Limited-Benefit Plans

Limited-benefit or “bare bone” plans reduce premiums by decreasing the number of covered services in comprehensive health benefits plans. Depending on the state, these types of plans can be referred to as bare bones, mandate-light, mandate-free, limited benefit, minimum benefit, flexible benefit, etc.

For more than three decades, states have mandated that private carriers cover certain benefits or the services of specific types of providers, including chiropractors, nurse practitioners, clinical psychologists, psychiatric social workers, and acupuncturists. While mandated benefits vary from state to state, the most common are mammography and diabetes supplies. A 2003 GAO report found that seven states each had 30 or more benefit mandates, while five states each had fewer than 10.^[1]

Because most large employers are self-insured and therefore are not subject to state-level mandates, state mandates principally affect the small group and individual markets—which states have increasingly targeted in their strategies to make health insurance more affordable.^[2] To encourage small employers to offer coverage, and individuals to take it up, many states have enacted legislation allowing insurers to offer plans with no or only some state-mandated benefits.^[3]

The value of limited-benefit plans as a strategy to reduce the number of uninsured is a matter of debate. Much of the debate hinges on the impact on the insurance market—specifically, whether limited-benefit plans create a new coverage alternative for uninsured individuals or simply crowd-out those who previously had comprehensive health insurance.^[4]

Although limited-benefit plans do reduce costs, they do so only marginally, on average reducing the premium between 5 and 9 percent. Even these savings may be offset, however, since individuals holding bare-bones policies often access uncompensated care services through the safety net.

To date, limited-benefit products have not sold well. Many insurers are reluctant to sell bare-bones policies, and consumers are uninterested in buying them. Since these efforts are new, they may develop more successfully given time and greater familiarity with limited-benefit products.