As the cost of health care continues to rise, and with it the cost of major medical coverage, employers and individuals are looking for more affordable coverage alternatives. Insurers, anxious to meet market demand, have developed several products designed to address cost concerns. One development, which has generated a lot of interest from employers and consumers and that has received a lot of media coverage, are the so-called “mini-med” products.
As the popularity of mini-meds has grown, so has the confusion as to what constitutes a mini-med product and, as a result, the regularity scrutiny of the product is increasing. Most state insurance codes, as well as the NAIC’s minimum standards model act, do not include a definition of, or standards for, a mini-med coverage. Mini-med products run the gauntlet from very basic major medical coverage to hospital indemnity products (“HIP”) to limited benefit plans or some combination of any of the above. These products also vary as to benefits covered, caps on specific services, annual benefit maximums and lifetime maximums. There also variations in the amount of upfront costs that must be borne by the covered individuals.
Regulatory reaction to the products is almost as varied as the products themselves. At one end of the spectrum, the state of Tennessee includes mini-med products as part of its overall program to provide coverage to the uninsured. At the other extreme, some states appear to be trying to regulate mini-meds out of existence. In between are a myriad of state regulatory stances that force insurers to develop a state-by-state compliance strategy to ensure that their mini-med products do not run afoul of state law.
The lack of a statutorily defined mini-med product has resulted in a patchwork of regulatory issues. Some states, and some product designs, make the product appear to be a basic form of major medical coverage. When designing a product that appears as basic major medical coverage, insurers must be certain that they examine HIPAA and state-based insurance reform laws to determine to what extent their products fall under the regulatory requirements of these laws. Products that provide benefits on a cost-incurred basis might be subject to HIPAA requirements such as guaranteed issue, rating restrictions and portability requirements. Other issues that might arise are whether these types of mini-med products are subject to state mandated benefits. Unfortunately, the answers to these questions will vary on a state-by-state basis.
Mini-med products whose design features more closely resemble fixed indemnity products such as hospital indemnity products and limited benefit products, although generally not subject to HIPAA, have their own set of regulatory issues. First, in order to fall within the statutory framework of HIP or limited benefit products, the design of these products must ensure that the benefits are paid on a fixed indemnity basis rather than some variation of cost-incurred benefits. In addition, these products must be designed to meet the statutory requirements of state minimum standard requirements for HIP, limited products, etc. Even if the carriers properly design their mini-med products to fall under a state’s minimum standard law, in some cases carriers will still need to convince regulators that these products are mini-med products and not a health benefit plan.
Carriers entering the mini-med marketplace must also pay close attention to their marketing materials and field force. Consumer groups, and the trial bar, are already beginning to make noise that some consumers are being misled when they purchase mini-med products. The typical allegation states that the consumer thought that they were purchasing comprehensive major medical coverage. These groups further allege that consumers are not getting the medical care they need because their mini-med coverage is not comprehensive.
To counter these claims and the possible lawsuits that might follow, carriers should be certain that their marketing materials make it clear that their mini-med product is not comprehensive in nature. Although the name itself, “mini,” implies that it is not “major” medical coverage, carriers’ marketing materials and policy descriptions should also emphasize this point. If a carrier is filing its product as a HIP or other limited benefit product, state law in many cases will also require that the carrier identify the product’s limitations.
Carriers should also train their field force to accurately describe the product to potential customers. Mini-med products are an inexpensive alternative to major medical coverage. These products are more affordable because they do not offer the full range of benefits of comprehensive major medical coverage. Carriers should train their field force to stress this point to help avoid any confusion among customers who are in the market comprehensive medical coverage.
Properly designed and marketed, mini-med products can be a less-costly alternative for those individual and employers who seek some basic level of health care coverage. Improperly designed and marketed, these products can become a regulatory headache.
Chris Petersen is a partner in the firm’s insurance group. He concentrates in legal and compliance services relating to the Health Insurance Portability and Accountability Act (HIPAA), privacy, state small-group and individual insurance reform regulation and the interaction between state and federal law. Chris received his bachelor’s degree from Washington University in St. Louis, Mo., and his law degree from Georgetown University.