More Employers try "limited-benefit" Health Insurance
by Vanessa Fuhrmans - Wall Street Journal
January 18, 2006
Employers are increasingly turning to an affordable type of health insurance that has a big catch: If you get really sick, it won't cover your major expenses.
These low-cost offerings, called "mini-medical" or "limited-benefit" plans, are catching on as employers struggle to restrain the rising cost of health insurance. Available as group plans or individual policies, they typically cover four to 10 doctor visits a year, a certain amount of prescription drugs and some lab work or other tests. Premiums can cost as little as $40 a month - far less than the $148 average for a major-medical plan bought on the market or the $335 average cost of someone on a company health plan, according to the Kaiser Family Foundation, a health-care policy research group.
Nearly 1 million people have mini-medical plans, insurers estimate, and some of the plans' biggest sellers say business is growing 20 percent a year.
Mini-medical plans have been around since the '80s, and until recently were sold mostly to tem-agency, fast food and chain-store workers. But they're becoming more commonplace as employers cut back on full benefits, or turn more to part-time and contract workers.
Mini plans are also starting to appeal to a wider array of individuals who otherwise might not be able to afford insurance, including the self-employed or freelancers. Sometimes individuals buy these plans through professional associations.
This spring a coalition of 10 large employers so far, including Avon Products, International Business Machines, General Electric and Sears Holdings, will make limited-benefit plans available to independent contractors and part-time and temporary workers not eligible for regular company benefits - about 900,000 people, including dependents. Three levels of limited plans will be offered via the coalition, from insurer UnitedHealth Group Inc. and, to a lesser extent, Cigna Corp and Humana Inc.
Some of the biggest names in health insurance are pushing into the market, in addition to UnitedHealth, reflecting the growing interest in mini-medical benefits. Aetna Inc. jumped into the limited benefit plan business last year after buying one of the markets bigger players, Strategic Resource Co. of Columbia, S.C.
Critics say that consumers don't always understand the limitations of these policies. Most hospital care isn't covered, or the benefits may be doled out in small increments, requiring consumers to contribute big chunks along the way. Annual payouts are often capped at $10,000 or less, so policyholders are largely on their own if catastrophic illness such as a heart attack or cancer strikes.
"People have to be aware this isn't providing them the key purpose of health insurance, and that's protection from catastrophic or chronic disease." says Robert Fahlman, chief operation officer of eHealthInsurance, an online broker that stopped selling limited benefit plans because they weren't big sellers and triggered confusion among customers.
In a sense, the plans are the inverse of the "consumer-driven" health plans that many employers and policy makers are pushing today, which require patients to pay out of pocket for routine care but provide coverage for catastrophic needs. Insurance brokers say that some mini plans are being sold to people who have high deductible, consumer driven plans to cover catastrophic care and are looking for some coverage for everyday expenses. Layering the two types of plans together can still be cheaper than a traditional policy.
Mini-medical cause more than their share of consumer complaints, say some brokers and state insurance regulators. Some critics worry that many customers are young people who might not fully grasp the plans limitations, or individuals who are buying policies on their own without the guidance of an employer's human-resource department. Overeager brokers may also gloss over them to promote their "upfront" benefits, say consumer groups, and some brokers and state regulators.
But proponents of the plans say they provide access to the types of preventive care people use most often, such as checkups and medications, at a price they can afford. If the alternative is nothing, then something is better than that, say David Sherman, president of Preferred Benefit Solutions, a New Jersey based employee benefit management firm.
A small but growing number of employers are replacing traditional health benefits with limited benefit plans as insurance premiums soar. One is Ratner Cos., an operator of several hair salon chains with 12,000 stylists. Until October 2002, it offered an HMO, but says skyrocketing costs prompted it to move to a limited benefit plan that it fully finances for employees who work more than 25 hours a week.