Business owners now have a low cost option available when considering benefits for their hourly employees.

Voluntary benefit packages are 100%paid by the employee with no employer contribution required. The plans are guaranteed issue, meaning there are no pre-existing condition limitations barring an applicant from policy acceptance. There are no deductibles, and unlike major medical insurance, voluntary limited benefit health plan premiums are not age banded.Employees pay the same monthly premium regardless of age or health.

The primary reason for evaluating one of these plans is, of course, the low monthly premium. Medical expense indemnity plans are offered by many “A” rated insurance carriers, such as Transamerica and Pan-American Life, and start as low as $9 per week (for a bare bones package).

The impact of this type of insurance strategy can prove substantial:

• Imagine the reduction in turnover if hourly employees feared a loss of benefits; and the advantage in recruiting full and part time help.
• Franchisors will have an opportunity to gain a competitive edge by adding a zero contribution benefit package to the service offerings sold to prospective Franchisees.
• Individual business owners who are uninsurable or can’t afford major medical insurance now have a low cost option for basic coverage.

Although the positive aspects of this approach are considerable, it is important to understand the negatives as well.

Major medical insurance is generally designed to pay expenses after a deductible, and many plans require an additional payment of up to 50% of the medical expenses after the deductible is satisfied. Limited benefit health insurance is just that…limited.

A fixed dollar amount is paid up front, based on a written fee schedule for doctor’s office visits, diagnostic tests, outpatient surgery, etc. If the provider charges more than the scheduled fee payment, the policyholder must pay the difference out of pocket; for example:

The limited benefit health plan pays $75 for a doctors office visit. The patient visits a specialist who charges $150.The patient will receive a bill for $75.

This difference is particularly acute in the event of a major hospitalization. The limited benefit plans pay a flat amount per day, however this amount can be cumulative due to the number of services on the fee schedule that are provided during a hospital stay; for example:

The plan pays $1000 per day for hospitalization, plus $75 for x-rays, plus $2500 for surgery, plus $500 for the anesthesiologist, etc.

The patient is responsible for amounts exceeding the scheduled payments.

Why assume this financial risk?

The weakness of major medical insurance plans is that they generally require deductibles and coinsurance. For many, the only way to afford a policy is to take on a huge deductible, which results in paying thousands of dollars per year in premiums and still having to pay out of pocket for doctor’s office visits, diagnostic and lab tests, etc., until the annual deductible is met.

The result is that individuals enrolled in PPO plans are visiting their doctor less often, and not scheduling wellness tests on a regular basis in order to save money.

Since limited benefit plans cover the first dollar with no deductible or coinsurance, policyholders can take advantage of discounted cash rates through the PPO network and be proactive with their preventive heath diagnostic exams. Early detection can potentially prevent a hospitalization and the inevitable financial disaster awaiting the uninsured.

What happens if you don’t get sick, but are injured in an accident, or have a stroke or heart attack?

A common strategy is to use a combination of a limited benefit health plan and an extremely high deductible major medical plan. These types of plans are called catastrophic health plans, and at the highest deductible level are very low priced. The result of this approach is that the policyholder receives financial assistance up front to the limits of the policy, then uses the catastrophic coverage if the expenses exceed the deductible amount. This limits the potential financial loss; for example:

Hospitalized 6 days, the total bill is $200,000.
The limited benefit plan pays $10,000 up front.
The catastrophic policy has a $25,000 deductible, covers 100% of costs, and has a policy limit of $6 million.
The total out of pocket exposure for the policy holder is $15,000 ($25,000 deductible less $10,000 benefit payment).

One caveat. Before this strategy is implemented, make sure that the catastrophic policy does not prohibit the use of secondary coverage to pay your deductible expenses.

This is an excellent way for married or domestic couples to lower their health insurance expenses. One partner buys the limited benefit family plan offered by their part time employer, the other partner increases the deductible on the family major medical plan in their salaried benefit package.

Limited benefit health plans are not the perfect solution, but can provide critical financial support when it is needed most. A $12/hour employee can not afford to miss a day of work while sitting in an urgent care waiting room, or the county medical clinic. Limited benefit health insurance gives lower wage workers access to private doctors and the facilities of their choice.

Carroll Hooks, JD is the President of Sunrise Financial Group, LLC. Please contact cjhooks@sunrisefinancialcorp.com for more information.