A practical benefits strategy for cost-conscious employers

As healthcare costs continue to challenge employers and employees alike, benefits brokers face a familiar dilemma: How do you help a client control the cost of major medical coverage without simply transferring greater financial exposure to employees?

One tool deserves a closer look: gap supplemental medical expense insurance.

Gap insurance is designed to work alongside major medical coverage, not replace it. When an employee incurs an eligible medical expense, the major medical plan processes the claim first. Gap coverage can then reimburse certain eligible out-of-pocket expenses, such as deductibles, copays and coinsurance, subject to the terms and limits of the gap plan. That makes it a potentially valuable tool for employers who want to manage their medical program's economics while helping employees with expenses their primary coverage leaves behind.

The opportunity behind a higher deductible

A higher-deductible major medical plan can reduce an employer's health plan costs, but it can also expose employees to much higher costs when they need care.

That is where gap coverage can change the conversation.

Instead of viewing the major medical deductible as an all-or-nothing decision, brokers can consider a two-layer strategy: a major medical plan that addresses the employer's broader health insurance needs, supplemented with gap coverage designed to reimburse specific employee cost-sharing obligations.

Gap plans reimburse members for eligible expenses incurred under the group medical plan, including deductibles, copays and coinsurance. Depending on the plan design, benefits can include inpatient hospital care, outpatient care, diagnostic services, emergency room treatment, doctor’s office visits, ambulance services, durable medical equipment and more.

However, not every expense is covered. Eligibility under the major medical plan is an important part of the equation, and individual gap plans contain their own benefits, exclusions and limitations.

For brokers, that means gap should not be presented to groups as a replacement for comprehensive health insurance. It is a tool to strategically address the exposure comprehensive coverage can leave behind.

Gap vs. a health reimbursement arrangement

Health reimbursement arrangements can also help employees with out-of-pocket costs, but their underlying structure differs.

An HRA is an employer-funded arrangement that reimburses eligible medical expenses. Gap, by contrast, is an insurance product with defined covered benefits and limits.

That distinction can matter to an employer evaluating how it wants to approach employee cost sharing.

With gap insurance, the employer is purchasing coverage for qualifying expenses instead of simply establishing an employer reimbursement arrangement. Claims are typically processed after the major medical Explanation of Benefits is issued, and reimbursement depends on the gap policy's coverage.

HRAs also come in different forms, each with different rules. For example, the IRS says that for plan years beginning in 2027, the maximum amount newly available under an excepted-benefit HRA is $2,250. Gap plans don’t have such maximums.

For brokers, the key takeaway isn't that gap replaces an HRA. Instead, gap gives employers another way to address employee exposure without relying solely on an employer reimbursement arrangement.

Gap vs a health savings account

The distinction with a health savings account is even more important.

An HSA is an individually owned, tax-advantaged account. You must contribute money to the account before you can spend it. Federal rules also govern who can make or receive HSA contributions. IRS guidance explains that HSA eligibility generally requires coverage under a qualifying high-deductible health plan and no disqualifying health coverage.

For 2027, the HSA contribution limit is $4,500 for self-only coverage and $9,000 for family coverage. The corresponding qualifying HDHP must have a deductible of at least $1,750 for self-only coverage or $3,500 for family coverage.

Gap insurance operates on a fundamentally different principle.

Instead of asking an employee to accumulate dollars in an account, the employer buys insurance designed to reimburse eligible covered expenses under the policy.

That distinction matters when an employer worries an employee may face a substantial medical expense before they've accumulated significant HSA savings.

In simple terms:

An HSA helps employees save money for health care. Gap insurance provides insurance benefits for covered expenses.

Neither makes the other inherently obsolete. In fact, brokers should examine HSA eligibility rules and the specifics of any contemplated supplemental coverage when designing a benefits package.

Another tool in the broker's toolkit

Brokers don't need fewer strategies today. They need more flexible ones: That is ultimately the strongest case for gap.

For a client considering a higher-deductible medical plan, the conversation does not have to end with, "Your employees will simply have to take on more risk." It can become a broader benefits-design conversation:

What does the employer need to accomplish financially? Where will employees become more exposed? And which benefit can most effectively address that exposure?

Sometimes the answer will be an HSA. Sometimes an HRA may be appropriate. And for clients looking for an insured solution specifically designed to complement major medical coverage and offset eligible deductibles, copays and coinsurance, gap insurance deserves a place in the conversation.

For brokers, that is more than another product to sell. It is another way to solve a client's benefits problem.

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Patrick Bridgeman is regional sales vice president at Pan-American Accident & Health. Contact him at patrick.bridgeman@innfeedback.com.