What is gap health insurance?

As the name implies, gap health insurance exists to cover “gaps” that may exist in traditional health insurance plans. Gap health insurance is a secondary health insurance policy. Frequently, people will pair gap health insurance with a high-deductible health plan (HDHP), as gap insurance can cover costs associated with:

• Deductibles: the amount you pay before your primary insurance starts to cover expenses.

• Co-pays: the fixed fees you pay for specific medical services.

• Coinsurance: The percentage of costs you're responsible for after meeting your deductible.

Why HDHP?

To understand why people elect to get gap health insurance, it helps to understand HDHP, which is commonly what people pair the supplemental coverage with. 

Many people elect HDHPs because the policies tend to be affordable, even with the rising costs of health insurance. 

According to the IRS, plans have to meet the following thresholds to be considered HDHPs:

In HDHPs, your provider begins offering coverage only after the minimum deductible has been met. For people on tighter budgets, this can be a challenging tradeoff. The cost of coverage may be low, but expenses surrounding coverage, like prescription copays, could be hefty. 

Gap health insurance can bridge the gulf between the minimum deductible and max out-of-pocket. 

What does gap health insurance cover?

Combined with an HDHP or other coverage, a gap health insurance plan can help cover the cost of deductibles, prescriptions, copays, and coinsurance. For example, if an HDHP has a limited choice in terms of network of providers, gap health insurance could help cover visits to a specialist or facility not traditionally covered through the HDHP plan.  

While gap health insurance can help fill the “gap” in coverage of an HDHP, it is not considered insurance by the ACA. It should be used in conjunction with other coverage, not as a standalone policy. 

Gap health insurance can help cover the cost of unexpected health expenses. Coverage varies by plan.

Rules of gap health insurance

Enrollment

It varies by plan and provider, but gap health insurance can generally be purchased at any time. There is no regulated open enrollment period or triggering events like there are with traditional healthcare coverage. 

However, many gap health insurers will want to see proof of primary insurance before enrolling someone in a gap health insurance policy.

Depending on needs, gap health insurance can be purchased from the same provider under which a person is insured, so they can shop across different providers for the best-fitting policy. 

Limits

Similar to primary insurance policies, gap health insurance plans typically have coverage limits. Not all plans are built the same, which makes shopping for the best-fit gap health insurance policy important. 

Claims

You often must file claims to a gap health insurance provider for reimbursement. Filing a claim will vary by provider, but generally, you’ll need a copy of the bill, an explanation of benefits from a primary provider, and additional supporting documents. 

Age and pre-existing conditions

Because gap health insurance is not considered health insurance under ACA, it does not comply with ACA regulations. That means factors like age or pre-existing health conditions can impact coverage and cost. 

Cost of gap health insurance

Generally, gap health insurance will cost less than traditional insurance, even HDHP, around $50 a month.  

While gap health insurance is an additional monthly cost, it has the potential to help save money in the long run, particularly in the case of HDHPs. For example, enrolling in an HDHP may save the average consumer $982 annually compared to a PPO plan. Even if enrolled in a gap health insurance plan that costs $480 annually, it would save a person money, about $502, to be exact, when compared to the cost of an HDHP alone. That doesn’t even account for how the gap in health insurance could help pay for unexpected costs and visits across a year.

Gap health insurance and ICHRA

While gap health insurance is often used in partnership with HDHP, it can also complement coverage one might get from an ICHRA. Employees who expect to get gap insurance with an ICHRA can create a tailored plan to help manage healthcare costs. Here’s how ICHRA and gap insurance can work together:

Complimentary coverage. Employees can use an ICHRA to reimburse their individual health insurance plan premiums. If this primary plan has high out-of-pocket costs or significant deductibles, gap health insurance can help cover these additional expenses. For instance, if an individual health insurance plan has a $5,000 deductible, a gap insurance policy might cover a portion of this cost, reducing the financial burden on the employee.

Financial protection. Employees can further offset the costs their ICHRA-elected plan does not cover by using gap insurance. For example, if an individual health plan covers many healthcare expenses but leaves significant gaps, gap insurance can provide additional financial support. The ICHRA can be used to reimburse the cost of the gap insurance premiums, effectively integrating this coverage into the overall health benefits strategy.

Personalized strategy. ICHRAs offer flexibility in how health benefits are structured. Employers can tailor the amount they contribute to ICHRAs based on employee needs. Employees who have or choose to purchase gap insurance can use their ICHRA funds to reimburse gap insurance premiums, thus customizing their benefit package to better suit their individual health needs and financial situations.

Tax-free benefits. Reimbursements from an ICHRA for premiums and out-of-pocket costs are not taxed. This means employees benefit from reduced taxable income while managing their healthcare costs more effectively. Employers also benefit from tax deductions for contributions made to ICHRAs.

Gap health insurance and ICHRAs can collaborate to provide a more comprehensive health benefits solution. ICHRAs offer flexibility and tax advantages for reimbursing individual health insurance premiums and related expenses, while gap health insurance helps cover additional out-of-pocket costs. By integrating these options, employers can create a more robust and customizable benefits package that addresses employees’ primary and supplementary healthcare needs.

Searching for the right ICHRA to pair with gap health insurance? Thatch democratizes health insurance, making it more affordable and flexible to cover your team’s unique needs. Learn more about how Thatch can make coverage easier today.