Hazardous health plans
Courtesy Consumer Reports
Coverage gaps can leave you in big trouble
Many people who believe they have adequate health insurance actually have coverage so riddled with loopholes, limits, exclusions, and gotchas that it won't come close to covering their expenses if they fall seriously ill, a Consumer Reports investigation has found.
At issue are so-called individual plans that consumers get on their own when, say, they've been laid off from a job but are too young for Medicare or too "affluent" for Medicaid. An estimated 14,000 Americans a day lose their job-based coverage, and many might be considering individual insurance for the first time in their lives.
But increasingly, individual insurance is a nightmare for consumers: more costly than the equivalent job-based coverage, and for those in less-than-perfect health, unaffordable at best and unavailable at worst. Moreover, the lack of effective consumer protections in most states allows insurers to sell plans with "affordable" premiums whose skimpy coverage can leave people who get very sick with the added burden of ruinous medical debt.
Just ask Janice and Gary Clausen of Audubon, Iowa. They told us they purchased a United Healthcare limited benefit plan sold through AARP that cost about $500 a month after Janice lost her accountant job and her work-based coverage when the auto dealership that employed her closed in 2004.
"I didn't think it sounded bad," Janice said. "I knew it would only cover $50,000 a year, but I didn't realize how much everything would cost." The plan proved hopelessly inadequate after Gary received a diagnosis of colon cancer. His 14-month treatment, including surgery and chemotherapy, cost well over $200,000. Janice, 64, and Gary, 65, expect to be paying off medical debt for the rest of their lives.
For our investigation, we hired a national expert to help us evaluate a range of real policies from many states and interviewed Americans who bought those policies. We talked to insurance experts and regulators to learn more. Here is what we found:
- Heath insurance policies with gaping holes are offered by insurers ranging from small companies to brand-name carriers such as Aetna and United Healthcare. And in most states, regulators are not tasked with evaluating overall coverage.
- Disclosure requirements about coverage gaps are weak or nonexistent. So it's difficult for consumers to figure out in advance what a policy does or doesn't cover, compare plans, or estimate their out-of-pocket liability for a medical catastrophe. It doesn't help that many people who have never been seriously ill might have no idea how expensive medical care can be.
- People of modest means in many states might have no good options for individual coverage. Plans with affordable premiums can leave them with crushing medical debt if they fall seriously ill, and plans with adequate coverage may have huge premiums.
- There are some clues to a bad policy that consumers can spot. We tell you what they are, and how to avoid them if possible.
- Even as policymakers debate a major overhaul of the health-care system, government officials can take steps now to improve the current market.
Good plans vs. bad plans
We think a good health-care plan should pay for necessary care without leaving you with lots of debt or high out-of-pocket costs. That includes hospital, ambulance, emergency-room, and physician fees; prescription drugs; outpatient treatments; diagnostic and imaging tests; chemotherapy, radiation, rehabilitation and physical therapy; mental-health treatment; and durable medical equipment, such as wheelchairs. Remember, health insurance is supposed to protect you in case of a catastrophically expensive illness, not simply cover your routine costs as a generally healthy person. And many individual plans do nowhere near the job.
For decades, individual insurance has been what economists call a "residual" market-something to buy only when you have run out of other options. The problem, according to insurance experts we consulted, is that the high cost of treatment in the U.S., which has the world's most expensive health-care system, puts truly affordable, comprehensive coverage out of the reach of people who don't have either deep pockets or a generous employer. Insurers tend to provide this choice: comprehensive coverage with a high monthly premium or skimpy coverage at a low monthly premium within the reach of middle- and low-income consumers.
More consumers are having to choose the latter as they become unemployed or their workplace drops coverage. (COBRA, the federal program that allows former employees to continue with the insurance from their old job by paying the full monthly premium, often costs $1,000 or more each month for family coverage. The federal government is temporarily subsidizing 65 percent of those premiums for some, but only for a maximum of nine months.) Consumer Reports and others label as "junk insurance" those so-called affordable individual plans with huge coverage gaps. Many such plans are sold throughout the nation, including policies from well-known companies.
Aetna's Affordable Health Choices plans, for example, offer limited benefits to part-time and hourly workers. We found one such policy that covered only $1,000 of hospital costs and $2,000 of outpatient expenses annually.
The Clausens' AARP plan, underwritten by insurance giant United Health Group, the parent company of United Healthcare, was advertised as "the essential benefits you deserve. Now in one affordable plan." AARP spokesman Adam Sohn said, "AARP has been fighting for affordable, quality health care for nearly a half-century, and while a fixed-benefit indemnity plan is not perfect, it offers our members an option to help cover some portion of their medical expenses without paying a high premium."
Nevertheless, AARP suspended sales of such policies last year after Sen. Charles Grassley, R-Iowa, questioned the marketing practices. Some 53,400 AARP members still have policies similar to the Clausens' that were sold under the names Medical Advantage Plan, Essential Health Insurance Plan, and Essential Plus Health Insurance Plan. In addition, at least 1 million members are enrolled in the AARP Hospital Indemnity Insurance Plan, Sohn said, an even more bare-bones policy. Members who have questions should first call 800-523-5800; for more help, call 888-687-2277. (Consumers Union, the nonprofit publisher of Consumer Reports, is working with AARP on a variety of health-care reforms.)
United American Insurance Co. promotes its supplemental health insurance as "an affordable solution to America's health-care crisis!" When Jeffrey E. Miller, 56, of Sarasota, Fla., received a diagnosis of prostate cancer a few months after buying one of the company's limited-benefit plans, he learned that it would not cover tens of thousands of dollars' worth of drug and radiation treatments he needed. As this article went to press, five months after his diagnosis, Miller had just begun treatment after qualifying for Florida Medicaid. A representative of United American declined to comment on its products.
Even governments are getting into the act. In 2008, Florida created the Cover Florida Health Care Access Program, which Gov. Charlie Crist said would make "affordable health coverage available to 3.8 million uninsured Floridians." But many of the basic "preventive" policies do not cover inpatient hospital treatments, emergency-room care, or physical therapy, and they severely limit coverage of everything else.
How to protect yourself
TREATMENT DEFERRED Because radiation treatments were unaffordable under Jeffrey E. Miller's "affordable" policy, he postponed care for prostate cancer for five months.
A good plan will cover your legitimate health care without burdening you with oversized debt.
"The idea of 'Cadillac' coverage vs. basic coverage isn't an appropriate way to think about health insurance," said Mila Kofman, Maine's superintendent of insurance. "It has to give you the care you need, when you need it, and some financial security so you don't end up out on the street."
What you want is a plan that has no caps on specific coverages. But if you have to choose, pick a plan offering unlimited coverage for hospital and outpatient treatment, doctor visits, drugs, and diagnostic and imaging tests. When it comes to lifetime coverage maximums, unlimited is best and $2 million should be the minimum. Ideally, there should be a single deductible for everything or, at most, one deductible for drugs and one for everything else. And the policy should pay for 100 percent of all expenses once your out-of-pocket payments hit a certain amount, such as $5,000 or $10,000.
If you are healthy now, do not buy a plan based on the assumption that you will stay that way. Don't think you can safely go without drug coverage, for example, because you don't take any prescriptions regularly today. "You can't know in advance if you're going to be among the .01 percent of people who needs the $20,000-a-month biologic drug," said Gary Claxton, a vice president of the nonprofit Kaiser Family Foundation, a health-policy research organization. "What's important is if you get really sick, are you going to lose everything?"
Consider trade-offs carefully
If you have to make a trade-off to lower your premium, Claxton and Pollitz suggest opting for a higher deductible and a higher out-of-pocket limit rather than fixed dollar limits on services. Better to use up part of your retirement savings paying $10,000 up front than to lose your whole nest egg paying a $90,000 medical bill after your policy's limits are exhausted.
With such a high deductible, in years when you are relatively healthy you might never collect anything from your health insurance. To economize on routine care, take advantage of free community health screenings, low-cost or free community health clinics, immediate-care clinics offered in some drugstores, and low-priced generic prescriptions sold at Target, Walmart, and elsewhere.
If your financial situation is such that you can afford neither the higher premiums of a more comprehensive policy nor high deductibles, you really have no good choices, Pollitz said, adding, "It's why we need to fix our health-care system."
Check out the policy and company
You can, at least, take some steps to choose the best plan you can afford. First, see 7 Signs a Health Plan Might Be Junk, to learn to spot the most dangerous pitfalls and the preferred alternatives.
Use the Web to research insurers you're considering. The National Association of Insurance Commissioners posts complaint information online at www.naic.org.
Entering the name of the company and policy in a search engine can't hurt either. Consumers who did that recently would have discovered that Mid-West National was a subsidiary of HealthMarkets, whose disclosure and claims handling drew many customers' ire. Last year, HealthMarkets was fined $20 million after a multi-state investigation of its sales practices and claims handling.
Don't rely on the salesperson's word
Jeffrey E. Miller, the Florida man whose policy failed to cover much of his cancer treatment, recalls being bombarded with e-mail and calls when he began shopping for insurance. "The salesman for the policy I bought told me it was great, and I was going to be covered, and it paid up to $100,000 for a hospital stay," he said. "But the insurance has turned out to pay very little."
Pollitz advises anyone with questions about their policy to ask the agent and get answers in writing. "Then if it turns out not to be true," she said, "you can complain."