Before you go on, let’s talk briefly about how we label this kind of insurance. It is indicative of the evolving nature of the business that we still do not have an agreed vocabulary for talking about these products.

“Mini-med” is the commonly-used term. We don’t like to apply that label to the coverage we offer because it is not descriptive of the particular plan design we use. Some competitors (for example, Aetna SRC and CiGNA Starbridge) offer a product in this genre that could reasonably be called mini-med. It includes all of the usual features of traditional health insurance: deductibles, co-insurance, co-pays and payment based on the amount of expense incurred – plus benefit caps and a relatively low overall maximum which is typically $20,000 or less but can go up to $50,000 (plans that provide maximums above that level tend to be described as “mid-med” plans, just to add to the confusion). Note that these kinds of “expense-incurred” plans would appear to be threatened by the new health care legislation (see the Health Care Reform section).

Our products, on the other hand, are built on a different chassis. Instead of basing our benefits on the amount of expense incurred, we pay a fixed-amount when a covered medical service is rendered. This simply helps the insured pay everyday medical costs. The amount of benefit in no way relates to the amount of expense incurred. In our design, there are no deductibles or co-pays or other managed care devices. The design could be referred to as “scheduled benefit” or a “defined benefit” but the use of “mini-med” is inappropriate.

The industry also uses the word “indemnity” to describe our type of plan design. Although not technically correct as a definition, it is the term that has become commonly associated with these types of benefits. Strictly speaking, limited medical plans do not “indemnify” (i.e. make whole) the insured against loss. We have, however, adopted the common usage because it is so widespread. Whatever you call it, we need to be very honest with our customers about what the plan does and does not do.

The fixed-amount, scheduled benefit approach we chose is easier to understand and use. That is especially true because the majority of employees in these types of plans have often not been insured under or exposed to traditional managed care policies. Understanding the difference between deductibles and co-insurance is, in itself, difficult. Figuring out why the doctor billed an additional amount because the insurance company didn’t pay all of the charges that exceeded the “reasonable and customary” limits is even less understandable. The end result is often customer dissatisfaction, a feeling that the insurance didn’t cover what the insured was led to believe it would. The design we use helps to reduce that problem because it tells covered employees, in plain language, what the plan is going to pay.

There is also another important reason that we prefer the fixed-amount design. It helps achieve rate stability which is very important to employers. Medical inflation affects the mini-med design. As the cost of medical services rises, because the claims are based on the expense incurred, the claim amounts for mini-med plans go up too – albeit not as fast as the increases for major medical. Employers, and employees, are very wary after so many years of rapidly increasing health insurance premiums. A fixed-amount design plan, on the other hand, is insulated from medical inflation. A $60 office visit payment this year is still $60 next year, regardless of what the doctor charges. In fact, we have never had to impose a rate increase in all the time that we have been in this business. That counts for a lot with most employers.

                                                - Affinity Group Underwriters June, 2010