Affordable health care Featured

8:00pm EDT October 26, 2007

As employers continue to struggle with escalating health care costs, the practice of offering mini medical health

plans is gaining momentum. Also known as limited benefit plans, mini medical plans charge individuals as little as $50 per month for routine medical care.

“Mini medical plans are generally significantly cheaper than individual plans because employers are in a better position to negotiate group rates with insurance companies, whereas individuals cannot,” says Stephen J. Peck, president of Kapnick Insurance Group’s Benefits Division.

Smart Business spoke with Peck about mini medical plans, how they can benefit employees and employers alike, and what considerations should be taken into account prior to launching a mini medical plan.

What are mini medical plans?

Mini medical coverage is essentially a limited health plan designed to replace major medical coverage for those individuals who would not normally be able to afford their employer’s insurance. Though mini medical plans provide coverage, it is very limited to routine medical visits and prescription drugs. In the event that the employee needs coverage for a major medical event, this would most likely not be covered. Also, mental health coverage is typically not covered.

However, the Business Journal reports that almost 95 percent of Americans do not accrue more than $1,000 in medical costs on an annual basis, so this plan may be ideal for a large majority of the population.

How can employers benefit from mini medical plans?

These plans were once only attractive to small businesses with only a few employees. However, large retailers, employers with lengthy waiting periods and employers with high fully insured deductibles are now opting for these benefits for several reasons. First, employers do not need to contribute to the plan in order to offer it. Secondly, participation level requirements are significantly lower than typical major medical plans, generally only 25 percent. Employers also have an edge on their competition with regards to recruiting qualified employees. Companies that offer these plans appear more attractive to hardworking, devoted employees versus another company without this coverage option or no coverage at all.

How do employees benefit from mini medical plans?

Employees benefit immensely from these plans, as most that enroll have never had the opportunity to purchase health insurance before. With these plans, employees have access to doctors and can pay for prescription drugs. For many, this is the only way that they would be able to afford these necessities to remain healthy. Since the plans are so economical, it only makes sense for employees to obtain this type of coverage. For instance, for $50 per month, an employee can purchase a $95 monthly prescription for a $10 co-pay, saving the individual $35 per month.

In addition, these plans are also extremely beneficial for employees subject to waiting periods before coverage will kick in with their employers. By allowing employees to have coverage right away, albeit a bit less than a normal plan, they at least have some coverage to tide them over until their major medical plan begins.

What factors should be taken into consideration before introducing a mini medical plan?

Although these plans appear to be a great option for those that could not otherwise afford health insurance, there are several downfalls that employers and employees must take into account. First, employers typically do not contribute to these plans, unlike the 50 to 100 percent contributions often made to traditional major medical plans.

Secondly, employees who do face major medical bills because of an injury or illness will accrue expensive hospital bills without coverage. Though the policy may cover $500 in prescription drugs and routine doctor bills, it may only cover $300 of the hospital costs. Even if the employee does not face major medical problems, these plans typically have a cap that is fairly low. If the individual has a series of routine doctor visits, the plan will not exceed coverage beyond the cap for any reason.

Employees also can run into problems when applying for traditional coverage later down the line. Since they were not covered under a traditional plan, many carriers will not recognize mini medical plans as credible coverage. Thus, the employee appears as though he or she has not been covered, which may lead to no coverage for a pre-existing condition. In addition to these concerns, mini medical coverage is also not recognized as HIPAA-credible coverage.

Finally, many of these plans have preexisting condition clauses in place. Although these plans are beneficial to employers because they are protected from rate increases, employees may cancel their plans after getting denied claims.

STEPHEN J. PECK is president of Kapnick Benefit Services. Reach him at Steve.Peck@kapnick.com or (888) 263-4656 ext. 1147.