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The Flip Side of Higher Premiums: Better Coverage

Time Magazine’s recent cover story on health care – “Bitter Pill” by Steven Brill – has focused attention on hospital prices, especially for people paying out of their own pockets. This is not a new issue, but certainly one that deserves attention.

However, what has been lost in the ensuing commentary on high hospital prices is that Brill’s article is as much about inadequate insurance, which is the reason why the patients he writes about were paying the bulk of their own hospitals bills. One of them was uninsured, but the rest had private insurance. The problem was that the insurance plans these policyholders had ultimately covered very little of their care.

The main culprit seemed to be caps on the dollar amount of coverage, such as

• A non-group plan that covered only up to $2,000 per day in a hospital.
• An employer-sponsored plan through Cigna’s Starbridge subsidiary that capped coverage for any hospital stay at $2,500 total.
• A union plan that limited annual benefits to $60,000.
• A student policy that capped benefits at $50,000.

In some cases, these insurance plans with very limited coverage are referred to as “mini-med” plans. As we’ve written before, these are often provided to lower-wage hourly employees in restaurant chains and retail establishments, or they may be purchased as individual coverage.

Starting in 2014, the Affordable Care Act (ACA) generally prohibits annual dollar limits on the benefits any insurance plan provides. This requirement has been phased in, with plans currently prohibited from having an annual cap of less than $1.25 million this year.

However, a number of plans have received temporary waivers from this requirement in order to avoid disrupting coverage until the major elements of the ACA go into effect in 2014. In total about 3.9 million people are covered by plans that have received these waivers and therefore still may have limited coverage.

How limited is that coverage? To find out, we requested the waiver applications from the Department of Health and Human Services, but did not receive sufficient detail to assess the kinds of limits these insurance policies now have. As an alternative, we analyzed the financial information insurers file with state insurance departments, as compiled by Mark Farrah Associates. Among the insured mini-med plans purchased by small and large employers, the average amount of benefits paid out per enrollee was $747 in 2011. That was less than one-quarter of the average benefits paid out under more typical, comprehensive employer-sponsored insurance plans.

Much has been written lately about concerns over whether premiums will increase significantly for some people next year as the ACA prohibits discrimination against people with pre-existing conditions, limits age rating, and sets minimum coverage requirements (our analysis of that issue is here). There is no doubt that premiums will go up for the people with limited coverage that Brill writes about in his article. But the article also provides tangible evidence of the enhanced coverage and protections that people will get in exchange for those higher premiums.