Is your health insurance plan a piece of junk?

Kathryn Hawkins

You have a health insurance policy. But take a closer look at the details: If you got really sick, would it prevent you from going into debt? Or would it let you down just when you need it the most?

The federal Patient Protection and Affordable Care Act, enacted in March 2010, was intended to protect health insurance consumers by providing them with access to affordable, comprehensive health insurance. New federal rules set a minimum annual benefit limit of $750,000 for 2011, and required that insurers spend at least 80 percent of premiums on health care services, rather than on administrative overhead and salaries.

However, the U.S. Department of Health and Human Services already has approved more than 1,000 waivers that will let insurance plans running afoul of the law keep operating in their current form through the end of 2013.

“Mini-med” health insurance plans might seem like a good deal. But experts warn that their benefits are actually junk.

These limited-benefit plans, often called “mini-med” or “junk” insurance, offer “insurance that isn’t there when you need it,” says Carmen Balber, a spokeswoman for Consumer Watchdog, a nonprofit consumer advocacy group. “It doesn’t help when you get sick.”

Here’s what you should know about these plans.

Employer-backed insurance

Many large employers, including McDonald’s and Waffle House, offer their low-wage employees mini-med health insurance plans, with benefits are capped at a certain amount. Although the details of most employer-sponsored mini-med plans aren’t publicly available, McDonald’s plan was highly publicized in 2010, when the company threatened to drop its health coverage in light of federal health care reform’s new minimum benefit regulations. The company was able to secure a waiver to continue the plan instead.

Often, workers buying this coverage don’t realize how vulnerable they could be in the event of an illness or medical emergency, Balber says.

“McDonald’s mini-med plan would pay medical bills up to $2,000 a year, but it costs $600 a year,” Balber says. “This sort of policy is only a benefit to consumers if their medical bills total between $601 and $2,000 in a year. If you have to go to the hospital even once, it’s not worth it.”

At a congressional hearing in 2010, Rick Floersch, McDonald’s executive vice president for human resources, defended the plans, claiming that 90 percent of restaurant workers who have these policies don’t reach their annual benefit limits, and saying that workers were aware the benefits aren’t comprehensive.

Individual insurance

People buying insurance on the individual market also are susceptible to solicitations by companies offering limited-benefit health insurance plans — and consumers may be clueless about the gaps in their coverage until they try to file claims.

Several companies sell individual health insurance plans that are filled with loopholes and limitations, leading to high profit margins for insurers and high out-of-pocket costs for policyholders.

Iowa, Kentucky and Maine have been given federal permission to let these companies continue spending only 65 percent of premiums on health care costs –instead of the 80 percent mandated under federal health care reform — for anywhere from one to three years; numerous other states have such requests pending.

While the plans’ benefit levels may be high in theory, the policy contracts include many limitations on claim amounts. Cindy Holtzman, a medical billing advocate for Medical Refund Service Inc., has dealt with many claim disputes involving policyholders of plans with limited benefits.

In one common type of plan, “customers are not aware that their deductible refers to a single incident or injury, instead of a calendar period,” Holtzman says. “If you have appendicitis, there’s your whole $5,000 deductible. If something else happens, you’ll need to pay it all over again.”

Holtzman claims that contract terms often include limitations on daily treatment costs, such as $1,000 per day plus the average wholesale cost of the serum used in chemotherapy treatments. However, a single chemotherapy treatment could cost tens of thousands of dollars, leaving much of the patient’s claim uncovered.

Agents who sell such policies rarely explain the loopholes and caps in coverage to their customers. “You’re not allowed to look at the policy on your own time, and no one tells you how limited the benefits are,” Balber says.

Consumers rarely realize how minimal their coverage actually is until they get sick, and are stuck with tens or hundreds of thousands of dollars in medical bills.

Identifying “junk” insurance

So how can you make sure that you don’t inadvertently purchase a “junk” health insurance plan? Ask the right questions.

Amy Bach, executive director of the consumer advocacy group United Policyholders, suggests asking agents questions like “What is not included in my out-of-pocket limit?” and “Are there caps on specific benefits?” Discuss hypothetical health-related scenarios, such as getting diagnostic tests or in-hospital treatment, and find out what you would pay out of pocket in each case, Bach says.

“We recommend that people create a grid with three columns for three possible plans,” Bach says. “Ask the same questions of each provider and write them down on a chart so that you can compare apples to apples.”

Bach also advises consumers to take notes when talking with agents and to keep those notes in a safe place.

“Sales representatives often make oral promises that consumers rely on,” she says. “Down the road, it’s hard to prove that (in court) if you don’t have any evidence.”

Doing research on the insurance company before signing a policy can also help you avoid purchasing a “junk” policy. “Google the company’s complaints to see what people are saying,” Holtzman says. Researching the company’s Better Business Bureau rating also can give you a good sense of how well the company handles its consumer disputes.

“Junk” plans may not go away

Although health insurance providers have been granted temporary permission to continue offering limited-benefit and high-profit-margin plans until 2014 at the latest, Balber thinks such companies may be permitted to operate in the same manner indefinitely. “What’s to stop them from requesting another waiver in 2014?” she says.

While the Department of Health and Human Services’ rationale for extending these waivers is that they’re trying to prevent individuals from losing their existing coverage, “these companies are the kind of ‘junk’ insurance that health reform was meant to eliminate,” Balber says. “It might not be the worst thing for consumers to see these plans go away.”