Limited-benefit health plans get new life despite criticism

HHS is trying to avoid political fallout if employers were to eliminate coverage because of the high cost of comprehensive benefits.

By Doug Trapp — Posted Jan. 17, 2011

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The Dept. of Health and Human Services is allowing some employers and unions to continue offering plans with tighter benefit limits than permitted under the health system reform law, at least temporarily. However, in exchange, HHS is requiring these plans to disclose their restrictions more explicitly.

The health reform law requires plans this year to cover up to at least $750,000 in benefits. The law increases the threshold each year until 2014, when annual benefit limits end entirely. That year, health insurance exchanges will start offering a variety of coverage options with premium subsidies tied to a person's income. Medicaid eligibility will expand to 133% of the federal poverty level.

As of Dec. 3, 2010, HHS had approved waivers for 222 businesses and unions that provide limited-benefit plans to more than 1.5 million people. The HHS exemptions highlight the steps the department is trying to take to regulate the health insurance industry more tightly without suffering potential political fallout if employers -- such as McDonald's -- were to drop health coverage altogether because of the added expense of comprehensive benefits.

"The health care reform bill could very much keep employees from having any coverage whatsoever," said Sen. Kay Bailey Hutchison (R, Texas). Limited insurance at least would give workers the ability to undergo check-ups and get their children immunized, she said.

But the coverage offered by limited-benefit plans creates a false sense of security, said Sen. Jay Rockefeller (D, W.Va.). For example, the least-costly health plan for McDonald's hourly employees has a $2,000 annual benefit limit. People think they have health insurance, but they really don't, said Rockefeller, chair of the Senate Commerce, Science and Transportation Committee, during a Dec. 1, 2010, committee hearing.

He said guidance issued by HHS on Dec. 9, 2010, will improve consumer protections against misleading insurance offers by requiring better disclosure of health plan limits.

Better than nothing?

One million to 2 million Americans have limited-benefit health plans, said Timothy Jost, professor of law at the Washington and Lee University School of Law in Lexington, Va.

These health plans, commonly known as "minimed" policies, sometimes provide as much as $25,000 or even $50,000 in annual benefits, said Devon Herrick, PhD, senior fellow at the National Center for Policy Analysis, a conservative think tank in Dallas that favors free-market policies.

HHS in September 2010 exempted McDonald's minimed plans -- among many others -- from the health reform law's requirement that plans cover no less than $750,000 in benefits annually. About 115,000 McDonald's employees are enrolled in the company's minimed plans, which have annual benefit limits of $2,000 to $10,000, said Richard Floersch, McDonald's executive vice president and chief human resources officer.

McDonald's offers minimed coverage in part because an employee survey found that only 3% of hourly workers were willing to pay more than $35 per week out of pocket for health insurance. The company's $2,000 limit plan costs workers $11 per week, while the $5,000 limit plan costs $15 or $20, Floersch said. Still, only 10% of McDonald's hourly employees max out their policy's annual benefits, he said.

Herrick said benefit mandates such as those in the health reform law will increase the cost of hiring workers, forcing employers into difficult choices about offering coverage, hiring additional employees and adjusting wages. "Health benefits are really just a form of noncash compensation that's part of the worker's total compensation package."

But Rockefeller said the health reform law is justifiably ending minimed plans in 2014 because they provide false hope to employees who don't know if they will exceed their health plan spending limits.

One such case is of Eugene Melville of Riverside, Calif., who has worked at a big-box retailer for several years. He testified at the Dec. 1, 2010, hearing that he thought he had $20,000 worth of coverage through his employer's minimed policy. But when he was diagnosed with cancer, he learned his plan paid up to $20,000 each year in hospital room and board costs, but a total of only $2,000 in outpatient care, physician visits, medication, lab services and other care. A hospital scheduled Melville for surgery but turned him away because of his inability to pay, so he's seeking treatment at another hospital as a medically indigent person.

Rockefeller said providing health coverage with benefit limits that are exceeded by 10% of employees, as McDonald's does, is like offering a car with brakes that fail 10% of the time.

Jost said the health reform law's Medicaid eligibility expansion to 133% of the poverty level in 2014 will provide comprehensive health coverage to many people who have minimed plans. Until then, minimed plans may have value, he said. "For some -- I don't believe all, but for some -- enrollees in minimeds, they are better than nothing."

Although Rockefeller's line of questioning at the hearing focused on McDonald's health coverage, Hutchison noted that the biggest single exemption HHS has approved -- for 351,000 people -- was for the United Federation of Teachers Welfare Fund. That's a New York union providing coverage for city teachers. Dozens of other unions also have received HHS waivers to the health reform benefit requirements.

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Limited benefits, full disclosure

The Dept. of Health and Human Services has exempted more than 200 unions and employers from minimum coverage requirements in the health system reform law. Guidance issued by HHS on Dec. 9, 2010:

  • Requires plans to specify, in 14-point bold type, the dollar limit on coverage and the benefits to which the limits apply.
  • Requires plans to direct consumers to a federal government website, where they can shop for other health coverage (link).
  • Allows employers who already are offering a limited-benefit plan to purchase a similar plan from a different health insurer, but only under limited circumstances.

Source: "Know the facts, Know Your Rights," Dept. of Health and Human Services, December 2010 (link)

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