ANALYSIS: The staying power of junk health insurance

Introduction

Members of Congress and the Obama administration have assured us that on January 1, 2014, junk health insurance plans — which offer only the illusion of adequate coverage to the millions of Americans enrolled in them — will become a thing of the past.

Among those who clearly don’t believe those plans are headed for extinction are the insurance companies that market these highly profitable plans and the employers that buy them — primarily restaurant chains and retailers with high employee turnover.

If I were President Obama, I would send one of my aides to the Chicago suburbs later this week to see first-hand just how determined these companies are to continue selling these plans — which are euphemistically called “mini-med” and “limited-benefit policies” — long past 2014.

On Wednesday, the third annual Voluntary Benefits and Limited Medical Conference will open at the Marriott Renaissance Schaumburg Convention Center, not far from Chicago’s O’Hare airport. In just three years, this conference has grown to be a very big, three-day extravaganza. According to the conference Web site, it will “bring together all the players in the industry, from employers and benefits managers, to insurance agents, consultants, brokers, insurance companies, TPAs (third-party administrators), and enrollment firms.”

All you have to do is spend a few minutes on the Web site to get an understanding of just how much money there is to be made selling inadequate coverage to naive consumers. You’ll see all the big names in the insurance world among the attendees and exhibitors, including the very biggest — Aetna, Blue Cross and Blue Shield, CIGNA, Humana and United — as well as dozens of restaurant and fast food chains and other employers of low-wage workers.

Maybe Obama himself should plan a trip to his hometown and crash the party. He would learn a lot more about the future of health care benefits as envisioned by the insurance industry and a big segment of corporate America than if he stayed in Washington.

One of the reasons I left my job as an insurance industry executive is because I could not in good conscience continue promoting these plans, which all but guarantee that the people who enroll in them immediately join the fast-growing ranks of the underinsured.

Even calling them insurance is a stretch. Many of them have annual coverage caps of $2,000, meaning that after the insurer has paid $2,000 in claims, the policyholder is on the hook for all other medical expenses. And a lot of these policies provide no coverage whatsoever for a stay in the hospital. This is why consumer advocates refer to them as junk or fake insurance. People who enroll in them often have been sold a false sense of security, only to find out when it’s too late that they’ve been sending hard-earned money to insurance companies whose executives are laughing all the way to the bank while consumers are on their way to bankruptcy court.

One of the big for-profit insurers sponsoring this year’s conference markets a limited-benefit plan only to employers with inordinately high employee turnover. Not only are the benefits very limited, the underwriting criteria almost guarantee an impressive profit margin.

Under the plan, the average age of an employer’s workers cannot be higher than 40, and no more than 65 percent of employees can be female. (Insurers have long charged women more than men simply because of their internal plumbing.) To meet the insurer’s additional demands, employers must have a 70 percent or higher annual employee-turnover rate (that’s not a typo), which means that most employees won’t even stay on the job long enough to use their benefits. Employees also get no coverage for care related to any preexisting conditions they might need during their first six months of enrollment in the plan. And get this: Employees have to pay the entire premium. The insurer doesn’t even allow employers to subsidize their workers’ coverage. No wonder the big box retailers and restaurant chains love this junk. They list them among the employee benefits they supposedly offer but don’t have to part with a dime when a worker enrolls in one of the plans.

There are so many restrictions built into limited-benefit contracts that there is comparatively little risk to the companies that sell them, which is why the Obama administration is under intense pressure from insurers and their corporate customers to let them keep on selling them.

One of the provisions of the Affordable Care Act that is supposed to kill these plans off requires insurers to spend at least 80 percent of what they collect in premiums on their policyholders’ medical care. Insurers typically spend far less than that on medical care for people enrolled in limited-benefit plans. That’s why they are so profitable.

As I write this, the insurance industry and its corporate allies are lobbying the Obama administration to grant limited-benefit plans permanent waivers from that provision. If the White House caves in to their demands, millions of low-wage earners will be forced to buy junk coverage on January 1, 2014. That’s the date all of us will have to buy coverage from a private insurer if we’re not eligible for a public plan like Medicare or Medicaid. If you don’t want to be forced to buy junk, send the White House a message. Now.