Limited-Benefits Plans Poised for Expansion, Greater Debate

Limited-benefit health plans have been around for almost two decades, but they have mostly remained on the fringes, with barely a million enrollees throughout the U.S. But two recent watershed events–Aetna’s acquisition of Strategic Resource Co., one of the pioneers of limited-benefit health plans, and a groundbreaking insurance initiative sponsored by the HR Policy Association–could bring these low-cost insurance products out of the shadows.

   “Limited-benefit health plans gained instant credibility when Aetna got into the game last year and have gathered even more momentum with the HR Policy Association’s program,” says Ben Rozum, senior vice president of sales at Phoenix-based Star HRG, one of the largest providers of limited-benefit medical plans in the country. He predicts the industry will experience double-digit rates of growth in the years to come.

   The expansion of limited-benefit health plans, which cover routine medical visits but not catastrophic health events, is being met with heated debate.

   “There are two ways of looking at limited-benefit health plans,” says John McDonough, executive director of Healthcare for All, a Boston-based grass-roots organization. “If they are being put in place where there was nothing before, then one could argue that there is an improvement, but if they are being rolled out to substitute comprehensive insurance, then there is a significant step backwards.”

   Until recently, these plans have been offered predominantly to contract employees and part-time workers. But as they generate media buzz and more employers feel financial pressures, they are beginning to trickle into the mainstream workforce as well.

   A burgeoning number of companies are supplanting conventional health insurance with limited-benefit plans, including Ratner Cos., the owner of several hair salon chains. The company, which employs about 13,000 people, decided to replace its HMO policy with a limited-benefit health program to stem dramatic cost increases, says Candice Mendenhall, senior vice president of human resources. Ratner pays the insurance premiums, but since limited-benefit programs have fixed expenses, the company has an easier time planning its budget.

Double-edged sword
   Enrollees in limited-benefit plans pay low premiums, sometimes as little as $28 per month, Rozum says. By contrast, the monthly premiums for traditional health plans run about $307, according to the Kaiser Family Foundation.

   There is, however, a significant catch to limited-benefit plans: If enrollees suffer a catastrophic medical event, they are financially on their own. These programs have low liability caps, usually maxing out at $10,000. Limited-benefit health plans are designed primarily for routine doctor consultations, typically covering no more than 10 visits per year.

   In spite of those risks to employees, companies are finding the plans attractive. Unlike conventional employer-sponsored programs and some consumer-driven health care products, limited-benefit health plans are not generally subsidized by companies. And even though employees bear all of the costs, companies can reap the benefits of bolstering employee recruitment and retention because, technically, they are offering an insurance program.

   Workers in high-turnover industries where benefits are scant, such as restaurants and retail, may be more open to accepting these plans. Limited-benefit health products may also appeal to employees who do not have health insurance at all–such as through a spouse or parent. Finally, faced with the option of losing all coverage because their employers can’t afford to extend insurance anymore, employees might see a limited-benefit plan as something that’s better than nothing.

Currently, there are more than 45 million uninsured individuals in the U.S. “Limited-benefit health plans provide peace of mind for those people who fall through the cracks.” –Ben Rozum, Star HRG

   However, there are segments of the workforce in which limited-benefit health programs could meet intense resistance–particularly among white-collar professionals or employees in high income brackets. “These plans are not a competitive benefit for companies trying to attract lawyers, for instance,” says Helen Darling, president of the Washington, D.C.-based National Business Group on Health.

Limited success
   Companies will have a tricky time getting large numbers of workers to buy into limited-benefit plans, regardless of employee type or industry.

   “If given the option, people gravitate to what they are familiar with. They tend to want access to the ‘real thing,’ ” says John Gabel, vice president at the Center for Studying Health System Change in Washington, D.C. Employees are very likely to respond to these plans with a healthy dose of confusion and skepticism. Unless there’s a comprehensive information campaign and hands-on support, expansion of the plans could stall.

   State governments have learned this lesson the tough way. None of the 30 states that have rolled out low-cost, bare-bones coverage–roughly resembling limited-benefit health plans–to uninsured individuals has been successful. Experts attribute their low participation rates in part to a lack of awareness and understanding about the programs among potential participants.

   The HR Policy Association–which is based in Washington, D.C., and includes high-profile employers like General Electric, IBM, Sears Holdings and Avon Products–is experiencing difficulties as well. It rolled out its program in mid-December, with the collaboration of UnitedHealth Group, Cigna and Humana. Under the program, limited-benefit health plans are offered to contract and part-time workers who lack insurance coverage. So far, 10 companies are actively participating in the coalition. Only 5,726 out of 909,000 eligible workers have signed up for the limited-benefit health programs being offered. The second phase of the program will be introduced in July, at which time more companies will be able to join.

   One reason for the low participation rates could be because up to 85 percent of employees in this pool already have coverage through other sources, such as an insured spouse, says Marisa Milton, spokeswoman for the association. Another potential reason for the lack of participation is the inherent difficulty in targeting and reaching this segment of the workforce, given their irregular work schedules.

   The HR Policy Association is analyzing data about its program and how it is being used. “We are looking to get better information so that we can target people better and meet their needs,” Milton says.

   One way to shed light on best practices may be to take a look at how Avon is handling its limited-benefit program. The company boasts 4,000, or 70 percent, of the total number of enrollees in the HR Policy Association’s program. Avon attributes its success to the multiple channels that it can use to connect with its sales representatives, a force of 500,000.

   The company is using targeted mail, e-mail, monthly meetings, posters and 800 numbers to raise awareness and educate representatives about the program, according to Michele Schneider, director of U.S. benefits. One key factor in its success is that all of Avon’s workforce is connected via e-mail. “This is a very powerful and consistent way to reach people,” Schneider says.

Not consumer plans
   There are those who worry that the initiative could be the beginning of a disturbing new trend. “I hope that the endeavors of the HR Policy Association won’t be used as a subterfuge to ultimately shift the cost of health care benefits onto the mainstream workforce,” McDonough says. Critics of limited-benefit health plans say that these programs would only help employers treat the symptoms of exorbitant health costs without addressing the root causes.

   Experts say that limited-benefit health plans do not foster careful and thoughtful consideration about health care planning among consumers. “Because they get the benefits upfront, there is no incentive for them to shop around for quality or value,” says Alexander Domaszewicz, consumer-driven health care expert at Mercer Human Resource Consulting in San Diego.

   Unlike consumer-driven plans, limited-benefit health programs do not have a purported agenda of creating informed consumers–individuals who have access to informational tools that allow them to make educated decisions, such as determining appropriateness of type of doctor.

   Health care experts stress the importance in differentiating limited-benefit health plans from consumer-driven plans. In contrast to limited plans, consumer-driven products provide coverage for big-ticket medical expenses, leaving enrollees to pick up the tab for routine care.

   But proponents of limited-benefit health plans say that, regardless of their drawbacks, they are one of the few ways for a large chunk of the population to access health care. Currently, there are more than 45 million uninsured individuals in the U.S. About one-third of those are eligible for Medicare and another third qualify for Medicaid, but the last third has no safety net, Rozum says. “Limited-benefit health plans provide peace of mind for those people who fall through the cracks,” he says.

   Proponents argue that limited-benefit health plans can help companies to reduce exorbitant health benefit prices. Employers have been pummeled with average cost increases of 12.4 percent for health care benefits over the past four years and are scrambling for ways tame costs.

   “There is no question the current system has its flaws.” Darling says. “The key for companies is finding a balance that is financially sensible without compromising the well-being of workers.”

Workforce Management, March 13, 2006, pp. 42-44 — Subscribe Now!