The weight of years of double-digit medical inflation has impacted every aspect of health care in America, and none more than modern high-deductible health plan designs. Bit by bit, higher deductibles, greater co-insurance, and increased out-of-pocket (OOP) maximums have impacted our society in ways that are just now becoming clear. Fortunately, and somewhat ironically, relief may come in the form of simple plans from the days of old.
Harvard University recently conducted an extensive study on bankruptcy in America, and the results were somewhat shocking. In 2004, for example, over 550,000 families declared bankruptcy, citing unpaid medical bills as the chief reason. This may not be so surprising since we hear regularly about the 47 million chronically uninsured in this country.
The shock, however, comes when we discover that 74.7 percent of them -- nearly 3 out of 4 -- had health insurance at the time that the medical bills were created. Sadly, 87 percent of these could have been avoided with as little as $10,000 extra. Lowering deductibles and co-insurance levels drives up the premium, which is already out of reach for many, so the most obvious solution simply does not work.
Affordability
In today's health insurance world, the misunderstanding of true affordability may be the biggest single problem. Simply put, there are two costs associated with health care in America. The first is the cost of having health insurance. What do I have to pay in premium? The second is the cost when we use our policy. Unless a person can afford both, they cannot truly afford their current policy design and its OOP limits. Simply stated, a health policy that leaves your clients in financial tatters at claim time is not appropriate for them. Neither is one with a premium that exceeds a manageable limit.
What about critical illness plans?
There is no doubt that new critical illness plans have been helping in preparing for the ravages associated with heart attack, stroke, cancer, and numerous other devastating critical illness conditions, and they should play an important part in any proper health insurance program. Just don't make the mistake of assuming that they will provide sufficient protection for all contingencies. Many of the folks in our earlier example were bankrupted by conditions such as kidney stones, gall bladder, and appendectomy, with complications. In certain cases, even pneumonia or the flu can lead to extensive and expensive confinements. Designing a health program that will be sufficient for only limited catastrophic conditions simply leaves too many holes in your financial net. Just ask the 550,000 folks that made that mistake in 2001 alone.
Once upon a time...
Back in the day, the defined benefit (DB) health insurance plan was much simpler than today's major medical plans -- no cost-containment features such as deductibles and co-insurance; no "dollar trading" copays; simple plans that outlined what they would pay, and for, what and the premium (sometimes referred to as mini-med plans). Years of research, development, and medical breakthroughs proceeded to render these plans all but useless, abandoned in favor of comprehensive major medical plan designs. Back then, the consideration at hand was almost always about primary coverage -- either defined benefits or major medical. Now, the weight of inflation has proceeded to push major med out of the reach of many, with others clinging by their fingertips to high-deductible health plans (HDHPs) that may devastate them at claim time. What to do? The answer is seldom to switch back completely, despite certain advantages associated with DB plans, including affordability and rate stability. Many have the advantage of being able to select from the best of both worlds and secure an HDHP, which would have a much lower premium than more traditional major medical plan designs, and use the premium savings to purchase a DB supplement designed to provide substantial benefits for hospital confinement, often sufficient to significantly reduce and sometimes eliminate the OOP costs altogether.
As many are finding, the best "benefit-to-premium" ratio is not available in any single policy but can be achieved with a package of a modern HDHP supplemented with a DB plan. Several companies are actually retooling these older DB plans specifically for this purpose. This has resulted in products designed specifically to augment major medical plans, and mitigate the exposure from large hospital bills. Some actually provide benefits for conditions seldom covered by individually underwritten major medical, such as non-complicated maternity, and many feature streamlined critical illness plans for additional protection.
So how can this technique work?
There are many considerations that take place when pricing a major medical policy. Some, like the benefits themselves and the impact of claims, are simple and obvious. Others include the impact of cost containment, simply defined as a reluctance of the insured to undergo treatments of moderate severity based upon the cost to the insured. There is a universal truth that suggests that folks could care less how much their health insurance company pays for any given claim; what they care about is how much they will have to pay. The value of packaged selling is the result of a "base" major medical policy priced for a given level of exposure, with the negative effect of the cost containment element eliminated by replacing it with a specified benefit plan designed to target the hospitalization risk.
An added bonus comes with the fact that these DB plans are generally unaffected by inflation, so the overall premium becomes more cost stable as well.
Win-win situation
Agents who take the time to present and explain the merits of package selling to their clients are rewarded in many ways, the most obvious being that clients not bankrupted by their health plan tend to remain more loyal to their agent. Good will and stability create the fertile environment for the referrals that tend to be the backbone of most successful agents. Also, the immediate rewards are greater, as commissions on DB plans are usually significantly greater than major medical. We have many agents who fund productive lead programs solely from the proceeds generated by their DB supplements.
Watch for potholes in the programs
Many of the popular HDHPs sold today are specifically designed to be compatible with health savings accounts, and clients funding HSAs enjoy significant tax advantages, as well. Even clients with the financial resources to completely fund their HSA accounts often see merit in the selection of DB plans to hedge against the depletion of account funds in the event of a hospital confinement. The IRS has determined that HSA contributions may not be made while certain insurance benefits are in force. For this reason, it is important to select DB plans that do not contain features or benefits that violate the provisions of IRS Section 223.
Mike Benke is marketing director for Business Management Consultants Agency. He can be reached at 800-357-2342.
