Employers continue to search for relief from higher health care costs. Medical premium trends continue at or near double digits and many companies have found the limits of cost-shifting. Participation continues to erode. The number of employers providing coverage declines annually. Some say the mini-medical and limited-benefit medical market offers both employers and employees refuge - replacing comprehensive coverage with a limited-benefit arrangement. Others caution against such an application.

George Duczak, founder of the American Worker Plans, was just such a person. That is, until this month.

"We're very apprehensive about those [replacement situations]," Duczak has said. "You've got to go to incredible extremes to make sure [workers] fully comprehend."

Duczak's serious. His call center shuts down the application process when an applicant indicates they're trading comprehensive coverage in for a mini. At that point they're told to think about it some more and talk to an expert.

Whereas in the past Duczak vowed not to go within 20-feet of such replacement cases, he's softening a bit.

He's confident that pairing heavily employer-subsidized catastrophic coverage with a front-end limited medical program addresses his concerns about employee confusion. The cost difference compared to comprehensive coverage must also be large enough to attract an employer's attention - "it has to be 40% to 50% below major medical," according to Duczak.

The purpose of the new pairings, he says, is to establish a new beachhead in the ongoing battle over medical coverage and cost.

"Health insurance is not the responsibility of the employer solely or the employer but rather it is a partnership. I'll provide you with back-end protection for large claims exposure but you buy first-dollar coverage," he says.

Zigging when others zag

"One of my primary responsibilities at our company is to continually work to develop innovative alternatives, with the single focus of actively working to make health insurance affordable to both the employer and the employee," Duczak says.

Nearly two decades ago, that responsibility was weighing heavily on Duczak. He tacked away from his successful Chicago-based traditional group benefits brokerage and headed into the headwind of supplemental medical. At the time the market was thin and largely ignored by traditional brokers and advisers.

Since that decision he has seen three of his six children join him at the firm - including son Jon, who often serves as his exhibit hall first mate.

In his 30+ years selling group health insurance, he's also witnessed many trends wash over the landscape of health benefits - from association plans and multiple-employer trusts in the 70s, to HMOs and the PPOs in the 80s, to the managed care umbrella of the 90s and now consumer-driven health plans.

"These are all well-intentioned concepts, but none were able to stymie the health care cost tsunami," he says.

The problem is compounding cost increases, he says. He questions media outlets running optimistic articles about how annual medical trend increases are moderating at just over 10%. Stacked increases like that are crippling to employers and individuals alike.

"If we are looking at an average family premium of over $12,000 annually today, what will it be in 2015, $25,000, $30,000?" says Duczak.

Meanwhile, employees are stuck on major medical. The only good coverage is comprehensive coverage, is the belief.

"Everybody would certainly enjoy that, but it has gotten to the point that tagged with mandated benefits, premium taxation and carrier costs, it simply has become unaffordable," according Duczak.

He thinks a mini-medical product can be paired with employer-sponsored catastrophic coverage to provide workers with an affordable middle ground, between traditional and frequently unsustainable comprehensive coverage and much less robust first-dollar limited-medical coverage.

Making the transition from comprehensive to limited coverage is a familiar fault line for many in the industry. It's a perilous endeavor, some say. Duczak understands the concern but insists that as long as "ethical marketing" remains the paramount focus for the broker, it's doable.

The industry - along with the rest of society - has undergone a digital transformation of late, what with the introduction of a variety of efficiency mechanisms like online enrollment, call center technologies, avatars and the like. Regardless, both generations of Duczaks believe that nothing has yet emerged to replace or diminish the need for trust.

Jon Duczak, one of the elder Duczak's three children working at the American Worker Plans, embraces technology but also understands it is essential to understand the role and value of personal interaction, especially in the sale of health insurance.

"In an Internet world, I still feel it is very important to build personal relationships," he says. "Building face-to-face personal relationships ... will always be the core value of our organization."

Temperature taking

Eastbridge Consulting recently took a close look at the mini-med and limited medical benefits market. While some indicators show the market may not be as frenetic next year as it was this year, the firm's overall outlook remains bullish.

Eastbridge notes that the number of carriers entering the market has slowed. The number of carriers that don't currently offer a limited benefit plan but plan to do so over the next three years has dropped from 32% in 2006 to 10% this year. The firm notes that about two-thirds of the voluntary carrier community does not offer such a program. Sales are also slowing. The category posted $450 million in sales in 2007, up 11% over the year before, but a far sight from the 30-point gains of the recent past.

Overall, it's onward and upward according to the firm. Right now the products are primarily geared for part-timers and other workers without medical benefits, but they will break through those boundaries, Eastbridge's Bonnie Brazzell says.

"[As] employers, especially smaller employers, are having to eliminate medical insurance, the market for mini-meds is expanding to the full-time employee who works for an employer that does not offer traditional medical," according Brazzell. "Today, most employers are not totally eliminating their medical plans and replacing them with mini-meds, instead they are continuing to increase employee contributions [and] co-pays. However, for those that do eliminate [coverage], mini-meds will be offered."

Broader economic data corroborates Brazzell.

Economist Elise Gould, of the Economic Policy Institute in Washington D.C., notes that while the overall health insurance coverage rates increased from 2006 to 2007, according to the U.S. Census Bureau, the decline in employment-based health insurance fell yet again.

"[It's] fallen every year, in fact, since 2000," according to Gould.

She is quick to point out that those statistics don't make any comment on the quality of insurance coverage.

It's an important question to ask, she says.

Insurance, Gould continues, at its most basic level should protect individuals from large losses of income as a result of some kind of accident or other unexpected event.

"The number one thing you want to have when you have health insurance is to have some sort of maximum liability that you'd be facing if you had some sort of major illness," she says.

Limited medical programs and other supplemental products are designed to do the exact opposite, offering members capped first-dollar coverage for doctor's visits, routine exams and hospitalizations.

Gould also says advisers are right to be skeptical about the level of understanding most policy holders have about their coverage.

"They may think, 'Oh, this is pretty good coverage. I can afford to pay these premiums.' But when it comes right down to it, is it going to really cover them? They may not know," according to Gould.

Given the economic climate she doesn't expect that the ranks of uninsured will continue to shrink as they did in 2007. She does, however, expect the erosion of employment-based coverage to continue.

"I would think that the picture for 2008 would be much less bright," she says.

Count on confusion

It's easy to see how employees and even employers could be confused. For one thing some late-model mini-medical plans hit many of the same notes that their comprehensive coverage brethren are striking to attract interest from employers.

Keith Appleton, founder of Foundation One Insurance Services, says the add-ons like wellness programs, nurse lines and patient advocacy are not meant to confuse consumers. Instead they are designed to make sure the participant's limited coverage goes as far as possible.

"The patient advocacy program is there for an insured who incurs a hospital claim that exceeds $2,500 of out of pocket expenses, which is very traditional with limited-benefit plans. Instead of that employee just eating that hospitalization-related expense, we have engaged a service that advocates on their behalf with the hospitals and other providers to reduce the amount of money that that insured owes to that provider," Appleton says.

He, too, came into the market around the same time as Duczak, starting Foundation One in 1998. But while major medical erosion is what caught Duczak's eye, Appleton was struck by the fact that the ranks of employees that traditional benefit brokers simply ignored continued to grow.

It's taken awhile for the mini-med marketplace to really mature, but Appleton says it's exploded in the last three years. "Today it's kind of crowded," he says.

He also warns brokers against trying to replace comprehensive coverage with a mini-med plan. It's a "minefield," according to Appleton.

"The reality is that the benefits are limited. If the employees are not fully prepared for ... the reductions of benefit, the employer - and the broker of course - is going to get a lot of chatter," he says.

But can a limited-benefit medical program really do what still seems to be out of reach for many comprehensive plans - drive employee health?

Jeff Stelnik, general manager of Cigna Voluntary, says yes.

It's all about usability, he says. Cigna Voluntary members have access to the carrier's network, giving them deep discounts at providers as well as access to a 24-hour nurse line.

"It's those aspects around usability that are critically important to improving health," he says.

Cigna doesn't pair a mini-med program with catastrophic coverage, saying the price would put it out of reach of the market it's trying to serve with its existing program.

"Having a catastrophic component is important," he says, but "the most important aspect is income protection, not asset protection." These workers are looking for "something that gets them routine care, relationships with doctors, nurse line, a useable benefit," according to Stelnik.

Stelnik, like Duczak and Appleton, agrees that communication is critical.

"You cannot improve the health of individuals if they don't know how to use the plan or they don't understand what they are signing up for and the benefits they are enrolling in," he says.

He also agrees that the mini-medical market is fertile ground for miscommunications.

Stelnik points to an example where a plan stipulates a $10,000 annual hospitalization cap, with a $250 daily maximum. The benefit sounds rich enough on its face, but considering that the claimant would have to spend 40 days in the hospital to reach the annual cap - an extremely rare occurrence - puts the coverage in a different light.

What the future holds

At the end of the day, Duczak still likes to rein in expectations for his corner of the benefits marketplace.

"[Mini-meds] certainly are not a solution for America's health care cost crisis," he says, noting that each new entrant ratchets up the hype around the products. In 1992 he remembers there were probably just five types of limited medical programs available, today that number tops 50, he says.

"It's really exploded," Duczak says. "But I think to a large extent people very much overstate the market for a limited medical plan." They do that while also underestimating the administration, enrollment, participation management, risk and expense of these programs which is driven in large part by high turnover, he says.

Ultimately, Duczak pegs his corner of the marketplace at roughly 20 million people.

PODCAST

Listen to our conversations with George Duczak, Jeff Stelnik and Keith Appleton in their entirety online at EBA's Raw Bar. Visit eba.podhoster.com.