How to offset escalating health care costs with gap insurance

Escalating health care costs continue to be an issue for employers of all sizes in all industries. Higher out-of-pocket costs for employees in the form of deductibles, copayments and premium contributions are inevitable.

“Gap insurance is proving to be a tried-and-true solution,” says Amy Broadbent, vice president of Client Services at JRG Advisors.

“This coverage is not new but it is gaining popularity as a solution to offset out-of-pockets costs,” Broadbent says. “Traditional gap plans are structured much like an old-fashioned major medical plan, paying expenses up to an annual maximum, which typically coincides with the benefit plan’s deductible.”

Smart Business spoke with Broadbent about the benefits of gap insurance and how to successfully implement it.

Why is gap insurance becoming more popular?

The Affordable Care Act outlines what employers are required to offer in terms of essential health coverage, which includes four plan design levels — platinum, gold, silver and bronze. Each plan requires higher cost-shifting to participants, with the lowest level (the bronze level) plans shifting as much as 40 percent of total costs to the participant.

Many employees today are now responsible for a portion of their health care costs. They may be responsible for meeting a deductible before their health insurance kicks in, or covering copays and coinsurance out of their own pocket. These expenses may cause concern among employees. This is where a well-designed gap plan comes into play.

How does the coverage typically work?

Gap insurance can help guard against financial risk, by reimbursing certain out-of-pocket medical expenses for inpatient and outpatient benefits. Coverage can be designed to provide a first dollar benefit that fills the gap if a covered event, such as a hospitalization, occurs.

It is important to note that gap coverage does not replace health insurance but rather helps fill the gaps and offset medical expenses that may occur.

By providing benefits for unexpected events, the plan design can diminish the financial impact of a high deductible. The goal is not to cover every gap, but to cover those that may have a larger and more immediate impact on participants. In today’s economic climate, this is a meaningful benefit to employees who may not have savings or funds readily available to cover their otherwise out-of-pocket health care expenses.

Coverage can be designed to retain some of the out-of-pocket costs for the participant. This can help reinforce the cost-containment aspects of the high deductible plan and be provided only for non-elective events. The value in this approach is twofold — the premium of the gap plan will be lower since it does not include coverage for elective services; and by not covering elective services, the plan encourages consumer-driven attitudes with participants.

What’s important to know about submitting claims?

Claims submission is a simple process. Upon receiving a service that is covered under the policy, the participant submits an Explanation of Benefits from the medical insurance company showing the expenses — deductibles, coinsurance and/or copayments — they are responsible for paying out-of-pocket.

Participants can choose if the claim is paid to the insured (reimbursed directly from the gap insurer), or if they wish to have payment go directly to the provider (they can request to have benefits assigned this way at the time of service from the provider).

Premium efficiency is the key to a successful gap strategy. Ideally, the combined cost of the higher deductible medical plan and the gap insurance is equal to or less than the renewal offer on a lower deductible plan.

Talk with your advisor to determine if gap is a solution for you.

Insights Employee Benefits is brought to you by JRG Advisors