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Limited Benefits: Insurers Peddle “Limited Health Care” to America’s Working Poor

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Thousands of people lose their health insurance every day in the United States, which probably explains why national polls indicate that most of us now support guaranteed affordable coverage for all Americans. Yet in the midst of this crisis, some health insurance companies are cynically peddling a useless health insurance product to our nation’s working poor.

Major national insurers such as Cigna and Aetna say they nobly want to offer affordable health insurance to the uninsured by introducing so-called “limited-benefits” plans. These plans, offered for approval to state departments of insurance, function under the guise that some health insurance is better than none. In fact, these plans are really just a way to fleece low-wage workers.

Limited benefits plans boast annual coverage caps as low as $1,000, with more common caps ranging from $2,000 to $15,000, and “internal caps” that put further dollar restrictions on specific types of care, such as prescriptions or hospital stays. This compares to regular health insurance plans, which 158 million Americans get through their employers, that have either no caps or caps set at $1 million or more.

Most Americans know their health insurance plans will cover a major health catastrophe such as cancer or a heart attack, including doctor visits, hospital stays, and prescription drugs. But the same is not true for limited-benefit plans. The Connecticut Department of Insurance, for example, calculated that a patient would not be able to stay in the hospital for one day or cover one prescription under some of the limited-benefit plans for sale by Aetna-SRC in the state.

Why would anyone knowingly purchase such a plan? Quite possibly because they were never adequately informed of its limitations. Case in point: A December 26, 2006 article in the Hartford Courant tells the story of Jeannie White, who fully believed she had comprehensive health insurance:

“Just a few days before gallbladder surgery, she found out from a hospital that the little-known kind of policy she bought two and a half years ago would cover only a small portion of the bills. She will pay thousands of dollars out of her own pocket because the policy caps payouts for various services at very low amounts. ‘I cried for two days because I didn’t know what I was going to do,’ said White, an instrumentation technologist in Lake Jackson, Texas, who had to have her gallbladder removed before it ruptured. ‘I was just devastated. I was angry.’”

This fleecing of the working poor is growing at an alarming rate. The Wall Street Journal has put industry growth estimates for limited-benefit plans at as high as 20 percent annually, with upwards of one million policy holders as of mid-2006.

Perhaps the most disturbing aspect of this new “business opportunity” for insurers is the target market. Aetna has made it clear that it promotes its limited-benefit plans to businesses with large numbers of low-wage workers as a way to decrease worker turnover. The Aetna-SRC Web site targeting employers does not (or rather did not) mince words: “There is a wide array of benefits available and many of them promote a perception of value that far exceeds cost.”

Following a lawsuit filed by the progressive Citizens for Economic Opportunity in October of 2006, Aetna substantially changed its SRC Web site, removing any language that might be construed to encourage employers to deceive employees into “a perception of value that far exceeds cost.” But before it changed this language, Aetna’s clear intention was to hoodwink low-wage workers into believing erroneously that they were purchasing traditional health insurance.

The costs of limited-benefit plans are either entirely or largely paid for by the low-wage employee. Aetna’s marketing targets large retailers and restaurant chains, encouraging them to build a false sense of loyalty among their low-wage workforce without actually providing workers with any serious health benefits. Reaching new heights in cynicism, these insurance companies dupe low-wage workers into spending their limited dollars to buy a product whose primary purpose is to keep them in a low-wage job.

Aetna-SRC’s revamped Web site uses somewhat less offensive language, including: “When an employee compares two jobs, if there’s no difference between the working conditions or the availability of benefits, the job that pays more will tend to be the choice. Sure, a few pennies more per hour may entice new employees, but from the employer’s perspective there’s a limit to how high wages can go.”

Despite these cosmetic Web site changes, the business strategy of these insurers remains the same. A January 25, 2006 article in The Boston Globe examined Friendly’s Restaurants’ switch from a comprehensive health plan to a limited benefit plan provided by Star HRG of Phoenix (now owned by Cigna) with a $2,000 annual cap and $100 maximum daily hospital stay benefit—in a state where the average daily hospital stay costs over $1,600.

The Boston Globe reports that the bait and switch angered S. Prestley Blake, 91, the co-founder of the Friendly’s chain. Blake, who is still a shareholder but does not have any official connection to the company, told the newspaper: “I think it’s a shame. However, I can’t do anything about it.”

But voters and their elected representatives can.  States have primary control over making regulations regarding whether a company can sell you insurance.  And the process is typically managed via both the state legislature and an executive branch department of insurance.  The state legislature sets both the requirements for the financial viability of any insurance company wishing to do business in the state and the rules that all plans offered by the companies must follow.  The department of insurance then evaluates each insurer and their plans to determine whether these standards have been met.  So to sell limited benefit plans in a state, insurance companies must satisfy both entities.

That’s why insurance companies are peddling limited-benefit plans to state elected officials as an affordable way to expand health coverage. Across the country, states have been forced to take the lead in finding innovative solutions to America’s growing health care problems of expanding costs, decreasing coverage, and growing numbers of uninsured. Several insurance companies have cynically entered into this mix to encourage states to approve these plans on the grounds that they will reduce the number of uninsured.

“We offer them because we believe that in the long run, they provide some level of service for people who would otherwise not be covered and would have a whole host of inconveniences if they were to approach the system uninsured,” Mark T. Bertolini, Aetna’s head of its regional businesses, told The Hartford Courant.

The Wall Street Journal reported the same story line from a senior executive at Cigna, which acquired limited-benefits plan provider Star HRG in June of 2006:

“Richard Gray, vice president of corporate development for Cigna, said the Philadelphia-based insurer doesn’t intend to market any of the Star plans to employers looking to trade down to lower-costing health coverage. ‘We really see these [limited-benefit plans] more as an option to those who aren’t covered today,’ he said.”

This was strikingly contrary to fact, as only months earlier Star HRG had been used by Friendly’s to downgrade its employees’ health coverage.

Despite insurance company claims, these plans don’t solve any health care problems. Families must have health insurance that is there when they need it, providing coverage in dollar amounts sufficient to meet real costs. Public policies that allow the working poor to be counted as insured when their health plans are useless are not unlike the historical practices of counting African Americans as voters when they were denied the ability to vote as soon as they actually showed up at polling places.

Are There Any Benefits in Limited-Benefit Plans?

Health insurance companies have come up with some potentially beneficial strategies. To reduce costs to different types of consumers, many health insurance companies will provide catastrophic care insurance with very high deductibles. Blue Cross Blue Shield of Arizona, for example, recently announced plans with annual deductibles as high as $10,000, but with relatively low monthly costs.  These catastrophic policies are typically marketed for what they are—an economic trade-off where the customer is at risk for significant out-of-pocket costs for basic health care, but pays a lower premium and has the security of knowing the insurance company will step in if a medical catastrophe occurs.

What should concern us all are plans that have no real-life economic benefit for the working poor. Providers of limited-benefit plans argue that some health insurance is better than no health insurance. Yet even when these plans are presented in their best light with a cap of $10,000, it is unclear why having $50,000 versus $60,000 in catastrophic health care debt is dramatically better for someone earning $15,000 a year. Either circumstance will lead to bankruptcy or at least to a hospital payment plan where the low-income patient pays hundreds of dollars a month for the rest of his or her life.

Insurance companies also argue accurately that they cut costs for policy holders because their buying power allows them to negotiate better prices for medical care.  But in the real world, the working poor are generally not in a financial position to benefit from these lower prices.

For major medical conditions, the savings resulting from the insurance companies’ negotiating power are simply insufficient to matter. If a low-income policy holder saves even 30 percent on large health care bills from a catastrophic illness, they still cannot afford to pay the entire bill and will almost certainly go into insurmountable debt.

For less expensive care, once a common cap of say $2000 is reached the deductibles, monthly payments, and co-pays have eaten up the “savings” attributable to insurance companies’ negotiating power. Even worse, to maintain these savings the insured low-wage worker has to keep paying the insurance company even after the cap has been reached and the insurance company is no longer paying anything on behalf of the insured worker.

In fact, money spent on limited-benefit plans by low-income Americans would be better spent on numerous other necessities, such as education, bus fare, clothing, heat, or even food. If it is truly disposable income there are much better ways to earn a return on investment, like saving in a regular bank CD that could then be spent on health care if needed.

Since there is no real-life economic benefit, it is not surprising that the plans have historically not been marketed to low-wage workers but to their employers as a way to convince workers to stay in a job where they believe that they at least have health insurance.

Not every elected official has been duped by insurance company claims that limited-benefit plans are in consumers’ best interests. Connecticut Attorney General Richard Blumenthal made his concern clear to the Center for American Progress by discussing a current investigation and other efforts to protect the working poor as consumers of health plans:

“We found that a particular policy set forth by Aetna had benefits so small as to be virtually worthless.  We were also concerned that people were led to believe they had significantly more coverage than they actually had.  While we are currently investigating this particular plan to determine whether it violates existing law, we want to leave no doubt that sham policies are not permitted in Connecticut.”

Yet despite the attorney general’s investigation and the pending Citizen’s for Economic Opportunity litigation, strong lobbying by the health insurance industry has kept these plans active in Connecticut and throughout the country.

One pathetic solution offered in Connecticut has been to note on the policy or certificate of insurance that there are limits on the benefits offered by these plans. It is not surprising that the insurance companies have not fought back particularly hard against this “solution.” If you get your health insurance through your employer, have you ever actually read your plan?  Could you even locate a copy?  Putting a disclaimer on a bogus health plan does not stop it from being bogus, especially since almost no one will ever read the disclaimer.

Governors, legislators, and state departments of insurance should not be swayed to approve or support limited-benefit plans. They are not a part of the solution to America’s health care crisis. They take money from the working poor and ensure that affordable medical care is not there when patients need it most—when they actually get sick or injured. To offer these plans knowing that with good information people would not buy them is not just bad policy. It’s immoral.

Henry Fernandez is a Senior Fellow at the Center for American Progress focusing on state and municipal policy.

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