Big Changes Ahead for Limited Medical Plans

By Stephen Miller May 24, 2010

Updated September 2010

Update: A One-Year Reprieve for Existing 'Mini-Med' Plans

On Sept. 3, 2010, the U.S. Department of Health and Human Services (HHS) announced a waiver-application process for limited-benefit indemnity medical pans, also known as "mini-med" plans, to delay health care reform's restrictions on annual dollar limits on essential benefits.

The one-year waivers are available if compliance with the limits would force significant benefit cuts or premium hikes. HHS must receive waiver requests at least 10 days in advance of a plan or policy year starting before Nov. 2, 2010, and at least 30 days before a plan or policy year starting after Nov. 2, 2010.

Plans or policies first offered after Sept. 23, 2010, are ineligible for waivers.

With the March 2010 passage of the Patient Protection and Affordable Care Act, the end of the road is approaching for some types of limited medical plans (sometimes known as "mini-med" plans). The new restrictions will affect employers with hourly and part-time workers currently on limited medical plans—including many restaurant workers, nursing home staff and retail employees.

Limited medical plans typically cover routine and preventive services with no or low co-payments. But doctor visits may be limited to four or five a year, and overall benefits may be capped at as little as $2,000 annually, although plans vary widely with some offering substantially higher benefit caps.

Approximately 60 percent of the limited medical plans in place with many big U.S. employers will be affected as soon as September 2010, according to a release from Fringe Benefit Group, a provider of benefit programs including limited medical plans.

“Major changes to the limited medical industry are coming,” commented John Conkling, vice president of national accounts for Fringe Benefit Group. “Co-insurance-based, expense-incurred limited medical plans will be subject to new rules. Brokers who currently market limited medical plans—or have customers utilizing limited medical plans—should contact their carrier partner immediately to find out their product strategy as a result of health care reform. They should ask: ‘How will health care reform affect renewals? Are you still accepting new business?’ If the carrier can’t give you straight answers, find a new limited medical partner who can.”

Employers using limited medical plans must comply with new rules that take effect for plans renewing after Sept. 23, 2010. Group health plans, even those that have been grandfathered, will have to meet a range of new requirements, including no lifetime and annual limits. All limited medical plans that were considered “group health insurance plans” will be subject to the new regulations.

Within the limited medical industry there are two styles of limited medical benefit plans: co-insurance (sometimes referred to as co-pay-based or expense-incurred) and indemnity-based (sometimes called fixed indemnity) insurance. Fixed-indemnity-style limited medical plans that do not issue creditable coverage letters or represent themselves as a “true group health insurance plan” are exempt from the new regulations because they are considered supplemental, according to Fringe Benefit Group. Co-insurance-based limited medical plans, however, are subject to the new regulatory framework.

Employer groups renewing after Sept. 23, 2010, and that offer a limited medical plan subject to the health care reform rules face three options:

Their carrier will not renew the plan because it cannot meet the new coverage mandates for group plans.

They will renew with significant rate increases to pay for expanded coverage.

They move to a fixed-indemnity-style limited medical plan.

“We’re moving forward with our fixed-indemnity limited medical product, and we will continue to invest in technology and customer service to assist our customers. We understand things are going to change in our industry, but we have a go-forward plan in place to help our current and prospective customers right now,” said Brian Robertson, executive vice president of Fringe Benefit Group.

What's Ahead for 'Mini-Meds'?

Beginning in 2014, employers with more than 50 full-time employees must either provide health care plans with "minimal essential coverage" or pay a penalty. Health care analysts predict many employers will choose to pay the modest tax penalties instead of providing the far more costly and administratively time-consuming health coverage.

At the same time, the reform law mandates that everyone without employer-provided coverage must purchase their own health care policies that meet government specifications, and provides subsidies for lower-income individuals to do so.

Time will tell if there continues to be a role for limited medical plans at that point. However, a lawsuit against the individual mandate is expected to eventually land before the U.S. Supreme Court (see “15 State AGs Sue to Block Health Care Reform Law). Absent an individual mandate to purchase comprehensive health coverage, employer-provided limited medical plans could find they've been reprieved. Under this scenario, small employers—and larger employers choosing to pay the penalty instead of providing comprehensive coverage—might offer limited medical plans as an employee benefit to those who would otherwise go without any coverage.

Stephen Milleris an online editor/manager for SHRM.

Related Article:

Employer-Sponsored Health Benefits: ‘Reformed’ into Obsolescence?, SHRM Online Benefits Discipline, May 2010

Group Policies vs. Subsidized Individual Coverage—The Impact of Exchanges, SHRM Online Benefits Discipline, April 2010

Mini-Med Plans Fill a Gap, but Beware of Giving False Security,SHRM Online Benefits Discipline, February 2007

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform web page

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