Thanks to the new health care bill, beginning in 2014, insurers will not be able to set annual caps on medical coverage. Already, since September 23, annual coverage limits on health care costs can be set no lower than $750,000. The idea is that most insured Americans can rest assured that even in the event of a catastrophic illness, their policies will help offset the bulk of their medical expenses. Note that I wrote, most Americans. This provision doesn’t apply if you happen to be one of the 1.5 million mainly low-income workers covered under limited-benefit plans—the so-called “mini-med” plans—offered by McDonalds, Waffle House and other employers that hire low-wage employees.
In October, Joe Barton (R-TX), ranking member of the House Committee on Energy and Commerce and two other Republican subcommittee members, sent a letter to Kathleen Sebelius registering their concern that the new provisions in the health care law would force insurers and employers that offer mini-med plans to drop out of the business. McDonald's, for one, warned regulators that high administrative costs might lead to the company dropping its health insurance plans for 30,000 hourly workers unless it was exempted from this policy.
Since then, the Department of Health and Human Services has granted waivers to 222 insurers, unions and employers, including Aetna, Cigna and McDonald’s that will allow them to continue selling bare-bones plans that can cost individual employees only $50/month, but max out after covering just $2,000 in medical costs. The waivers are allowed by the health law if insurers or companies can show that new limits would lead to significant premium increases or cause substantial numbers of workers to lose their insurance.
The mini-med plans are not just exempted from limits on annual caps: Under rules disclosed earlier this month, the limited policies won a year-long reprieve from meeting so-called medical loss ratios set out by the health care law that require insurers to spend 80-85% (depending on the size of the carrier) of revenues on direct medical care, rather than on administrative costs or profits. Failure to meet those ratios would require most insurers to issue rebates to policyholders. But this coming year, companies and insurers that sell mini-med plans only have to spend half as much (about 40%) as they take in from premiums on direct medical care. Their rationalization: Providers of "mini-med" policies, like McDonalds, which caps benefits at $2,000 to $10,000 depending on the annual premium, argued that they would have trouble meeting those medical loss ratios, in part because frequent worker turnover leads to high administrative costs.
The truth is, limited-benefit plans are the best example of how a free-market health care system can go very wrong. These plans help few, yet end up making more money for insurers than regular, comprehensive plans. For example, Beth Berendt, a deputy state insurance commissioner in Washington told the Seattle Times that in 2006, “MEGA (a large mini-med plan) paid out 68 cents of each premium dollar in medical claims. In contrast, (more comprehensive) LifeWiseHealth Plan paid out 73 cents on the dollar and Regence BlueShield paid out 79 cents.” According to the article, MEGA and its affiliates (which insure some 700,000 self-employed people, students and small business owners in 44 states) are currently under investigation by state insurance officials for misleading customers and denying legitimate claims.
Colleges also offer—and profit from—low-benefit plans. The average student is the perfect target; short-term policy-holder, generally healthy and unlikely to incur high medical costs. And if they do rack up charges higher than the policy’s cap—in some cases, just $700 per illness—the plan is off the hook. In writing about low-cost student health plans, The Fiscal Times, cited a recent report by Massachusetts state officials that found spending on medical care among the 13 insurers offering student plans in that state ranged from 46 percent to 89 percent, with the average at 69 percent. In April, then-New York Attorney General, (now Governor-elect) Andrew Cuomo said that some of the college plans leave students “at risk while providing massive profits for insurance companies.”
McDonald’s defends its mini-med plans by estimating that some 85% of its hourly workers with such plans do not even use the maximum benefit available. That’s likely because the employees (like college students) are young, healthy and work for the company for a relatively short period of time. At a December 1 hearing before the Senate Committee on Commerce, Science, and Transportation, critics of limited-benefit policies presented a comparison between the “mini-med” health plans available to hourly workers at McDonald’s and the more comprehensive policies available to corporate employees and managers at the firm. Despite the claim that bare-bones plans are beneficial because they are affordable for low-wage workers, the comparison showed that mini-meds are actually more expensive per year for employees than the ones offered (with corporate subsidy) to management that have no annual maximum for health care services and set a maximum for out-of-pocket expenses. Testifying before the same congressional committee last year, Wendell Potter, a former CIGNA executive, called these plans “fake insurance” designed to earn big profits for the insurers, but provide little value to consumers.
Proponents of mini-med plans justify these bare-bones policies as being the only workable option for low-wage employees. These are people who earn too much to currently be covered under Medicaid and earn far too little to afford private insurance on the individual market. These plans provide minimal coverage, they say, but they do include access to the same fee discounts that insurers negotiate with doctors and hospitals for more comprehensive plans. But as the Devers family in Washington State found out, although their mini-med plan was affordable (just $300 per month for a family of 5) it provided no protection from medical bankruptcy. As the Seattle Times article relays, when Preston Devers, the father, required knee surgery, the family's insurance covered just $6,000 of the $35,000 cost for a six-hour hospital stay. The family is now left with a $25,000 bill from that surgery and is also facing huge bills for emergency room charges, hospitalization and surgery for their son Cole’s ruptured appendix.
Karen Pollitz, a professor at the Georgetown University Health Policy Institute, told the Seattle Times, "You're giving money to a company for what? In return for protection? That's not what you're getting," She added, "Why should we allow these things to be called health insurance?"
Limited-benefit plans were first rolled out in the early 1990’s when some states passed legislation that waived some or all of their mandated benefits and allowed health plans to provide only minimal benefits. In 1993, Families USA did an analysis of these plans and found that, in 16 states that had at least six months market experience with bare bones plans, these plans did not significantly expand coverage to the uninsured. In eleven of these states, fewer than 300 people were enrolled. The concept seemed destined to die off.
But in 1999, Aetna decided to resurrect these limited plans with their “Affordable Health Choices,” campaign, and Cigna quickly followed suit. At the time, Families USA executive director Ron Pollack said: "The insurance industry should be required to put a disclaimer on their advertising for these plans: If you purchase one of these plans, don't get sick."
"This kind of coverage won't make a dent in your health care bills in the event of a serious illness. Five-hundred dollars a day in the hospital may pay for a box of tissues, one x-ray and one visit by a nurse."
Instead of being offered just to the uninsured, in recent years mini-med plans have been embraced by large-scale retailers, unions and some middle-class families who found the individual insurance market too expensive. With this expansion, the failings of these policies became all too clear.
At the hearings on Dec. 1, Senator Jay Rockefeller, chairman of the committee told the participants; “What will $2,000 dollars cover in our health care system? Not much. It won’t cover the cost of having a baby. That costs approximately $9,000. And it won’t cover one year of health care for a person with diabetes. That costs more than $7,000 a year. And as we are going to hear from our witnesses today, the cost of treating a health problem like cancer can easily exceed $50,000 or even $100,000.”
The real problem is that these kinds of plans have directly contributed to the growth of the population of the “underinsured;” those people who routinely skip preventive tests, treatments and avoid follow-up visits with doctors. In the event of a serious illness, these underinsured rapidly become, like the Deveres, the medically bankrupt.
According to the Commonwealth Fund Biennial Health Insurance Survey, some 48 percent of the underinsured reported that their health plan placed limits on the total dollar amount their plan would pay for medical care. The Commonwealth survey also found that between 2003 and 2007 the number of underinsured adults in the country climbed from 16 million to 25 million; or from 9 percent to 14 percent of the 19-to-64 population. Almost one-quarter of adults with incomes under 200 percent of poverty were underinsured in 2007, up from 19 percent in 2003. In 2010, that number is sure to have climbed higher.
Already insurers are claiming that early provisions of the new health law have required them to increase premiums and thus, increase cost sharing for individuals covered by employer plans. Timothy Jost, law professor at Washington and Lee University, writes in the Richmond Times-Dispatch; “Employee payments for premiums jumped 14 percent in 2010, while the percentage of workers facing a deductible of at least $1,000 increased from 22 percent to 27 percent in the past year.”
Meanwhile, it seems that HHS is feeling a little uneasy about issuing waivers so broadly to the 222 companies who sell mini-med plans. On December 10, the agency announced that health insurers or employers who offer bare-bones coverage have 90 days to notify consumers in “plain language” that their benefits are extremely limited. They must also alert consumers that these policies do not conform to the provisions of the Affordable Care Act.
This is a step in the right direction as it is clear that many of these policy-holders are misinformed about the extent of their coverage. Timothy Jost calls limited benefit policies, “insidious, as the persons whom they cover often are not fully aware of how inadequate their coverage is compared to the medical costs they are likely to incur.”
He explains; “An individual whose coverage excludes the first day of a hospital stay may not realize that most, often virtually all, of the costs of a hospital stay may be incurred during the fist day, when a surgery is most likely to occur. A family whose policy limits coverage to $250 a day for hospital care may not realize that this would not cover 10 percent of the average per diem cost of hospitalization in the United States.”
Despite HHS’s good intentions, being better informed about the limits of mini-med plans won’t change anything substantially for consumers who currently hold these policies. And with no other options for medical insurance, being informed won’t necessarily dissuade low-wage workers from purchasing these bare-bones plans.
In 2014, under the Affordable Care Act, most Americans will have access to affordable health insurance policies that provide a minimum standard of coverage that includes preventive care with no co-pays or deductibles and no yearly or life-time limits on medical charges. Mini-med plans will be banned because they will not meet any of these standards. But that’s only if the legislation isn’t watered down, starved of funding or otherwise prevented from being fully enacted.
Right now, the basic tenets of the health care reform are under attack from Republicans who promise to try to repeal the legislation or at least chip away at it enough that it becomes impossible to enact. Witness Monday’s court decision in Virginia that found the individual mandate unconstitutional. If the Supreme Court decides they agree (which many legal scholars predict is unlikely), insurers will argue that without the mandate they can’t afford to provide affordable, comprehensive coverage for all takers—that they need mini-med plans for low-wage workers, “young invincibles” and even those who are over 50 but do not yet qualify for Medicare. In this vision of the future, the HHS waivers for mini-med plans—though meant to be temporary—might be hard to rescind; much as the current administration's promise to end the regressive Bush-era tax cuts has been reframed by Republicans as "Obama’s tax hikes." Without full health reform, insurers can continue to argue that mini-med plans are the only affordable option for those 1.5 million Americans currently holding the bare-bones policies.