Limited medical plans haven't always had the best reputation, a fact that Sam Fleet is quick to recognize. "Unscrupulous" actions by some brokers who passed the policies off as lower-priced substitutes for major medical plans gave the products a bad name, says the president of AmWINS Group Benefits.

However, that's all changed in recent years, as providers such as Aetna and Cigna have embraced the policies, says Fleet, who rolled out his own limited medical program, HealthWINS, in January 2008.

"Some big players have started to offer these plans and really have traditionalized them," he says. "[Limited medical plans] have become more mainstreamed."

Communicate limitations

But being mainstream doesn't mean every employer and employee group understands these products. To avoid potentially negative public relations (or more accurately, employee relations) when offering a limited medical program, brokers must clearly communicate what is covered.

The traditional "mini-med" audience consists of blue collar, hourly and seasonal employees, a group that can "raise additional communications challenges," says David Gittelman, director of marketing for Reliance Standard Life Insurance Company. Subsequently, problems arise from "employees thinking that they're covered for things that they're not covered for," he says.

Often it's an issue of perception about what it means to be covered by insurance in the first place. When many employees think about whether or not they have adequate insurance, they're only envisioning first-dollar coverage or minimal co-pays and low deductibles that keep out-of-pocket costs low for their most common needs - routine doctors' visits, maintenance drugs and the like. The idea of a catastrophic incident is brushed aside by the "it won't happen to me" mentality.

"I've met with a lot of employee and employer groups, and they don't want to think about that cancer. They don't want to think of themselves having cardiac issues. That's out of their minds, really," says Fleet. "For them to get through day-to-day, they just need to figure, 'Well, if I go to the doctor next week, what's it going to cost? I don't want to think about contracting HIV or having a major illness.' So it's psychological more than anything, but these plans are specifically designed for that - to provide a lot of first-dollar coverage and not a lot of catastrophic coverage."

Even when employees think they have a decent amount of coverage, say $10,000 for inpatient treatment, traditional plan designs will carve that amount up into smaller divisions that have their own maximums. For example, room and board would have one dollar limitation and anesthesiology another, so a patient who doesn't meet the $10,000 limit could still potentially leave the hospital with a balance, says Gittelman.

To combat this, Reliance has developed "open plans" that give a participant one dollar amount for their inpatient maximum, one for their outpatient maximum and another for their prescription maximum. "That, to me, is a way that you can simplify the plan because you can't always control all of the communication," Gittelman says.

Saving health benefits

While employers typically offer limited medical plans to workers who do not qualify for a full medical plan, perhaps because of part-time status or limited tenure, the economic downturn has led some companies to switch from major medical plans to limited medical in order to retain some health benefits. After all, Fleet points out that, on average, a limited medical plan with approximately $25,000 in coverage can cover 98% of employees' health care issues in a given year.

Employers can stretch those dollars further with careful plan design, says Robyn Piper, co-president of Piper Jordan, a San Diego employee benefits firm. When she helps her clients build a limited medical plan, Piper spends "a tremendous amount of time" dicing up employee demographics to find the right balance to cover a majority of claims while still keeping the price point within reach. She's also careful to make sure that provider networks cover all of their employees' ZIP codes.

"You need to make the plan attractive to everyone. It can't just be attractive to those people who truly need it because it just drives up your cost again," she says. The market has become so popular that once-hesitant employers are prepared to learn more about limited medical. "There are so many employers that need a different solution than major medical at this point," says Brian Robertson, executive vice president, Fringe Benefit Group. "People look at them as a good benefit offering."

While there aren't as many new carriers entering the limited medical marketplace as there were a few years ago, those that remain are continuing to expand their benefits, says Robertson. Monthly rates of $100-$200 per employee are allowing employers that can no longer afford their major medical plans to maintain a base level of health care for their workers "that's a little stronger than limited medical plans have traditionally provided," he says.

Both types of limited medical coverage - fixed indemnity where employees get a set payment depending on the number and type of services they receive, and expense-incurred plans that involve co-pays and pre-existing condition limitations - are expanding.

For example, Robertson says fixed indemnity surgical benefits are moving from a $3,000 annual maximum to amounts as high as $10,000, and hospital daily allowances are growing from $1,000 to $2,000.

Additionally, higher-cost diagnostics such as MRIs and CT scans are being covered, whereas coverage used to be limited to simple X-rays or blood tests.

On the expense-incurred side, he adds that inpatient and outpatient maximums are growing as well. Outpatient benefits have gone from $2,000 to as much as $10,000 a year, and while inpatient has been as low as $5,000, "there's even an organization out there offering a $250,000 annual max," says Robertson.

A wider net

The need to offer a major medical plan in order to remain competitive hasn't changed for white-collar professional services organizations such as law firms and engineering firms. "We typically don't see these types of plans in lower turnover industries," says Matt Eckles, a producer with Lockton.

However, "more mainstream companies - not so many white collars yet, but a lot of gray collar industry - have started to look at it and say, 'Well, listen, I'm having a hard time offering the standard employer-pays-most major medical plan. Is there an opportunity here for me to use a limited medical as a gap plan?'" says Gittleman.

Robertson says Fringe Benefit Group is seeing more small employers, specifically in the 20-100 life range, who have traditionally offered major medical switch as they are priced out of the market.

"They can't afford $350 or $400 per month for their major medical coverage, but they are willing to spend $200 or $250 a month on an employee for medical coverage. That forces them down a tier, and the limited medical programs are growing to meet that need," he says.

Having a "mini-med" available to employees can serve as a retention and recruiting tool as well. "Clearly, the ability to offer access to self and family medical care and some of the other supplemental coverage when it's a tough job market is a big deal," says Gittleman.

Fleet is also seeing industries that have never offered any form of medical insurance get into the limited medical market. Such employers include trucking industries, hospitality, box stores, chain restaurants, nursing homes and skilled nursing facilities. They're generally introducing the benefits as partially employer-paid or 100% voluntary, "but at least they're providing their employees with access to these types of coverage," says Fleet.