If you experience a covered illness or injury, with some gap policies, you receive a lump sum benefit payment that you may use to help cover out-of-pocket expenses associated with your major medical plan, such as deductible, copayment and coinsurance amounts. Once your medical gap policy has paid the maximum benefits allowed under the plan for the year, no more benefits are available until the next policy year.
No Coordination of Benefits
Your gap health insurance benefits ordinarily do not coordinate with your major medical insurance coverage. Coordination of benefits is the process of determining which insurance benefits will be applied first, second, third, etc., when you have multiple insurance plans.[0]
Rather, your medical gap plan benefit amount is determined by the eligible expenses you incur and your policy’s benefit limit, rather than being based on the amount not covered by your ACA plan.
Gap Health Insurance Examples
Let’s say you’ve purchased a medical gap plan that has a lifetime limit of $10,000 in benefits for covered illnesses or injuries, and are enrolled in a bronze plan with the average 2019 deductible of $6,258.[1]
If you suffer a heart attack and incur the typical hospitalization and related costs of $20,246 associated with this condition,[2] your medical gap policy will pay $10,000 in benefits. You will still have $10,246 in costs, most of which will likely be covered by your major medical policy after the deductible has been satisfied.
Now let’s look at how that same medical gap plan would pay benefits for another, less-costly eligible expense.
If you break your arm and incur the average costs of $2,500 for non-surgical treatment,[3] your medical gap policy will pay $2,500. As long as you continue to pay your gap health insurance premiums, your policy will have $7,500 available to be paid as benefits for future expenses associated with an eligible illness or injury.
How does gap insurance work?
If you experience a covered illness or injury, with some gap policies, you receive a lump sum benefit payment that you may use to help cover out-of-pocket expenses associated with your major medical plan, such as deductible, copayment and coinsurance amounts. Once your medical gap policy has paid the maximum benefits allowed under the plan for the year, no more benefits are available until the next policy year.
No Coordination of Benefits
Your gap health insurance benefits ordinarily do not coordinate with your major medical insurance coverage. Coordination of benefits is the process of determining which insurance benefits will be applied first, second, third, etc., when you have multiple insurance plans.Rather, your medical gap plan benefit amount is determined by the eligible expenses you incur and your policy’s benefit limit, rather than being based on the amount not covered by your ACA plan.
Gap Health Insurance Examples
Let’s say you’ve purchased a medical gap plan that has a lifetime limit of $10,000 in benefits for covered illnesses or injuries, and are enrolled in a bronze plan with the average 2019 deductible of $6,258.If you suffer a heart attack and incur the typical hospitalization and related costs of $20,246 associated with this condition, your medical gap policy will pay $10,000 in benefits. You will still have $10,246 in costs, most of which will likely be covered by your major medical policy after the deductible has been satisfied.Now let’s look at how that same medical gap plan would pay benefits for another, less-costly eligible expense.If you break your arm and incur the average costs of $2,500 for non-surgical treatment, your medical gap policy will pay $2,500. As long as you continue to pay your gap health insurance premiums, your policy will have $7,500 available to be paid as benefits for future expenses associated with an eligible illness or injury.
Looking for the best coverage at the lowest price? In your search, you may have come across group supplemental health insurance plans, more commonly referred to as gap plans–especially if you are currently enrolled in a high-deductible plan and you’re looking for protection against high out-of-pocket expenses.
This page covers the specifics of supplementary gap health insurance including how it works and when it makes sense to purchase a gap plan. By the time you’re done reading, you’ll be able to make a more informed decision as to whether a gap plan makes sense for you in particular.
If you decide to enroll in a gap plan, be sure to work with a trustworthy insurance company that takes a digital-first approach to enrolling in and managing plans. Being able to quickly access and manage your plan means you can always get the medical care you need without unnecessary hassles and delays.
- What Is Gap Health Insurance?
- Is Gap Insurance ACA-Compliant?
- What Does Gap Health Insurance Cover?
- How Much Does Gap Insurance Cost?
- When to Consider A Medical Gap Insurance Plan
What Is Gap Health Insurance?
Gap health insurance is a supplementary health insurance policy that is usually purchased alongside a high-deductible health plan (HDHP).
For 2022, the IRS defines a HDHP as a policy that has a deductible of at least $1,400 for an individual and $2,800 for a family, with total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) of less than $7,000 for an individual or $14,000 for a family.
HDHPs offer coverage only after this substantial yearly premium has been met.
Gap health insurance policies allow you to receive coverage on medical expenses before your deductible has been met.
For certain individuals with high deductibles, paying a small monthly premium for gap health insurance coverage can potentially lead to significantly lower medical expenses.
Is Gap Insurance ACA-Compliant?
No. Gap health insurance is not compliant with the standards set forth by the Affordable Care Act (ACA) because gap health insurance is not intended to be major medical insurance. Instead, it is used in conjunction with a major medical plan that is compliant with the ACA. “Major” health insurance plans generally refer to plans which provide comprehensive and robust coverage, which gap plans generally do not.
What Does Gap Health Insurance Cover?
Gap health insurance generally covers only unexpected high-expense medical services, such as surgeries related to heart attacks and strokes that are performed in hospitals. Not all urgent medical services will be covered the same, though; for example, gap health insurance plans usually provide different coverage for inpatient vs. outpatient hospital services.
To help you better understand the specifics of gap health insurance coverage, factors associated with it are described below.
Explanation of Benefits (EOB)
After you receive medical care, you will be asked if you want your services to be billed to your insurance company. When you say yes, you will receive a reference document from your insurance company called an Explanation of Benefits (EOB). Your EOB is not a bill; instead, traditional EOBs show which services you received, how much your insurance company covered, and how much you are responsible for.
Gap health insurance plans are slightly different from standard health insurance plans when it comes to EOBs. For coverage, gap health insurance plans generally pay out a fixed lump sum, and you have the option of using this money as you please. So, when you receive medical services that are covered by your gap health insurance plan, you may receive two EOBs: one from the insurance company offering your main plan, which will show the traditional services and coverage breakdown, and another from the insurance company offering your gap insurance plan, which will detail the specifics of your lump sum payout.
Medical Coinsurance and Copayments
Because gap health insurance policies do not need to conform to the standards set forth by the ACA, they vary in the coverage they offer. Some gap insurance policies will help out with copays and coinsurance–two fixed fees that can be substantially higher before you meet your deductible–and others won’t.
If your main plan has coinsurance integrated into it, gap health insurance payouts can be used to help pay for the part of the coinsurance payment you’re responsible for.
Monthly Premiums
Gap health insurance does not help pay for monthly premiums with existing healthcare plans. Rather, purchasing gap health insurance will increase your insurance premiums. However, this additional monthly cost can be offset by the money you save by having gap health insurance.
How Much Does Gap Insurance Cost?
Like traditional health insurance plans, the cost of your gap insurance will vary based on a few factors about you and your lifestyle.
Chosen Plan Benefits
First, which healthcare services do you want coverage for? Low-cost plans provide limited benefits, whereas plans that provide extensive coverage cost more.
Next, how much coverage do you want? Larger payouts for high-expense medical services mean higher monthly premiums–and vice versa.
Age
Generally, older individuals require more healthcare services than young individuals do. Therefore, the older you are, the more you will usually pay for gap insurance.
Health Status
The ACA prevents health insurance companies from discriminating against individuals based on pre-existing conditions. However, gap insurance plans do not need to follow the standards outlined in the ACA. Therefore, if you have existing medical problems, you should expect to pay more for gap health insurance.
Location
Locations with high costs of living lead to higher medical expenses. Insurance companies will take this into account when quoting you for a gap insurance policy. If you live in an affluent area with a high cost of living, your gap health insurance policy will usually cost more than an identical plan would for someone who lives in an area with a lower cost of living.
Gap insurance plans are supplementary insurance plans. If you already have health coverage, you may be wondering why you need gap insurance in the first place.
The answer is simple: in some cases, purchasing gap insurance can save you a lot of money on medical expenses by reducing extreme out-of-pocket costs. Knowing you’re at least somewhat covered for very high medical costs also provides important peace of mind in your day-to-day life.
Low HSA Balance
Gap insurance plans are often purchased alongside HDHPs. HDHPs are sometimes offered alongside health savings accounts (HSAs), which are special types of savings accounts that can be funded with pre-taxed money, but used only for medical expenses.
Employer contributions to HSAs often rollover from month to month, allowing long-term employees to accrue large balances in their HSAs. For these long-term employees, who have plenty of funds to cover unexpected high-expense medical procedures, enrolling in a gap insurance plan may not be an ideal option. The increased monthly premium may be an unnecessary expense considering the ready availability of funds.
For those who are enrolled in HDHPs and do not have HSAs, or do not have substantial balances built up in their HSAs, enrolling in a gap insurance plan may be the ideal choice.
High Probability of Needing High-Expense Medical Services
If hereditary or lifestyle factors point to you potentially needing high-expense medical services sometime in the near future, purchasing a gap insurance policy may allow you to receive important coverage if something does happen.
Because insurance companies are able to discriminate based on pre-existing conditions when offering gap health insurance plans, you may end up paying a substantial monthly premium for coverage, but if something serious does happen, the lump sum payment you receive can be very beneficial in covering medical expenses and preventing serious disruption to your lifestyle.
Saving on More Common Medical Expenses
Some gap health insurance policies aim to lessen the burden of more common and frequent medical needs rather than serve as protection for worst-case scenarios. For these types of gap plans, try to receive coverage only for the services you think you’ll end up needing to keep your monthly premium down. An efficient gap health insurance plan provides savings on medical expenses without increasing your monthly premium to the point where the premium increase equals more than the savings.
Takeaway
Gap health insurance policies are not standalone insurance policies. Instead, they are supplementary insurance policies that are often purchased alongside HDHPs.
Gap insurance policies provide coverage for select high-expense medical services, and depending on the specifics of your particular gap insurance policy, you may also receive coverage for more common medical services. They work to fill the “gap” left by high-deductible plans where coverage is very limited or non-existent until a high deductible has been met.
Gap insurance policies usually pay out a lump sum of money to you directly, rather than paying the medical company directly. How you use the payout from your gap insurance policy is up to you.
Not everyone needs a gap insurance policy. In particular, individuals with very high deductibles will benefit most from gap insurance policies. Gap insurance policies help alleviate the financial burden of high deductibles, and when purchased intelligently, they can result in lower medical expenses even during years when serious medical problems don’t occur.
If you decide a gap health insurance plan is right for you, be sure to work with an efficient insurance company that takes a digital-first approach. When enrolling in and managing your plan is as easy as 1-2-3, you can know you’re covered for everything you need without taking valuable time out of your day.