For the past two years, Austin Palmer has been able to offer his temporary and contract workers – employees who previously didn’t have access to health insurance – a limited amount of health coverage at a low cost.

In that time, about one-third of Palmer Group’s employees in those categories have enrolled in these limited medical plans.

Now, as federal health-care reform legislation begins kicking in, the West Des Moines-based employment firm and other employers who offer limited medical plans may see that option disappear.

Waivers

Effective Sept. 23, a provision of the Patient Protection and Affordable Care Act required that many health plans will no longer be allowed to impose annual limits less than $750,000 for coverage of “essential health benefits,” and annual limits will be phased out completely within three years. Because limited medical plans have annual limits far below that amount, the change effectively removed limited medical plans from the picture.

Earlier this month, however, the U.S. Department of Health and Human Services (HHS) announced a process through which employers can apply for annual waivers until 2014, when health-care reform goes fully into effect.

To qualify for a waiver, an employer must document that not being able to offer limited plans would “result in a significant decrease in access to benefits or a significant increase in premiums,” according to the HHS bulletin announcing the waiver process.

These types of low-cost plans, which can range from as little as $20 per month to about $200 in monthly premiums for an individual, might provide coverage for up to $2,500, $5,000 or $10,000 of medical care expenses each year.

Limited medical plans “can be used in many different ways,” said Dennis Johnson, senior vice president of Bearence Management Group LLC, a West Des Moines insurance agency that offers the plans.

In addition to seasonal and part-time employees, the policies can also be useful to offer temporary coverage to new employees who are in the waiting period to be eligible for their employers’ group plans, Johnson said. “Those waiting periods can extend to as much as 120 days, so that’s a benefit many employees appreciate,” he said.

Competitive prices

Palmer said he’s been “very pleased” with the level of participation in limited medical plans at his company, “and we plan to continue to offer it as long as it’s available,” he said.

Though Palmer Group employees who opt for the limited medical plans pay the full premium cost, the company’s participation provides the insurance carriers with sufficient volume to offer significant discounts, Palmer said.

“We actually think we have a very competitive price point to offer to employees, which I think is why we have such a high level of participation for such a plan,” he said.

Though it’s still a sliver of the overall U.S. health insurance market – about 1 million policies out of the nearly 160 million workers who get their health insurance through their employers, according to one estimate – the segment has an expected annual growth rate of 14 to 16 percent.

The Iowa Insurance Division is among a number of state regulators that have expressed reservations about limited medical plans, because their limits can expose employees to potentially catastrophic medical costs.

“People need to truly understand that these are not traditional plans offering broad and comprehensive protection,” said Iowa Insurance Commissioner Susan Voss. “We certainly recommend that consumers protect themselves from the high cost of serious health problems if they can afford to make that choice.”

Tom Alger, a division spokesman, said his agency does not have a good estimate of the number of workers in the state covered by limited medical plans.

Voss said that a high-deductible plan may be a better option for some people, “in that it can address the catastrophic cases while still saving some money compared to lower-deductible plans.”

Filling gaps

Johnson said that Bearence offers plans from about a half dozen carriers. Wellmark Blue Cross and Blue Shield, the state’s largest health insurer, does not offer these types of policies, he said.

Though two types of plans are available – expense-incurred contracts and indemnity contracts – Bearence offers only the indemnity contracts, because they pay first-dollar benefits, he said. That’s particularly important for temporary workers, who may otherwise move to another job just as they’ve met the deductible on a plan.

The fact that the government approved a waiver process points to the increasing popularity of limited medical plans, which have been around for about a decade, Johnson said.

“There was a time when very few people had heard of these plans, but now it’s a different case,” Johnson said. “I think that’s why HHS backed off, because they had no idea how many people were accessing these plans.”

The plans “provide good solid coverage for many areas, including accident coverage, prescription drug costs and hospital costs,” he said. Many of the plans also enable employees to choose just the benefits that meet their needs, he said.

Johnson said he believes that the federal government will go a step beyond waivers and permanently allow limited medical plans. “If they don’t, the private market will find a way to fill the gap,” he said, “because most folks don’t set aside money for co-pays and deductibles. So they’ll buy plans that will provide additional or gap coverage. I think limited medical will morph into gap plans.”