• Mind the gap

    From today’s Houston Chronicle:

    As employees face higher co-pays, deductibles and health care premiums, a relatively new insurance product has become increasingly popular.

    It’s known as “gap” or “bridge” insurance, and it covers some of the out-of-pocket health care costs that are becoming more difficult for employees to shoulder, such as annual deductibles that are rising to $1,000, $2,500 or even $5,000.

    This isn’t a good long-term solution, though I can see how short-term some might like such plans. Employers should hate it, long-term. Employees, if they could think long-term too, probably shouldn’t be happy about this either. Thinking financially, insurance companies offering gap coverage (but not others) and health care/product providers might be happy about this.

    Let’s put aside whether these “gap” policies provide good coverage or are “worth the price,” issues the article explores. Just recognize that this is similar to what Medigap or supplements are to Medicare.

    Here is where I could explain a problem with such gap coverage. To cut right to the punchline, it undermines the cost-saving goal of higher cost-sharing. Rather than explain this, I’ll leave it as an exercise for the reader.

    Hint 1: think moral hazard.

    Hint 2: think about who is paying for most of the cost of care.

    • Dr. Frakt,

      I am confused. Wouldn’t higher deductibles increase price consciousness? If you are paying-out-pocket, I do not understand how you would not seek lower cost services. Also, I thought cost-sharing is reason why we are here today…. no one really knows how much things costs, no one really knows what they should pay.

      I would like your feedback, thanks!

    • “Thinking financially, insurance companies and health care/product providers might be happy about this.”

      Depends on which insurance company you are talking about. If you’re the company providing the gap or bridge plan, then of course you like this trend. If you’re the insurance company issuing the base plan on a fully-insured basis (and it’s usually a different company), then you hate this because it destroys your pricing assumptionts about the impact cost-sharing will have on utilization.

    • I have a patent pending design which does the same thing, but in much bigger increments.
      The plan is designed to increase to $25,000 over 2 years, and $50,000 over 4 years.
      A $25,000 deductible can save 50% off of traditional coverage, while a $50,000 deductible can save 70%.
      The catastrophic plan would start at $25,000 or $50,000.
      I live near Houston, and read the same article today.
      I sent it to my business partners, so we could have a good laugh.
      Don Levit

    • I couldn’t let this topic go by without commenting. I wholesale “gap” products to agents/brokers nationwide. I believe they are the “whizbang” product of 2011 and beyond.
      When combined with high deductible health plans, these “2 component” plans cover the major inpatient and outpatient hospital/surgical services for less premium than buying a low deductible health plan alone.
      So, we typically save employers money, we improve most employees benefits by eliminating big deductibles for major hospital/surgical/MRI expenses, all typically without having to change insurance carriers.
      GAP coverage doesn’t cover the small cost , high utilization services like blood work in a doctor’s office, mental health/drug visits, and sick visits to an emergency room. It relies on major medical plans to cover RX, doctor’s office visits and wellness care services.
      Now, as for utilization, I have been a benefits consultant for 25+ years, having sold what was at the time the 3rd largest agency of its type in Michigan. So, I have a pretty solid base of experience dealing with employers, their employees and families and Insurance Companies.
      Most employees don’t have the $2,000 needed for hospital deductibles and coinsurances that many “experts” are designing today’s health plans with. And, as for being price conscious, folks don’t get pregnant or have heart attacks or bust their knees because they have a low deductible health plan. Life happens and when it does, gap insurance protects a health emergency from becoming a financial emergency.
      While I am all for employees becoming more involved with the cost of medical care, there are few areas that users of medical care can actually shop around for. The only one, covered by most insurance plans is RX. And with RX, the pharmaceutical industry is scaring folks from buying their medical drugs from Canada or India over the Internet. So, you are left with major items. How realistic is it to think you will price shop your obstetrician, heart surgeon, or negotiate your hospital room charges? Not very, I’m afraid.
      GAP products will not only be here when National Health reform finally arrives in 2018, there will be many new added options and features that folks can buy who want more or less coverage. It’s not a short term benefit, it’s a long term one.

      Thanks for letting me share in your discussion.

    • Austin and Aaron:
      I am also a CLU, ChFC, so I could probably get Dick Chelten’s contact information from the Society of Financial Service Professionals.
      Would it be okay if you guys hooked us up?
      Is that okay with you, Dick?
      Don Levit