What Is a Gap Plan? How Does Gap Insurance Work?

Mind_The_Gap

It pays to “mind the gap.”

With group health insurance prices continuing to rise, a gap plan can be an effective solution to lowering your group’s health insurance prices without compromising benefits. 

It’s an innovative, outside-the-box approach that could deliver significant results. It was a key part of an approach we used to save one small business over $46,000/year

So let’s briefly unpack it.

How a Gap Insurance Plan Works

A gap plan doesn’t replace your group’s major medical health insurance policy, but you’ll want to adjust your major medical plan to achieve the desired results.

To get the biggest impact, raise the deductible on your major medical policy. We typically suggest you try to move it to $5,000.

You then set up a gap plan to cover medical expenses from whatever deductible you pick up to that $5,000 major medical deductible.

In terms of Obamacare, we’re simply moving your health insurance plan from a gold plan to a bronze plan, and using the gap plan to cover the difference (the gap) in benefits.

An Example of an Effective Gap Plan

For our example we’ll imagine that we’re going to re-structure the Dunder Mifflin employee benefits plan in a way that even Michael Scott would understand.Dunder-Mifflin-Logo-Cast-the-office-28us-29-34267_1024_819-390x430

First, let’s assume the company currently has a group health insurance plan with a $1,000 deductible. It includes the usual benefits like a prescription drug card and an office visit copay.

Here’s what we’ll do:

1. Raise the major medical deductible. We will take their deductible (what an employee pays for medical care) from $1,000 to $5,000. Yikes!

We are leaving the other plan features – the office visit copay and the drug card – exactly as they are. To keep things simple, we’ll make sure the plan pays 100% after the $5,000 deductible (no 80/20 “coinsurance” stuff).

Raising Dunder Mifflin’s deductible will significantly lower their monthly premium for their health insurance plan. That’s where we get the savings.

2. Establish a gap plan to cover everything between $1,000 and $5,000. The gap plan will have a $1,000 deductible and will only cover $4,000 in medical care.

It will cover everything the health insurance policy covers with two differences: No office visit copay and no prescription drug card. We don’t need those because the major medical plan already provides them.

The bottom line: The cost of the gap plan will be less than the amount of money saved in switching to a higher deductible. So we have successfully lowered Dunder Mifflin’s cost (including the portion paid by employees) while keeping the same level of coverage.

(Insurance Ninja Move: If we can, we will significantly increase their savings by moving them to a partially self-funded health insurance plan.)

How Employees Use a Gap Plan

So we’ve used a gap plan to lower expenses and keep benefit levels the same. Will there be any real change for an employee?

Yes. An employee will now have two insurance cards instead of one. That’s it – seriously.

Watch this 2-minute video:

Will a Gap Plan Work for You?

Small businesses and organizations all over the country are beginning to utilize gap plans with fantastic results. It’s a compelling solution to a common dilemma: the soaring cost of health insurance.

 

What’s the Next Step?

AC Forrest can give you a no-pressure, no-obligation comparison between your current coverage and the approach we outline here. We’ll summarize it on one page so you can quickly see the difference for yourself.

What do you have to lose?

Are there Gap Plans for Individuals?

Sort of. We explain that over here.

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