U.S. workers can buy dental insurance, critical illness insurance, limited-benefit medical insurance and even pet health insurance through the worksite.
So far, however, regulatory barriers and liability concerns have kept individual major medical insurance off the menu at most employers, including those that offer no group coverage.
Many consumer groups, insurers and benefits producers say restricting or banning voluntary major medical insurance programs is vital to protecting the small group health insurance market from adverse selection.
“If the regulations make it easy and tax-efficient for employees to purchase individual policies through pre-tax payroll deduction, all of the healthy employees would do so leaving only the sick in the employer’s group plan,” says Brian Urban, a financial planner in the Omaha, Neb., office of AXA Advisors. “This would lead to a death spiral of the group plan.”
Some brokers, economists and others would like to see the government give worksite major medical plans a chance.
J.P. Wieske, state affairs director at the Council for Affordable Health Insurance, Arlington, Va., argues in a recent CAHI commentary that the government should let workers escape from the damage that ill-conceived reforms have done to the small group market.
The individual market “still manages to function pretty well in most states, providing lots of policies and a wide range of policies,” Wieske writes.
Officials trying to evaluate the issue from a neutral perspective say they are not sure how to do so.
Officials serving on a Maryland Health Care Commission reported in 2004 that it could find virtually no data on “list bill” arrangements, the most common vehicle for making individual health coverage available at the worksite.
“It is challenging to conclusively determine if there are any impacts, either positive or negative, of these list-billing arrangements,” Maryland officials write.
To many employers, the idea of simply giving employees cash and letting them buy their own coverage seems to be an obvious response to rising group health prices.
When United Benefit Advisors L.L.C., Indianapolis, a broker consortium, commissioned a survey of 1,094 employers with fewer than 1,000 employees, the survey team asked the employers about their views on likely future trends.
The prediction that “costs will shift more to employees” came in first, but the second-most popular prediction was that the group health market will see “a move to individual coverage coupled with health savings accounts or health reimbursement accounts.”
Workers have been using pre-tax contributions to Section 125 plans to buy individual life and disability insurance through the worksite for decades, and workers also can buy hospital indemnity or limited-benefit “mini med” plans through the worksite, often on a guaranteed issue or simplified underwriting basis. Hospital indemnity products account for about 15% of worksite supplemental insurance sales, according to Eastbridge Consulting Group Inc., Avon, Conn.
United Group Programs Inc., Boca Raton, Fla., for example, sells a “mini med” plan that offers a $100,000 annual maximum. That limit is $25,000 higher than the annual maximum for the California major medical risk pool.
Buying true group coverage may be more efficient than buying individual coverage through the worksite, and some consumer groups criticize the quality of typical individual health insurance plans.
Jennifer Wenke, a Fort Myers, Fla., health insurance agent who is president of the Southwest Florida Association of Health Underwriters, says she sees many practical obstacles to running voluntary health insurance programs.
“Not every individual will be approved,” Wenke says. “Many will be declined or ridered due to medical history, or have surcharge due to tobacco use. This results in some employees being able to access medical insurance, and some not.”
The employees who do qualify for individual coverage could end up facing large rate increases once rate guarantee periods expire, Wenke says.
But health policy experts interviewed say the main reason voluntary mini med plans are widely available and voluntary major medical plans are not is the Health Insurance Portability and Accountability Act of 1996.
The authors of HIPAA decided to require insurers to issue coverage to any small group and renew coverage for any small group, no matter how bad that group’s experience might be.
In theory, insurers could develop individual worksite health insurance products that would meet the HIPAA small group requirements. In the real world, the high cost of complying with HIPAA gives small employers with young, healthy employees a financial incentive to buy ordinary individual products that are not subject to the HIPAA requirements, producers interviewed say.