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Gap Insurance: A Security Blanket for Those With High-Deductible Policies

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As costs associated with providing health insurance have risen steadily over the past decade, many companies have sought to protect themselves financially by switching to cheaper, high-deductible plans.

For example, the number of large companies offering high cost-sharing plans rose to 23 percent in 2013, from 4 percent in 2005, according to the Kaiser Family Foundation. The trend is expected to continue to intensify due to concerns that insurance costs will spike under Obamacare.

In making the move toward higher-deductible plans, companies shift costs to employees, which can be unpopular and hurt retention and hiring. To make high-deductible plans more palatable to workers, companies should consider turning to gap insurance, sometimes known as bridge insurance, as a supplementary product. Gap insurance is typically sold as a voluntary benefit, with employees paying the full cost. Employers, however, can choose to pay the cost of gap coverage.

Gap plans are designed to help shield employees from the large medical bills they can incur under high-deductible policies. They pay fixed-dollar benefits for hospital stays, outpatient surgeries and complex diagnostic procedures.

“Now (gap plans) make sense for a lot more people,” Christopher Watts, a partner with Mercer benefits consultants told The Denver Post

Most of the interest in gap insurance comes from small- to medium-sized businesses that want to provide coverage for 10 to 250 employees plus their dependents, HR consultant Jeff Allen told Benefits Pro.

Steve Goulet, principal and senior vice president for Houston-based human capital consulting firm, Ascende, said that gap insurance doesn’t pencil out for larger companies.

“What I’m hearing as I travel across the country is that (the Patient Protection and Affordable Care Act) is going to demand that people do something different, whether it’s dropping their coverage altogether or looking for a different plan,” said Stephen Parrish, marketing director for Crescent Medical Bridge, a program manager for several carriers that offers gap insurance. “I believe they will discover gap insurance if they haven’t already and determine we’re a good alternative.”

At the very least, small- and mid-size companies should consider adding gap insurance to their voluntary benefits offerings. In our next post, we’ll take a broader look at voluntary benefits employers should consider.

Account Executive, Δ Division

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