Major Medical Insurance Vs. Supplemental Health

explain to insurance customers the difference between major medical and supplemental healthOne big misunderstanding health insurance clients have is the difference between major health insurance and supplemental policies. While there are some similarities, it is of great importance that agents stress to their customers or prospects the differences, so that there will be no confusion about what you are selling them.

If you work for a major health insurance company, such as Blue Cross/Blue Shield, it will be pretty simple to explain. As long as you know what your policies cover, you can just go over the coverage and then answer any questions prospects may have.

But if your company only sells supplemental policies, one of the most important points to stress is the fact that supplemental policies only cover specific illnesses, such as a heart attack, stroke, or cancer. Supplemental policies were meant to fill in the gaps left by major medical, and were not meant to be the only policy a person has.

Some people get confused and think their critical illness plan covers all hospital stays, doctors’ bills, and surgeries, when really all it is intended to cover is a specific illness and the complications that arise from that illness.

Here are a few points to keep in mind in an effort to keep the two types of insurance separate in the minds of clients:

1) Remind them that “major medical” refers to a comprehensive plan which includes doctor visits, tests, medications, and hospital stays and is meant to be a major plan to cover almost any condition. It also may pay up to 80% of costs, while supplemental plans may only pay in specific circumstances, or only pay a set lump sum.

2) Show clients the specific illnesses or benefits covered by supplemental insurance, and remind them these specific plans cover only related illnesses, situations, or conditions. The plan does NOT include tests, procedures, or anything else related to any OTHER illness. These are instead covered by major medical.

3) Advise clients to consider the likelihood of the specific illnesses before deciding whether to invest in a supplemental plan. Remind them that the best scenario is to have a major medical plan for most things that come up, and a supplemental one for specific illnesses that will pick up where their major plan leaves off.

4) Read the exemption clauses and know what illnesses either type of policy will NOT cover.

Finally, remind clients that, while there are some similarities between the major medical health insurance plans and supplemental policies, the best situation is to make sure there is a major plan in place first, then weigh the risks of a particular illness and purchase an additional plan to cover extra expenses.

One of the best aspects of having both major medical and supplemental health is that most supplemental plans will cover the specific illness in addition to what the major medical plan covers. Sometimes the supplemental plan will even pay benefits directly to the customer. Always read and explain the exact coverage to each client and remember that this will vary. But in general, both insurance plans will pay if the illness is covered under the supplemental plan.

Taking the extra time to explain these differences will save a lot of confusion and potential misunderstandings in the long run.

Continuing Education on Consumer Plans: The Future

By Cathy Miller, Business Writer 

This is the last in our 3-Part series on the consumer plans, the Health Savings Account (HSA) and Health Reimbursement Arrangement (HRA).

In Part 1, we reviewed what the consumer plans are and how they work. With Part 2, we reviewed the participation and asset numbers associated with various consumer plans.

In this last part, we pull out our crystal ball and speculate on the future of consumer plans. We’ll start with provisions in the health reform law affecting these plans.

Part 3: Continuing Education on Consumer Plans: The Future

Health Reform Impact

There were many discussions surrounding consumer plans during the health reform debate. Some of the changes made by the health reform law impact all types of personal health care accounts, while other provisions target specific accounts. Here are some of those changes. 

Impacts All Personal Health Care Accounts 

This series focused on two types of personal health care accounts: HSAs and HRAs. For purposes of background information, the following is a brief definition of the other accounts impacted by the changes discussed in this section.

  • Flexible Spending Accounts (FSAs) – offered to employees by employers – allows employees to set aside a fixed amount of their wages on a pre-tax basis for qualified medical expenses and child care. The fixed amount occurs at the beginning of the benefit period and employees lose any unused funds at the end of the year. 
  • Archer Medical Savings Accounts (MSAs) – authorized prior to HSAs, MSAs were savings accounts limited to self-employed individuals and employers with fewer than 50 employees. New Archer MSA accounts were not permitted (with limited exceptions) after December 31, 2007.

The following are the health reform provisions affecting HSAs, HRAs, FSAs and Archer MSAs:

Qualified Medical Expense – the definition changed, it no longer includes over-the-counter (OTC) medications, unless a prescription accompanies the purchase. Previously, this was an attractive, qualified expense for individuals with an FSA, where funds are lost if not used by the end of the year. Account holders shopped at the local drug store to stock up on items like aspirin, band-aids and cold remedies to use up their funds. Not surprisingly, there was some abuse, which prompted this change.

Effective Date of Change: 2011

Excise Tax - The much-talked about cadillac plans, with the 40 percent excise tax, include the employer’s contributions to HSAs, HRAs and FSAs, when calculating the benefit value. The excise tax applies to employer-sponsored benefits in excess of $10,200 for single coverage and $27,500 for family coverage. The good news/bad news is this change doesn’t take place until 2018. That could be a good thing, if the provision undergoes changes, so the forecast of the tax impacting 60 percent of large employers does not come true. The bad news is if the provision stays the same, it could have a huge impact on most employer-sponsored health plans.

Effective Date of Change: 2018

Impact to HSAs and MSAs

The only other change related to HSAs and MSAs is the tax penalty on funds used for non-qualified medical or non-medical expenses. The penalty increases from 10 percent to 20 percent.

Effective Date of Change: 2011

Impact to FSAs only

Currently, FSAs have no maximum contribution limit for health care accounts (there is a $5,000 limit for child care). The health reform changes that with a cap of $2,500 annually in FSA contributions to health care accounts.

Effective Date of Change: 2013

Polishing the Crystal Ball

There you have the changes from the health reform law. Since new legislation seldom looks exactly the same on the effective dates, expect more changes.

HSAs appear to be the front-runner in consumer-directed health plans (CDHPs). FSAs and HRAs cannot be coupled with an HSA (except for a limited purpose FSA or HRA).

The complexity of dealing with multiple personal health care accounts has critics amongst many employers and taxpayers, as well. The speculation is for the elimination of FSAs and HRAs. Perhaps that is why the primary focus on change targeted HSAs.

State health insurance exchanges start operation in 2014. At this point, the word is CDHP policies will still be available. Other provisions of the health reform law could impact the high deductible health plans (HDHP) required for HSAs. Some of those provisions include:

  • Preventive care – requires new health plans to cover preventive services with no co-payments and it exempts the services from deductibles. Yet to be determined is the definition of what services fall under “preventive.”
  • Essential health benefits package – set by Health and Human Services (HHS), health plans must have services with an actuarial value of at least 60 percent.

The health reform changes and the tweaking of those provisions will certainly affect consumer plans. Other provisions that require careful attention are the medical loss ratio and excise tax requirements. All of these changes set the course for the future of CDHPs.

At least in the immediate future, I believe consumer plans survive; however, the products are already much too complex for consumers. The layering of even more regulations present many challenges. On a positive note, that strengthens the role of the insurance professional.

What is your prediction for the future of consumer plans?

Sources: The Henry J. Kaiser  Family Foundation and Council for Affordable Health Insurance

Notice of Disclaimer –Cathy Miller and InternetCE are not attorneys and cannot provide legal advice. The information provided is for your general background only, and is not intended to constitute legal advice as to your specific circumstances. We recommend you review legislation with legal counsel.

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Cathy Miller, Business Writer/Consultant has over 30 years of professional writing with a specialty in health care, employee benefits and wellness. Cathy also has an active Life/Accident/Health insurance license. Visit Cathy at her business writing blog, Simply stated business to Keep it simple, clear & uniquely yours

Continuing Education on Consumer Plans: The What

By Cathy Miller, Business Writer

One thing the healh reform law assured was continuing education. It introduced a whole new list of subjects. Consumer-Driven Health Plans (CDHPs) confuse consumers and insurance professionals. Their value is still hotly debated by many.

Since InternetCE is all about continuing education and making learning simple, we will attempt to break this topic into something a bit less overwhelming. This month, we introduce a 3-Part series on CDHPs that includes:

  • Part 1 – Continuing Education on Consumer Plans: The What
  • Part 2 - Continuing Education on Consumer Plans: The Numbers
  • Part 3 – Continuing Education on Consumer Plans: The Future

We kick off this series with some background information on CDHPs. Part 2 looks at the numbers including recent surveys by Employee Benefit Research Institute (EBRI) and America’s Health Insurance Plans (AHIP) on CDHPs. Part 3 reviews the impact of the health reform law on CDHPs and views on the future of CDHPs.

Part 1 – Continuing Education on Consumer Plans: The What

Health insurance has always had its own unique characteristics. From the beginning of employer-sponsored health insurance, the individual (consumer) was sheltered from the true cost of health care.

Employers contributed much of the cost of premiums; plan designs and delivery models covered most of the costs. The explosion of HMOs in the 1980s exacerbated the problem as enrollees had little or no out-of-pocket costs. Employers, increasingly frustrated by rising costs, demanded change. From that frustration and burdening cost rose Consumer-Driven Health Plans (CDHP).

The CDHP Model

The basic premise of the CDHP model asks the question, “Why shouldn’t health care be like any other product or service?” Consumers make purchasing decisions every day based on price, quality and convenience. The problem with health care was the lack of knowledge of what it cost. Employers and consumers alike did not have the information needed for informed decision. It was time to allow the individual to take control of his or her health insurance needs.

Some common features of the CDHP model include:

  • Placing the health care decision-making in the hands of the consumer
  • Increasing transparency of costs and quality of care to promote competition
  • Decreasing costs through the reduction of unnecessary tests or services
  • Encouraging healthy behaviors through financial incentives to participate in programs such as wellness programs or disease management
  • Providing consumer tools such as medical procedure cost comparisons for informed decision-making

Types of Plans

Health Reimbursement Arrangement (HRA)

Introduced in 2002, Health Reimbursement Arrangements (also known as Health Reimbursement Account “HRA”) are programs authorized by the I.R.S., offered through employer-sponsored health plans. HRAs allow for the reimbursement of medical expenses incurred by employees. Some of the features of the HRA include:

  • Favorable tax treatment
  • Funding soley by employers
  • Allows participants to carry forward unused funds
  • May only be used for qualified medical expenses

Reimbursements for qualified medical expenses are excluded from employees’ gross income. Since the HRA reimburses medical expenses for current or former employees and their dependents only, it receives favorable tax treatment. Employers have control over how funds may be used and this information must be contained in the plan document. Employers are not required to pre-fund the HRA but rather pay claims as they occur. Employers can offer HRAs with other health benefit plans including a Flexible Spending Account.

Health Savings Account (HSA)

Signed into law in 2004, Health Savings Accounts (HSAs) created another form of CDHPs. They embody one of the best tax-advantaged savings plan ever passed by Congress. HSAs allow individuals to save tax-free dollars for medical expenses and retirement.

The funding of HSAs can be through employers or employees and employees can take their HSA with them if they change jobs. This is known as portability. A key difference from an HRA, individuals are eligible for participation in an HSA. HSAs are not only for employer-sponsored health plans.

The following requirements apply to HSAs. Just announced, the limits shown below, stay the same for 2011.

High Deductible Health Plan: Individuals must be covered under a “High Deductible Health Plan” as defined by the IRS and U.S. Treasury. In 2010, the minimum qualifying deductible is $1,200 for self-only coverage and $2,400 for family coverage.

Maximum Out-of-Pocket Amounts: HDHPs cannot contain an annual out-of-pocket amount that exceeds limits set by the IRS and U.S. Treasury. In 2010, the annual maximum out-of-pocket amount is $5,950 for self-only coverage and twice that or $11,900, for family coverage.

Maximum Annual Contributions: A maximum annual contribution limit exists for eligible individual. In 2010, the maximum annual contribution for self-only coverage is $3,050 and $6,150 for family coverage.”Catch-up” contributions are allowed for individuals age 55 and older. In 2010, the HSA catch-up contribution is $1,000 over the maximum annual contribution. Individuals who are eligible on the first day of the last month of the taxable year (December for most taxpayers) are allowed the full annual contribution (and catch up contribution, if 55 or older by year-end), regardless of the number of months of eligibility in the year. For individuals no longer eligible on that date, both the HSA contribution and catch up contribution apply pro rata based on the number of months of the year a taxpayer is an eligible individual.

Employer Contributions: If an employer contributes to the HSA, equivalent contributions must be made for all employees with comparable coverage.

Distributions: Distributions for qualified medical expenses are excluded from gross income. Distributions for non-qualified medical expenses are included in gross income with a 10 percent penalty if distributed before age 65. Note: the penalty increases to 20 percent in 2011.

The above are the basics. For purposes of this discussion, we did not include Flexible Spending Accounts (FSAs) or Medical Savings Accounts/Archer Medical Savings Accounts (MSAs), the precursors to HSAs and HRAs.

Please share your thoughts regarding CDHPs in Comments. We’d love to hear from you. 

Next up: Part 2 - Continuing Education on Consumer Plans: The Numbers

Notice of Disclaimer –Cathy Miller and InternetCE are not attorneys and cannot provide legal advice. The information provided is for your general background only, and is not intended to constitute legal advice as to your specific circumstances. We recommend you review legislation with legal counsel.

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Cathy Miller, Business Writer/Consultant has over 30 years of professional writing with a specialty in health care, employee benefits and wellness. Cathy also has an active Life/Accident/Health insurance license. Visit Cathy at her business writing blog, Simply stated business to Keep it simple, clear & uniquely yours

Dental Benefits-A Bite-size Look at Health Reform

By Cathy Miller, Business Writer

As someone who was part of the dental community, I am probably more interested in dental benefits than most insurance agents. While dissection of the health reform law continues on a daily basis, there is little discussion regarding the impact to dental benefits. Let’s look at what provisions in the health reform law apply to dental benefits.

Dental Benefits Tidbits

In this section, when I refer to dental benefits, I mean the types of plans you, as insurance professionals, encounter – individual and group dental benefits. When it comes to specific provisions of the health reform law related to dental benefits, it’s pretty slim pickings.

Similar to many aspects of the health reform debate, there was a division of support in the dental industry. That, combined with the primary focus on providing health coverage for the 45 million uninsured, it is not surprising that dental benefits ranked low in priorities.

Here is a brief summary of provisions specific to dental benefits.

Essential Benefits Package – The health reform law includes an essential benefits package. Part of that package is a mandatory requirement for oral health care benefits for children under the age of 21, referred to as the pediatric dental benefit. Preventive pediatric oral health services include the same ban as other preventive services on out-of-pocket charges.

Stand-Alone Dental Plans – The health reform law allows stand-alone dental plans to participate as part of a health insurance exchange, provided they offer the pediatric dental benefit.The participation of stand-alone dental plans allows health plans in the exchange to exclude oral care for children, since the dental plan offers coverage.

It appears that some of the immediate provisions of health reform do not apply to stand-alone dental plans, including:

  • Elimination of annual and lifetime maximums
  • Expansion of dependent child definition to age 26

So for those with a stand-alone dental plan, it looks like business as usual – at least in the short-term.

Medicare Advantage PlansMedicare Advantage plans often offer dental benefits as an added feature. These plans are required to use any rebates to help pay for extra benefits, such as dental benefits.

Cadillac Plans – The 40 percent excise tax that applies in 2018 to Cadillac plans does not include dental plan costs. That was good news for dental plans as early discussions generated a fear that employers would drop dental plans to avoid paying the excise tax.

W-2 Reporting – As noted in Part 2 of our 3-part series on health reform, employers have W-2 reporting requirements, including the aggregate value of dental, medical, vision and Medicare supplemental insurance. NOTE: May 13, 2010 Clarification – dental and vision benefits are included EXCEPT if they are “stand-alone” plans.

The Main Course – Dental Grants and Education

Most of the health reform law related to dental care provides grants and dental health education, including funding for the following:

  • An oral health infrastructure managed by the Centers for Disease Control (CDC) to improve dental public health programs
  • School-based health clinics and expansion of school-based sealant programs
  • A grant program for general, pediatric or public health dentists and dental hygienists
  • Demonstration programs for training alternative dental health providers to support underserved communities

The biggest winners in the health reform dental provisions are children. The law strives to provide public or private dental coverage for all children.

No Leftovers for Medicaid

One of the main concerns for the American Dental Association (ADA) was the “failure to properly fund Medicaid.” While the health reform law expanded Medicaid eligibility to 133 percent of the federal poverty level for individuals under age 65, no provisions in the law allow for an adult dental benefit for existing or new enrollees in Medicaid.

Under the current law, dental benefits for adults (age 21 and older) are optional for state Medicaid programs. With the declining economy, the trend saw more states cutting back on dental benefits, some providing for dental emergencies only. Other states provide no adult dental coverage at all – even for dental emergencies.

Another complaint from the ADA was the compensation under Medicaid. The health reform law addressed the issue by requiring Medicaid and the Children Health Insurance Program (CHIP) Payment and Access Commission (MACPAC) to report to Congress on payments to dental and healthcare professionals.

Dental Servings

What the future holds for dental insurance is anyone’s guess – not unlike any form of insurance. For insurance professionals, continuing education on dental and other forms of insurance is an ongoing process, especially with the enactment of the Patient Protection and Affordable Care Act. One thing is certain, there is plenty of change waiting to be served.

Sources: Kaiser Family Foundation, HealthReform.gov, Children’s Dental Health Project, Thomas Library of Congress

Notice of Disclaimer –Cathy Miller and InternetCE are not attorneys and cannot provide legal advice. The information provided is for your general background only, and is not intended to constitute legal advice as to your specific circumstances. We recommend you review legislation with legal counsel.

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Need your Insurance Continuing Education?..Click here to take your continuing education classes online

Cathy Miller, Business Writer/Consultant has over 30 years of professional writing with a specialty in health care, employee benefits and wellness. Cathy also has an active Life/Accident/Health insurance license. Visit Cathy at her business writing blog, Simply stated business to Keep it simple, clear & uniquely yours.

Corks Went Flying With Extension of COBRA Subsidy

By Cathy Miller, Business Writer

In a previous post, we were watching the clock run out on the federal subsidy for COBRA coverage. In the nick of time, Congress approved an extension on the original December 31 deadline. A report from Hewitt Associates released immediately after the extension illustrates the impact of the subsidy.

Show Me the Money

Prior to the subsidy, eligible terminated workers paid the full COBRA premium – plus an administrative fee – to continue coverage under their former employer’s health plan. With the original legislation, eligible individuals received a 65% federal subsidy for nine months. Their COBRA eligibility had to start by December 31. Without an extension, many faced huge increases in what they paid for COBRA coverage.

The new bill from Congress made two changes to the original COBRA subsidy. First, it extended the eligibility period to individuals who lose their job to no later than February 28, 2010. Second, instead of the original nine months, the federal subsidy now continues for 15 months.

As a recent publication from the Kaiser Family Foundation shows, the subsidy makes a big difference in the average cost of coverage for individuals and families. For an unemployed worker, the extra savings is a welcomed relief.

Enrollment’s Up

Since the introduction of the original subsidy in March 2009, the Hewitt report shows a 20 percent increase in COBRA enrollment. The study looked at enrollment for 200 large employers with eight million employees. Between March 2009 and November 2009, 39 percent of those eligible for the subsidy enrolled in COBRA, as compared to 19 percent who enrolled between September 2008 and February 2009. The report showed some interesting industry-specific results.

The industries with the largest overall increase in COBRA enrollment were:

  • Industrial Manufacturing – from 7% to 67%
  • Aerospace & Defense – from 30% to 63%
  • Pharmaceuticals – from 20% to 44%
  • Media – from 13% to 36%
  • Business Services from 20% to 42%

The Insurance industry enrollment increased from 23% to 40%.

A New Clock Ticking

For insurance agents’ clients that either dropped coverage or paid full premiums, there are important new deadlines and provisions. The following describes some of the provisions for those caught in the transition.

  • Individuals who received full nine months of subsidy – are eligible for the full 15 months (an additional six months) provided they pay all of the reduced premium amount within 60 days of the enactment of the extension – or – within 30 days of being notified of the extension (whichever is later)
  • Individuals who paid full COBRA premium – after receiving the nine months of subsidy, receive a refund for the amount overpaid – or – can have that amount applied to future premiums. No timeline was set for reimbursement; however, agents should instruct clients to contact their COBRA administrator.

The subsidy is a band-aid that creates a temporary fix for maintaining health insurance coverage in these tough economic times. More than ever, clients need the sound advice and industry knowledge their insurance agent can provide. Additional subsidy information is available at the Department of Labor’s website at dol.gov.

Cathy Miller, Business Writer/Consultant has over 30 years of professional writing with a specialty in health care, employee benefits and wellness. Cathy also has an active Life/Accident/Health insurance license. Visit Cathy at her business writing blog, Simply stated business to Keep it simple, clear & uniquely yours.

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