Gap Insurance a Popular Solution for High-Deductible Company Health Plans

‘Insuring Your Insurance’ a cost-effective strategy for high-deductible plans

by Brad Prentice, CHRS

An employee realizes his health plan calls for a $3,500 deductible should he get sick or injured. He also realizes his wife is on the plan, and she likewise has a $3,500 deductible, and both deductibles have to be met before the insurance kicks in… $7,000 total. This means that he and his wife both need to be hospitalized before coverage ensues.

But, there is a happy ending (or at least as happy as you can get facing a serious injury or illness). It turns out his company offers a “gap plan,” a separate insurance policy for as little as $50 a month to cover his deductibles. Think of it as “insurance on insurance.”

Gap plans, which are used to cover out-of-pocket expenses like high deductibles, and are also known as “supplemental insurance” and “limited benefits,” are becoming increasingly popular among businesses. With monthly premiums on health insurance increasing at a staggering rate, more people are choosing cheaper, high-deductible options. In 2016, more than 90% of people buying insurance under the Affordable Care Act, chose plans with an average deductible of $3,000 or higher. As the name implies, medical gap insurance supplements a healthcare insurance plan by helping pay for medical costs that are accrued before a plan’s deductible level has been reached.

Cover The Gap

Gap insurance plans are structured in different ways, but typically cover deductibles, copayments and co-insurance expenses, prescription drug costs, and other healthcare-related expenses. Gap insurance may also cover non-medical expenses, such as cost for living expenses during a hospital stay, or while recovering at home from a long illness or accident.

These days, many business owners are facing those costs on their own, and as a result, are being forced to either raise their deductibles, or chip away at their employees’ paychecks to cover premiums. But now with gap plans, businesses can offer a health benefits package that keeps out-of-pocket expenses for employees down. So, for the “inconvenience” of an employee now having to carry two insurance cards instead of one, they can basically get their deductible paid for should an unforeseen illness or injury put them in the hospital.

The upside of these types of employer plans has been significant. A day doesn’t go by when an employee isn’t talking about how much their insurance costs are at work when they run into someone in a supermarket or chatting on Facebook. And even though the insurers are setting the rates (and the deductibles), it’s the employer that comes off as the bad guy (for a disgruntled employee there’s no such thing as “don’t shoot the messenger”). And the ramifications have been that many employees are always looking for the company with the most attractive health care packages.

Attract & Retain

Every business wants to retain their best workers, and for many, it’s putting into place alternatives for their employees to help mitigate the high cost of being sick, and the risk that one catastrophic injury or illness can wipe out an employee’s life savings. And sadly, some businesses, because of the high cost of health care, have found themselves in a “cutting off one’s nose to spite the face” scenario by throwing up their hands to these rising costs and no longer offering health insurance. If that’s the case, then you aren’t just nudging your best employees out the door, you’re pushing them off a cliff.

For most employers, a gap plan insurance policy makes incredible sense, and is a way to not have to forego offering a health plan to your employees. By offering this supplemental plan to your employees, you are showing them that you feel their pain at what deductibles have come to, and you care enough about them to help ease that pain by offering a solution.
Happily, this solution also benefits the employers in more ways than just retaining a valued worker.

For instance, there may be some tax benefits both to the employer and the employee, depending on the particular situation. Whereas tax issues can be rather complex, it’s best to consult your insurance agent on whether certain benefits apply in your circumstances.

For some companies, gap insurance may be a financial lifesaver. The money that traditionally would have gone into premium payments can now be diverted into such attractive options like dental and vision plans, or wellness programs. And isn’t that what you’d rather have your employees talking about when running into each other at the local grocery store?