Discount medical plan organizations (DMPOs) are something that insurance professionals are encountering in the marketplace and sometimes in the questions of their customers. But what are DMPOs and what should the professional know about them?
A comment by veteran television newscaster Dan Rather is apropos here. When giving courtroom testimony some years ago, he said (and I am paraphrasing): If it has feathers like a duck, quacks like a duck and waddles like a duck, then it’s probably safe to say it is a duck.
This applies to DMPOs in the opposite: While a DMPO may remind a consumer of a medical or life insurance plan, in fact, it is not insurance.
Instead, in return for a monthly membership fee, the DMPO provides discounts for services rendered to the member. The medical providers include physicians, chiropractors, dentists, long term care facilities, hospitals, optometrists, and pharmacies–all of whom sign an agreement with the DMPO to provide the service to DMPO members at a discount.
The DMPO member is free to choose any service provider on the DMPO list. The DMPO does not direct members to any particular provider, nor pay for the service or reimburse the member for the cost. Membership in the DMPO only entitles the member to a discount.
The key: The member is responsible for paying the cost of any services.
A person who applies to be a member does not have to provide medical information. Again, since this is not insurance, the member’s health is not a consideration.
The DMPO contracts with individuals, groups and institutions to sell memberships. For example, credit card issuers and banks may have marketing agreements with a DMPO. Much of the marketing is done by direct mail and telephone solicitation, and, like any solicitation, if not done properly, has the potential for abuse.
To help ensure the integrity of the program, a DMPO may require telephone confirmation by the consumer to computer questions. But, even that is not free from potential abuse (e.g., the salesperson may dial the telephone, and prompt the consumer as to what to say and when).
There are some things that insurance professionals will want to keep in mind when encountering consumers who have DMPO memberships or who may be considering the DMPO as a supplement to traditional medical insurance.
First, since a DMPO provides benefits that relate to services for which insurance exists, it is easy for a consumer to confuse the two. The customer needs to be reminded that these plans are not a substitute or replacement for medical insurance coverage. Advisors need to dispel any perception that this is a way to pay for the underlying medical service.
Second, it is good to position such plans as a way to help reduce the costs a customer incurs for services covered by the plans. For example, some costs are not covered by traditional insurance, such as high deductibles. The customer can use the DMPO to help pay those costs.
Third, since this is a relatively new type of marketing organization, and insurance in fact is not being sold, the states have been slow to regulate DMPOs. (About 8 states currently require annual registration for DMPOs, and they may also regulate rates, advertising and refund rules.) By comparison, medical insurance plans are highly regulated.
Fourth, in view of the ever-increasing cost of medical, dental and similar benefits, DMPOs may well proliferate, provided they do not get a bad reputation. Consumers who have limited amounts of traditional medical insurance may view the low up-front cost of membership and the discounted cost of service, when needed, as a way to fill in gaps. Advisors may wish to factor this into their discussions with customers, as the situation dictates.
About the reputation issue, it should be noted that this industry is making efforts at self-regulation, as has occurred in the life insurance industry (e.g., the Insurance Marketplace Standards Association, or IMSA, whose members meet high standards for marketing specified product lines, such as individual life insurance). Self-regulation may be as successful in this new industry as it has been elsewhere.
Since the DMPO industry is relatively new, there will be a shake-out period, as in any other such industry. Still, given the continuing need for medical care and the rising costs of that care, there will be demand to use such discounts in tandem with insurance–especially high deductible medical insurance plans.
Therefore, expect to see continuing efforts by marketers to expand the reach of DMPOs. Along with that effort, also expect regulators to pay more attention to these plans. In both cases, the consumer should benefit. The fewer problems that consumers have with plans like this, the more opportunity advisors will have to speak to them about their basic underlying insurance needs–which will always be there.