What is a Limited Benefit Health Insurance Plan?

Medical benefits are a requirement in today’s post-COVID world. Employees and candidates expect their employers to offer a comprehensive benefits platform, including major medical insurance. Employers are also seeking ways to remain competitive to attract and retain top talent. One benefit some employers are now offering or considering offering in addition to major medical is access to limited health plans. In SHRM’s 2021 Annual Employee Benefit Survey, many employers surveyed expanded their supplemental health insurance benefits—including limited health plans like critical illness, hospital indemnity, intensive care, and long-term care insurance.

What Is a Limited Health Insurance Plan?

Limited-benefit plans are limited health plans with more restricted and significantly lower benefit levels than major medical insurance. With the lower benefit levels and restrictions, the premiums are also lower than major medical insurance.

Depending on the state where they are being sold, limited plans can be referred to as mandate-light, bare-bones, mandate-free, minimum benefit, limited benefit, flexible benefit, and so on.

What Are the Benefits of a Limited Health Plan?

Limited health plans can be beneficial for those who feel they need additional coverage that goes beyond their traditional health insurance plans. Though they are not intended to be a replacement for major medical health insurance, limited plans can be a good supplement to some major medical plans, such as those with a high deductible.

Some plans with a high deductible, specifically HDHPs (high deductible health plans), offer comprehensive coverage, though the standard copay aspect of the plan does not kick in for any services outside of preventative care until the deductible is met. To qualify as an HDHP, the deductible must be at least $1,400/individual and $2,800/family. Some plans have deductibles as high as $3,000 per individual. That is a lot of up-front out-of-pocket expense for the average household. A limited health plan can help offset the deductible in some instances, depending on what the limited plan covers.

Though not intended as a replacement for major health insurance, limited plans can still provide at least some level of financial coverage for those without major medical. Limited plans work well for individuals that need temporary stop-gap coverage until their major medical insurance goes into effect.

Limited health plans might be a good option for those who:

• Recently got laid off
• Are in-between jobs
• Frequently travel out of network for benefits and have higher costs than if they remained in-network
• Are leaving their parent’s health insurance
• Missed open enrollment for an Affordable Care Act (ACA) plan through the health marketplace
• Recently lost their medical coverage
• Are self-employed without access to group coverage
• Cannot currently afford major medical coverage
• Need financial support to offset high deductibles and out-of-pocket expenses
• Don’t have a health savings account or emergency fund to help offset out-of-pocket medical expenses

How Do Limited Medical Insurance Plans Work?

Limited health benefit plans provide capped coverage for a range of common accidents and illnesses. The insurer generally reimburses the plan participant after they pay for the covered medical expense. With limited plans, there are no copayments, coinsurance, or deductible considerations, nor requirements for in-network services, clinics, or doctors. The reimbursement rates are negotiated upfront at the time of enrollment.

Pricing of limited plans varies based on the amount of coverage, the extent of coverage, family medical history, and the age, health, and sex of the plan participant.

Limited plans can help pay for:

• Hospitalization
• Diagnostic tests
• Routine exams and office visits
• Emergency room visits
• Prescriptions

Plans can pay as little as $50 for a medical service up to hundreds of thousands for a critical illness or major accident. Policy exceptions occur for limited plans as they do for any insurance type, so it’s important for enrollees to clarify what is and is not covered before purchasing a plan.

What Are the Different Types of Limited Health Insurance Plans?

Common limited benefit plans include fixed indemnity plans, critical illness plans, disease-only plans, accident-only plans, accidental death and dismemberment, and hospital cash policies.

Fixed Indemnity Plans

Fixed indemnity plans pay a set amount for a medical service, regardless of what the total cost of the service is. For example, an indemnity plan might pay $100 for an office visit or $3,500 per day in the hospital. These plans typically cover a limited number of visits or days.

Critical Illness Plans

Critical illness plans pay a set amount if the plan participant is diagnosed with one of the multiple covered illnesses or medical conditions, such as a stroke, heartache, coronary bypass, or organ transplant. For example, the plan might pay $10,000 or $15,000 for a stroke or heart attack. Critical illness plans are popular because direct payment can be used for a variety of expenses related to the illness, including travel to and from visits.

Disease-Only Plans

Disease-only plans pay a set amount if the plan participant is diagnosed with the disease the plan covers. For example, the plan might pay $10,000 to $30,000 for cancer.

Accident-Only Plans

Accident-only plans reimburse the participant for expenses covered or pay a defined amount to the participant in the case of an accident. The amount might vary based on the injury. For example, it might pay $50 for a concussion and $10,000 to $20,000 for a coma.

Accidental Death and Dismemberment

Accidental death and dismemberment plans pay a set amount when the participant loses hearing, eyesight, speech, or the use of a limb or dies in an accident.

Hospital Cash Plans

Hospital cash insurance policies provide a fixed sum payment to the enrollee for each day of hospitalization that goes beyond 24-hours.

Group Supplementary Plans

Group supplementary limited plans cover a group of medically-related incidents, including accidents, cancer, hospitalization, dismemberment, and so on.

Are Limited Plans Regulated by the Affordable Care Act?

Limited plans are not regulated by the Affordable Care Act (ACA). The Affordable Care Act requires major medical plans to offer 10 essential benefits with no annual or lifetime maximum and preventative care services at no cost. The ACA also prevents major medical plans from excluding pre-existing conditions.

The 10 essential benefits required by the ACA include:

1. Hospitalization
2. Ambulatory services
3. Emergency services
4. Maternity and newborn care
5. Services to treat mental health and substance abuse disorders
6. Prescription drugs
7. Lab tests
8. Preventive services, including things like recommended vaccines, obesity screening and counseling, contraception, blood pressure screening, colorectal cancer screening, tobacco use counseling and interventions, breast cancer screening, and breastfeeding counseling.
9. Pediatric services for children, including dental and vision care
10. Rehabilitative and habilitative services

Common major medical insurance plan types include:

• Preferred Provider Organization (PPO) Plans
• High-Deductible Health Plans (HDHPs) with and without Health Savings Accounts (HSAs)
• Health Maintenance Organization (HMOs) Plans
• Point of Service (POS) Plans

Who Offers Limited Health Plans?

Many large insurance companies offer limited medical insurance plans in the United States. For example, Anthem, United Healthcare Group, and Kaiser Foundation offer limited plans.

Insurance brokers also work with providers of limited health plans to help individuals and organizations to make the best choices for their needs.

Why Work with a Broker to Select Your Limited Plans?

There are concerns that some organizations and individuals are taking advantage of insurance buyers. Telemarketing and online lead-generating websites are being used to sell limited insurance plans masked as major medical plans. Others are bundling limited plans together, so they appear to be comprehensive plans, even though they are not. Limited plans, even when bundled, do not provide catastrophic coverage or standard first-dollar coverage for benefits like major medical plans do. The Federal Trade Commission (FTC) has stepped in and taken action to put a stop to deceptive practices utilized to sell limited plans, though the risks of the average person being deceived online and by telemarketers when purchasing health insurance still exist.

To alleviate the risks associated with purchasing limited plans online, it’s a good idea to work with a reputable insurance broker. Working with a reputable broker can help ensure you are getting accurately represented plan options to fit your needs and budget. A broker can walk you through your options, as well as any fine print that outlines limitations and exclusions.