Gap Medical Products: What They Are–and Why They’re Increasingly Going to Be Needed

As major medical insurance regulations remain in a state of seemingly constant flux and medical inflation continues to rise, Gap medical coverage is emerging as an important product for insurance consumers. Even with major medical coverage, steep out-of-pocket expenses can strain the finances of average households. By offering Gap medical products, insurance companies can provide a layer of protection against large expenses not covered under high deductibles and out-of-pocket medical plans.
Here’s what you need to know about these useful policies and why they are starting to play a crucial role for major medical consumers.

First off, what exactly is a Gap medical product?

In the marketplace, the phrase “gap plan” is used loosely for various products, many of which are not entirely accurate. Certain supplemental health plans may pay flat amounts for particular services, which can sometimes be referred to as “gap”, but these plans are more like hospital indemnity or limited medical-type products. They may be used to cover gap expenses but aren’t necessarily designed to explicitly cover those costs and therefore may fall short of the insured’s need.
True Gap medical coverage is a supplemental health insurance product that covers out of pocket expenses for an insured who is already covered by a major medical insurance program. It’s designed to “fill in the gap” between coverage from a major medical policy and the final cost to the insured.  The product is designed to reimburse the insured person directly, covering expenses up to the plan’s annual out of pocket maximums. The product is analogous to Medicare Supplement Insurance, although Gap medical coverage is targeted to an active working population, not retirees.
The first generation of these products usually required that the insured pay the out-of-pocket costs upfront and then the insurance company would offer reimbursement. The second generation of these policies has started to see a change in payment structure that is now allowing for the insurance company to pay the healthcare provider directly. The insured incurs no out-of-pocket expense for a covered service.

What is needed to sell Gap medical products?

These insurance products are designed to be offered in conjunction with an employer-sponsored major medical plan. There is no need to develop or use existing provider networks, as any A&H insurance company can enter this market. Claims generally are adjudicated based on the insured’s Explanation of Benefits (EOB) of covered services and a claim form. However, as the sophistication of this product evolves (i.e. the second generation of Gap products), administration will become more complex.

What types of services do Gap medical products typically cover?

These policies usually cover the out-of-pocket costs for medical services that are commonly considered to be both infrequent and generally unavoidable. Most plans provide coverage for out-of-pocket costs related to (but not limited to):

• Inpatient hospital admissions and stays
• Outpatient hospital, surgery, and diagnostic services
• Outpatient chemotherapy/radiation
• Ambulance transportation
• Durable Medical Equipment

These plans are not meant to cover every out-of-pocket expense.  They generally do not reimburse for an insured’s cost sharing related to Physician’s office visits, Emergency Room/Urgent Care visits or Prescription drugs. By limiting the types of expenses these policies cover, insurance companies can ensure that the policies are utilized in the manner for which they were developed: to protect insureds from unexpected financial hardship while keeping premiums affordable for the policyholder.

What advantages do Gap medical policies provide?

Gap medical products provide protection at low cost to consumers and low risk for insurance companies. For customers, these plans work better than health spending accounts (HSAs) because they provide coverage for similar expenses without having to worry about fund management. For insurance companies, these insurance products result in low exposure to financial severity since they are limited to a policyholder’s annual out-of-pocket maximums.
Regardless of changes to the Affordable Care Act, Gap medical coverage is becoming increasingly necessary for policyholders. The ACA and its impending reform do not address medical cost. Therefore, as medical inflation goes unchecked and major medical plans become less affordable, more and more out-of-pocket costs will be pushed onto the consumer.
If you are thinking of developing a new Gap medical product for your insurance company, it’s smart to work with an insurance product development company that has experience providing advice for these particular products. Not only do jurisdiction requirements vary by state, but it’s also important to know how your product will dovetail with the ACA and any proposed legislation changes. Partner with experts who can help you successfully navigate these specifics.
To discuss Gap medical product pricing or insurance product development, contact Perr&Knight at (888) 201-5123 ext. 3 and we’ll be happy to answer any questions or discuss solutions that are best for your company.