Some 50 years ago, my grandfather purchased a Sunfish sailboat. In those days, my dad and his siblings sailed it on Long Island’s Little Peconic Bay. Nowadays, we keep the old boat on the shores of the Outer Banks of North Carolina and sail it on the Atlantic when the summertime wind and surf are just right. A few years ago, a steady southern wind blew, and I sailed a reach almost perpendicular to the shore. I was sailing the 14-foot boat solo, and the wave pattern was tricky that day, requiring constant focus. Thus, I was oblivious to what was developing behind me, back ashore.
After a half hour or so, I came about and looked back up at the western sky. The afternoon thunderheads were rising and expanding so quickly it was as if Mother Nature was dispensing a giant can of Reddi-wip. I wondered aloud if I’d beat the storm back to the beach. About halfway back to shore, the lifeguards had already cleared the beach of the day’s sunburned tourists. By the time I reached the breakers, the wind whistled and the thunder boomed, but I managed to haul the sailboat onto the beach before the worst of the storm arrived.
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Of course, I could have avoided all of this unnecessary drama with one proactive glance over my shoulder. But, I was too focused on the waves and conditions right in front of me to take that precaution.
This summer, did you glance back over your shoulder at the proposed regulations the Department of Labor, Department of Health and Human Services and Department of the Treasury issued regarding voluntary supplemental medical products, such as hospital indemnity and critical illness? If your organization offers these products, now is a great time to begin preparing for if/when these regulations become final.
The regulators’ overarching concern seems to be that “some individuals may incorrectly understand these policies to be comprehensive major medical coverage that would be considered minimum essential coverage.” The regulators propose to alleviate this concern by:
· Reminding employers that these products cannot be a part of or coordinate with an employer- sponsored group health plan (this requirement isn’t new).
· Requiring employers to explicitly notify individuals that these voluntary products are not major medical coverage.
· Mandating that these products provide only a flat per-day benefit or a flat per-period benefit. For example, the plan can’t pay $500 for a day of hospital confinement, $300 for a day of outpatient surgery and $150 for an MRI.
· Using the threat of the Affordable Care Act’s $100 per-day penalty to encourage compliance with these regulations.
The regulators’ overarching concern also extends to disease-specific policies that cover multiple diseases or illnesses. The regulators asked for comments regarding “whether to limit the number of diseases or illnesses that may be covered in a specified disease policy.”
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While regulators don’t express concern about accident policies, they don’t seem to recognize just yet that many accident policies are now much more than traditional accidental death and dismemberment policies. Many accident policies nowadays pay varying amounts based upon the underlying medical care. Thus, if we follow the regulators’ train of thought regarding the flat per-day benefit requirement, we might wonder if the final rules will also apply to accident products.
What can employers do now to prepare for this approaching thunderstorm?
1. Confirm that all employer-sponsored hospital indemnity, critical illness, cancer and accident policies are separate from and do not coordinate with the group medical plan.
2. Flag any of these policies that pay differing benefits for differing services.
3. Flag any disease-specific products that pay benefits for multiple diseases.
4. Flag any accident products that are not old-fashioned AD&D policies.
For any flagged policies, consult with your vendor, benefits consultant, and attorney and chart a course around this storm. For example:
· Perhaps your vendor is already planning on amending its products to comply with these proposed regulations.
· If your voluntary benefits menu has become cluttered over the years, maybe it’s time to strategically cull the offerings to one or two compliant options that perfectly complement your employer-paid benefits.
· If your review reveals that these flagged policies no longer mesh with your total compensation philosophy, the products could simply be tossed overboard before this thunderstorm arrives. If certain employees wish to retain their policies, they can contact the insurer directly about the available options.
Finally, if your review flagged certain policies and your firm offers a qualified high-deductible health plan, confirm with your tax adviser or attorney if enrollment in any of those flagged products would disqualify an individual for health savings account eligibility.
