coverage created by the ACA, hence driving up premiums. It’s likely though that many customers hardly comprehend the limits in fixed-indemnity plans, such as pre-existing condition exclusions, payment limitations and no guarantee of renewal. They only learn the limitations when they need healthcare and face big bills.
Another concern is the fact that fixed-indemnity plans aren’t subject to ACA guidelines on minimal medical loss ratios and they yield high profits for insurers because they spend relatively small amounts on claims. The average loss ratio in 2015 for non-comprehensive medical plans was 58.8%, according to a written report through the National Association of Insurance Commissioners. It’s a line of business that has very high payouts for insurers and agents and low payout for consumers.