New details have emerged regarding health care reform’s effect on limited medical plans, thanks to recent guidance on the Patient Protection & Affordable Care Act (PPACA) and its application to non-grandfathered and grandfathered plans. And while the guidance certainly spells progress in terms of understanding what clients can and cannot utilize, many questions may still arise in the months ahead about which plans will be viable – and legal.

The PPACA mandated that group health plans, even those that have been grandfathered, will have to meet new requirements on or after Sept. 23, 2010. Plans subject that will be subject to these new regulations include:

  • All limited medical plans that were considered “group health insurance plans”
  • Plans that issued letters of creditable coverage under HIPAA
  • Plans identified as limited major medical plans that function similarly to traditional group plans, with copayments, deductibles, co-insurance, and an annual overall maximum or a separate inpatient/outpatient maximum

And while the legislation originally stated the group health plans could not include lifetime or annual limits, new guidance from the Department of Health and Human Services (HHS) states that limited medical plans with annual limits will be allowed to apply for a waiver from these regulations if they can demonstrate that removing these limits will significantly decrease access to benefits or significantly increase premiums. HHS provide more guidance in the near future regarding the conditions and the process for applying for a waiver.

Limited medical plan types and repercussions

There are two styles of limited benefit plans within the limited medical industry:

  1. Co-insurance (sometimes referred to as “copay-based” or “expense-incurred”)
  2. Indemnity-based (sometimes called “fixed indemnity”) insurance

Fixed indemnity-style limited medical plans that do not issue creditable coverage letters or represent themselves as a true group health insurance plan are exempt from the new regulations because they are filed as supplemental and not subject to these new regulations, as opposed to the co-insurance-based limited medical plans, which are subject to regulations.

This new guidance means that expense-incurred plans aren’t necessarily outlawed if the carrier (or employer, on a self-funded plan) applies for and is granted a waiver by the federal government. More guidance is needed to better understand the ramifications of this, and there is a 60-day comment period, so additional information will probably arrive in late August.

What does this mean for me?

What does this mean for agents with groups renewing this fall or on Jan. 1, 2011? If groups and their agents want to wait on answers from the government, then they certainly have that option. One thing we are certain of today, however, is that fixed indemnity plans are already exempt from this legislation. Brokers and employers who want a rate-stable limited medical plan have access to them today.

This legislation is not the knockout punch to the limited medical industry that some had expected, but it is not necessarily a solution, either. Once again, we need more guidance, and more time will go by as we wait on the government to provide more details. Fixed indemnity limited medical plans are as viable today as they were before this most recent guidance from HHS. Why? What are the guarantees that carriers will be able to meet the criteria after the waiver is further explained? Do mandatory loss ratios in the 80 percent range still apply? What effect do the other rule changes (increased dependent age, etc.) have on pricing? Will carriers still be able to pay commissions, provide communication and call center services, and pay claims while being profitable at the same time? Or, will they pull out of the business after the new regulations and government pressures drive all profitability out of the book of business? There are no guarantees that carriers will stay in the market after the government more clearly defines what is needed to qualify for a waiver. Some carriers have already pulled out of the market after deciding to invest and grow their business in other directions. Will there be enough profit left in these plans for the carriers to stay committed?

There are still many questions that need to be answered, and renewals are still coming. And is waiting on the government the best strategy or a strategy designed to fail?

John Conkling is vice president of national accounts for Fringe Benefit Group. He can be reached at jconkling@frameworkhealthplan.com or 512-233-1868.