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The main value of an employer-sponsored benefits plan is guaranteed acceptance for all employees in an organization. With guaranteed acceptance, eligible employees receive predetermined coverage without the need to provide any proof of good health. Members aren’t subject to any exclusions related to certain medical conditions.
That said, benefit coverage limits aren’t talked about enough in the benefits space. As an employer providing benefits, you need to be aware of how the various benefit coverage limits work. This is also important in conveying the right information to your workers. This helps avoid confusion and frustration when a claim is denied, or not reimbursed for the expected amount.
In this blog post we will outline the most common benefit coverage limits and what these features mean in relation to your benefits plan.
What is a Benefit Coverage Limit?
Simply put, a benefit coverage limit is the maximum amount an individual can be paid out by the insurance company for a particular claim. The various types of limitations are put in place as a means of controlling costs, helping ensure stability of premiums, and long-term sustainability of the plan. Once the limit is reached, all other expenses for that particular type of claim must be covered by the employee out of pocket.
Benefit Plan Limits
All employee benefit plans have limits on the amount that can be claimed under each part of the plan. For instance, health and dental benefits may have other cost-sharing features such as deductibles, co-insurance or co-payment, and have reasonable and customary fee limits. We will review each of these below.
Benefit Maximums
Benefit maximums are the annual amount per year that your insurance carrier will reimburse.
For extended health care, plans have independent maximums for each medical item and service category. These may include healthcare practitioners, prescription drugs, hearing aids, private duty nursing, and many more!
Dental care maximums are categorised by Basic Services, Major Services, and Orthodontic Services. In most cases, benefits plans that include Major Dental and Orthodontic services are limited to 50% among mid sized employers. In most cases, plans with fewer than ten active members are not large enough for insurance carriers to consider taking on the risk of orthodontic services.
Per Practitioner vs. Combined Maximums
Paramedical practitioner services are often the most utilised benefits within the extended health care category. Others include prescription drug coverage, and vision care.
Paramedical services such as massage therapy, naturopathy, and physiotherapy often incur a high volume of claims. At the same time, they incur lower costs on a per claim basis compared to other insured medical items. A plan sponsor may choose to insure paramedical as either a combined or per practitioner maximum. If the plan covers $500 per practitioner, then every insured employee and their dependents are allocated $500 per year. This includes coverage for each covered service such as massage therapy, physiotherapy, etc.
For a combined maximum, each insured member is generally eligible for a total of $1000 per benefit year. Thus, they will need to be more strategic in which of these services they utilise in a given year.
Reasonable & Customary Charges
A customary charge is the amount an insurance company considers a reasonable charge for a service. It’s based on what providers usually charge for the same medical service per geographic area. For example, a registered massage therapist at a boutique spa may cost upwards of $200 per appointment. However, the benefit coverage limit for an RMT in your area may only be $100 per visit. Therefore, your insurance carrier will not reimburse the full cost of the spa service, even if you have a remaining balance under your annual benefit maximum. If you have a health spending account through your plan, you may be able to have the balance reimbursed.
Non-Evidence Maximums - (Life, AD&D, STD, LTD)
A Non-Evidence Maximum (NEM) is the highest amount of life or disability coverage a member is guaranteed to receive without proof of good health. Alternatively, the benefit plan maximum is the highest amount of coverage available. A small company should expect a much lower Long Term Disability (LTD) NEM than a company with a much larger staff.
An employee’s income may qualify them for an amount greater than the NEM. For example, an LTD policy may include a $10,000 benefit maximum with only a $3,500 Non-Evidence Maximum. In this case, someone earning $7500 per month may qualify for a benefit that would pay up to $5000 per month. Based on the overall plan maximum of $10,000 per month, this individual may appear to be fully insured.
However, given the NEM of $3500, they must submit a medical questionnaire to the insurer in order to qualify for the additional $1500 of monthly coverage. This shortfall is often overlooked and holds significant potential liabilities. This is especially true for employers who lack processes to ensure employees are given additional coverage application opportunities.
Deductibles
Some plans start with a deductible. This means the dollar amount that employees pay for care before insurance starts contributing. For example, with a $50 family prescription drug deductible, employees would pay the first $50 of covered services towards enrolled family members. Once the deductible is reached, health insurance starts sharing the bill.
Coinsurance
Coinsurance refers to how the cost of a benefit is shared between employees and employers. It exists in addition to any deductibles. For example, an 80% co-insurance means that after the deductible has been satisfied, your plan will cover up to 80% of an employee’s bill.
To calculate the expense, multiply the cost of the service by the coinsurance percentage specified in your benefit booklet. The amount will vary per service. If a plan member visits a massage therapist that charges $100 for their appointment, then $80 would flow through the insurance carrier and the remaining $20 would be paid out of pocket.
Putting it all Together
The factors discussed above are cost savings measures helping to control the expenses that can be claimed under a benefits plan. In most cases, premiums charged by an insurance carrier to fund a health and dental plan are directly tied to claims paid. Implementing a variety of limits, helps to control costs to fund the plan, and allows greater long term stability for your benefits plan within the constraints of your benefit coverage limits.
