Why the USC-Brookings Schaeffer Initiative is Wrong About Fixed Indemnity
March 23, 2021
It has been our experience that Fixed Indemnity plans and other voluntary benefits offer the only affordable, accessible option to replace income lost due to day-to-day medical events.
By: Marco Nunez l Senior Analyst l Essential StaffCARE, an IAG Solution
In February of 2016, Leonard D. Schaeffer provided the funding to establish the Leonard D. Schaeffer Initiative for Innovation in Health Policy, “a partnership between the Center for Health Policy & Economics at the University of Southern California (USC). USC Professor Paul Ginsberg” was selected to oversee “the joint work of the new Schaeffer Initiative which aims to tackle some of the nation’s most pressing health care problems including the future of Medicare as costs continue to rise, shaping the Affordable Care Act to improve outcomes, and maximizing the value of innovation in drugs and devices. The USC-Brookings Schaeffer Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings.”
Specifically, the USC-Brookings Schaeffer Initiative is focused on “Charting the Course for Medicare,” “Assessing and Improving the Affordable Care Act (ACA),” and “Maximizing the Value of Innovation in Drugs and Devices.” It is, presumably, under the second of the Initiative’s mandates that a handful of articles have been produced labeling Fixed Indemnity plans “a problematic form of ‘junk insurance.’”
The USC-Brookings Schaeffer Initiative arrives at this conclusion via a convoluted patchwork of anecdotal observations and inaccurate claims weaved together with an uninformed understanding of the insurance regulatory system and marketplace. On one contention, however, we wholeheartedly support their conclusion: enforcement against any who work to present these (Fixed Indemnity) plans as something other than they are. We wholeheartedly support any and all efforts to hold these liars and charlatans offering Fixed Indemnity plans on any product platform (Group or Individual) accountable. That said, as a conscientious, ethical marketer of voluntary benefits like Fixed Indemnity plans, we are concerned by the sweeping generalizations, and anecdotally-based (rather than evidence-based) assumptions and recommendations repeatedly made about these plans by the Initiative. Furthermore, by failing to understand the unintended ways the current iteration of the ACA has impacted both employers and employees in high-turnover, hourly industries like the staffing population we serve, the Initiative’s recommendations are at odds with the best outcome for certain segments of the population.
As one of the largest providers of voluntary benefits to high-turnover, hourly industries like staffing, we consider ourselves both stakeholders and stewards of those benefit marketplaces. We prioritize solutions that deliver value to both the workers enrolling in it and the employers offering it. Our efforts must be succeeding, because our 2020 client satisfaction survey revealed we have a 74% Net Promoter(R) Score (NPS) with the employers that offer our plans. The products we offer are overwhelmingly voluntary in nature (meaning that the employee is usually paying for the benefits themselves) so it is hard to imagine we could garner an NPS that denotes world-class service if the workers enrolled in our plans didn’t find them valuable.
It is in this capacity as an experienced, ethical, thought-leader in the voluntary benefits marketplace that we strongly disagree with the USC-Brookings Schaeffer Initiative’s calls for anything beyond stricter enforcement of existing regulations. It has been our experience that, for specific segments of today’s worker population, Fixed Indemnity plans and other voluntary benefits offer the only affordable, accessible option to replace income lost due to day-to-day medical events. Removing it as a viable option for workers in the staffing industry not only unfairly limits their choice but, because of several unintended consequences of the ACA, it denies them access to real, affordable, valuable benefits.
There are a number of inaccuracies repeated throughout the Initiative’s attacks on Fixed Indemnity plans but perhaps their largest failure centers around the information that is NOT included in their articles. Specifically, they fail to acknowledge the unintended consequences of the Affordable Care Act (ACA) on hourly workers in high-turnover industries like staffing. Before exploring the dynamics that make fixed indemnity type-plans a valuable, accessible option to help defray day-to-day medical costs for staffing workers, it is helpful to overview what these plans are in context of ACA-compliant plans.
Fixed Indemnity Plans
At their most essential, insurance plans leverage historic data and mathematical probabilities to create access to a potential set of benefits that is far greater than the cost to obtain them. Insurance products (of any kind) are unique in that a part of their value derives from their potential for use as a hedge against abnormally costly events. This important acknowledgement reminds us to judge the value of insurance products through a different lens than a service or physical product.
According to ehealthinsurance.com, “[a] fixed-indemnity insurance plan is a type of supplemental health plan that gives you a fixed cash benefit payout in case you experience specific illnesses or injuries covered by your policy.” Thanks to advancements in digital payment technologies, the cash benefit can even be paid directly to the provider with any benefit above the cost of care going back to the plan enrollee. Fixed Indemnity plans can be offered in the individual, small group, and large group markets and they are regulated accordingly. Under the ACA, Fixed Indemnity plans (along with other supplemental plans like Dental and Vision) are categorized as “excepted” benefits. As an “excepted” benefit, Fixed Indemnity plans are not required to comply with certain requirements that apply to “ACA-compliant” plans.
It is critically important to correct the Initiative’s repeated assertion that Fixed Indemnity plans are unregulated. Fixed Indemnity plans first earned their “excepted” benefit status through the 1996 Health Insurance Portability and Accountability Act (HIPAA). In addition to HIPAA (and depending on whether they are being offered in the Individual or Group market), Fixed Indemnity plans fall under the purview of the Employee Retirement Income Security Act (ERISA), Consolidated Omnibus Budget Reconciliation Act (COBRA), the Americans with Disabilities Act (ADA), the Pregnancy Discrimination Act, the Age Discrimination in Employment Act, the Civil Rights Act, and other relevant budget reconciliation acts. Fixed Indemnity plans are also required to navigate a 50-state patchwork of regulations that include the requirement to submit plan designs for approval and provide annual enrollment and loss-ratio reporting as a condition of offering the plan in each respective state.
The repeated assertion by the USC-Brookings Initiative that Fixed Indemnity plans are unregulated would be laughable if it weren’t so inaccurate and misleading.
Preserve Choice and Prosecute the Bad Actors
Rarely does any benefit come from treating our society as a homogenous whole and health benefits are no exception. The ACA has numerous laudable objectives and while those goals have certainly been fulfilled for some segments of our society, it has fallen short for others. One of these areas is the ACA’s impact on high-turnover, hourly work environments like the staffing industry.
The specifics of the ACA’s impact on the staffing industry will be further discussed in the following section. It is sufficient for now to say that, if Fixed Indemnity plans do offer accessible, valuable benefit options, access to them must be preserved.
Since the inception of the ACA, Essential StaffCARE has worked tirelessly to educate and inform the staffing industry. Much of that time has been spent calling out the parade of charlatans and liars who sought to take advantage of the confusion surrounding the new law.
Much of the Initiative’s anecdotal claims appear to revolve around bad-faith actors intent on misleading individuals about the nature of the plans they were offering. It is also clear that regulatory and oversight bodies have only just now become aware of an issue that those of us on the ground have been battling for years. Bad actors will thrive until a clear enforcement message is sent. Before resorting to onerous regulations that restrict insurance options for those that need them most while doing nothing to resolve the issue of plan misrepresentation, the swamp should be cleaned out.
If, as we are claiming, there is a discernible segment of the population that can significantly benefit from a properly-designed Fixed Indemnity plan, regulations making it more difficult for workers to access these plans harm the very people who are supposedly being protected. In order to understand how and why this is so, we must understand the uneven impact of the ACA.
Unintended Consequences of the ACA on Staffing and Current Realities
Insurers have been unfairly blamed for the increasing costs of medical insurance for a number of years now as few have understood that medical insurance is not a determinant but rather a reflection of the cost of medical care. As the types of care and treatment, and their associated costs, have exploded in recent decades, the cost of the insurance plans designed to cover those costs has increased. Medical insurance is a financial vehicle to aid in the covering of medical bills and as such it reflects, but does not necessarily cause medical cost increases.
For centuries mathematical and statistical principles like the Law of Large Numbers have been leveraged by actuarial scientists to create insurance products that allow people to purchase a protective umbrella of financial benefits that exceeds the cost of securing the coverage. This is the power of actuarial science: by leveraging proven mathematical principles, thousands of dollars of potential benefits can be accessed for a relatively small financial investment.
Prior to the ACA, insurers were able to make use of a number of additional actuarial mechanisms to balance plan cost with plan benefits. Insurers could carve out certain benefits (example: leaving maternity benefits out of a plan for teenage hospitality workers) to keep plan cost down, or cap overall benefits with an annual or lifetime maximum. In establishing a new floor for the type and level of benefits now required to achieve compliance, the ACA removed several cost-balancing mechanisms from the actuarial scientists’ tool chest. With nowhere else to go, the significant upward pressure on plan cost brought about by the ACA’s requirement that certain benefits be included (with a requirement that some of those benefits be provided at no out-of-pocket cost to the enrollee), premiums, deductibles, and out-of-pocket maximums exploded while co-pay benefits plummeted. No place is this more true than with the lowest (“Bronze”) level plans available at exchanges and this is where the hourly workers of high-turnover industries like staffing have been unequally impacted by the ACA.
According to the American Staffing Association, the average rate of temporary worker turnover in 2019 was 415% across the staffing industry, down slightly from 420% in 2018. This single data point radically alters the impact of the ACA on staffing companies because time (in the form of longevity) plays a huge role in an actuary’s ability to provide the level of benefits now required by the ACA at an affordable cost. It was for this very reason that staffing firms found it very difficult to find affordable, valuable “Major Medical” plan options for their temporary employees prior to the ACA and it is why those employees have found little value in the plans available to them after the law’s passage.
Because of this complicated mix of factors, the kind of comprehensive Major Medical insurance now required for Applicable Large Employers (ALE’s) under the ACA, never took off in the staffing industry. The plan premiums were far too high to be accessible for hourly workers. While the ACA’s new benefit floor only exacerbated these issues for complaint plans, the Employer Mandate’s (A) and (B) penalties placed staffing firms between a rock and a hard place. There wasn’t much value in the most accessibly-designed Bronze-level ACA-compliant plans but staffing firms now faced an existentially-threatening level of penalties for failing to comply. As if that weren’t enough, the staffing industry’s 415% turnover meant that a staffing firm that only employed a handful of temporary workers each week could easily cycle through enough workers in a year to ensure they would qualify as an ALE.
According to the Kaiser Family Foundation (KFF), the average deductible for a Bronze plan on the ACA exchanges was $6,506 in 2020. This means that an enrollee would be required to pay the first $6,506 in medical care costs out of their own pocket before any meaningful plan coverage would kick in. In another report, KFF highlights that, outside of medical insurance premiums, the average non-elderly person spends approximately $800 per year on out-of-pocket medical costs. The average worker may not be an expert on medical insurance, but they absolutely understand that paying any amount of monthly premium just to secure the privilege of paying what would likely be all of their medical bills for the year out of their own pocket is not a valuable or wise use of their money.
While the protection from unexpected catastrophic medical costs is certainly compelling for some, an hourly worker who lacks the means to cover a $1,000 medical emergency and has very little need for annual medical care is unlikely to find the benefit outweighs the significant cost of precious and finite financial resources (especially when the average person in the US is visiting the doctor less than 3 times per year).
It is in a market faced with this complicated swirl of realities that temporary workers are judging the relative value of their insurance plan options. While it is convenient for the Initiative to presume everyone in the country is analyzing the value of ACA plans equally, the reality is that the workers of the staffing industry are faced with a very different set of calculations.
The Unique Value Proposition of Fixed Indemnity Plans
The ACA made several laudable changes to the design and limitations of existing “major medical” health insurance plans but it was by no means a perfect piece of legislation. While the average level of benefits received has certainly been elevated across the board, the landmark healthcare legislation has not benefited everyone uniformly.
Raising the “floor” of required benefits provided a theoretical increase in coverage while simultaneously placing significant upward pressure on coverage premiums for ACA-compliant plans. While subsidies have certainly made obtaining coverage accessible to many more Americans, the ACA only allowed cost-sharing provisions (deductibles, copays, and coinsurance levels) as a mechanism for insurers to release the pricing pressure on premiums. Deductibles and out-of-pocket maximums continue to flirt with the maximum amounts allowed while copays and coinsurance splits plummet.
As a result, the average Bronze-level plan deductible on the ACA exchanges in 2020 was $6,506. The average out-of-pocket maximum for a Bronze plan in 2020 was $7,731. Some of the Bronze plans include copay benefits (like a $30 or $50 physician’s office visits), but because the ACA does not require copay benefits, it is common to see Bronze plans without any copay benefits. Many plans will require the enrollee to pay 100% of medical costs until the deductible is satisfied while others will cover 60–80% of the costs until the deductible is satisfied. Once the deductible has been satisfied, the plans will cover 80–90% of medical claims until the out-of-pocket maximum has been satisfied. Once the out-of-pocket maximum has been satisfied, the plan insurer is liable for 100% of claims for the remainder of the policy’s one year contract.
For workers who qualify for generous premium and cost-sharing subsidies, enrolling in coverage makes complete sense: the monthly premium costs will be low and the cost-sharing subsidies will ensure that most, if not all, of their day-to-day medical expenses will be covered.
For workers who do not qualify for premium and cost-sharing subsidies they are left with two options: 1) enroll in an ACA-compliant plan and pay monthly premiums that, regardless of how low they are, only purchase the opportunity for the enrollee to pay the first $6,500 of medical bills out of their own pocket or, 2) enroll in a lower-cost “excepted” benefit plan like fixed indemnity that will provide tangible, valuable, income-replacing benefits.
The chart below illustrates the value proposition of the average ACA exchange Bronze plan compared to Essential StaffCARE’s flagship Fixed Indemnity plan for the staffing industry.
The scenarios below are based on the average US worker. According to the Bureau of Labor and national census statistics, as of 2019 the average worker is 38.4 years old, makes $35,977 per year and has an hourly wage job in retail sales.
They visit a doctor 2.78 times per year, and spend zero nights in the hospital, according to 2018 CDC statistics. For the purposes of this comparison, doctor’s visits have been rounded up to an even three per year. Statistically speaking, one of their visits is for a chronic condition, of which the most common is hypertension; another of their annual visits is for preventive care, a vaccination; and their last visit is for a new problem, most commonly a respiratory issue such as bronchitis. That is the extent of the average American’s annual health care needs.
Using this perfectly average profile, below are the financial outcomes from the average worker’s medical scenario:
As you can see, the value derived from the Fixed Indemnity plan is far superior for the average worker in the staffing industry.
We support and applaud any and all efforts to provide oversight and accountability to any and all bad actors in the benefit marketplace. Those who would ignore existing regulatory requirements and purposefully and knowingly mislead consumers about the nature of the plan being considered should be punished to the fullest extent of the law. If we value the kind of choice and individual agency that currently allows workers to decide which coverage options provide the most value for their situation (as the repeal of the unpopular Individual Mandate most certainly affirms that we do), we must ensure the message is being sent to industry participants that existing laws and regulations will be strongly enforced.
At the same time, we must also protect the right and ability of the individual to select the benefit options that work best for their situation. To fail to do so by placing access to plans like Fixed Indemnity out of reach would have a very tangible negative impact on at least some segments of our population.
Insurance Applications Group is a technology-forward benefits design and marketing firm creating health insurance products for specific industries and employee groups. For more insights and helpful information, visit the IAG Benefits Resources page.
Essential StaffCARE is the largest provider of healthcare benefits to the staffing industry, providing medical plans that not only keep employees healthy, but improve retention and reduce turnover. Serving over 2,450 staffing company clients and enrolling over 750,000 temporary employees annually, our key healthcare product is a voluntary, Fixed Indemnity plan, custom-designed to affordably support the day-to-day medical needs of the average hourly worker. We also offer ancillaries like Dental, Vision, Term Life Insurance, and Short-term Disability, as well as plans compliant with the ACA and state Individual Mandates. Research shows that workers enrolled in our plan stay on the job 47% longer than those who do not. ESC is an American Staffing Association (ASA) Corporate Partner, and an award-winning member of the National Association of Health Underwriters (NAHU). For more information, please visit essentialstaffcare.com.