OPINION: ‘limited benefit’ plans are no real bargain

Introduction

Among insurance executives, Aetna CEO Mark Bertolini has been among the most vocal in warning of “premium rate shock” when major provisions of Obamacare kick in on January 1.

“We’ve done all the math, we’ve shared it with all the regulators, we’ve shared it with all the people in Washington that need to see it, and I think it’s a big concern,” Bertolini told his company’s big shareholders and Wall Street financial analysts in New York last December.

If Aetna does, in fact, hike premiums by more than 100 percent for some of its customers, as Bertolini suggested at the meeting, no doubt part of that money will go to covering his shockingly lucrative paycheck.

While many Aetna employees were lucky to get two percent raises last year, Bertolini’s compensation nearly quadrupled. That’s right, quadrupled.

Aetna disclosed in a filings last week with the U.S. Securities and Exchange Commission that Bertolini’s total compensation in 2012 was $36.36 million, up from $9.7 million in 2011. If you include the $11.1 million in stock awards he was given that will vest later, his 2012 total jumps $47 million.

Bertolini’s “pay shock” so angered many current and former Aetna workers that several of them posted scathing comments on the Hartford Courant’s website.

“All Aetna employees should be picketing outside the office building in protest of this disgrace,” a former Aetna employee wrote. “What kind of leader gives his employees 2% while his earnings nearly quadruple???? Totally selfish.”

One of the reasons Bertolini mentioned “premium rate shock” to his company’s investors undoubtedly is that Aetna won’t be able to continue selling some of its most profitable health plans next year—the ones that have relatively low premiums but such limited benefits that they’ll actually be banned next year.

Since 2005, when it bought a firm that specializes in limited benefit plans, Aetna has been a major marketer of policies that provide such coverage — coverage so skimpy that former Connecticut Attorney General —and now U.S. Senator— Richard Blumenthal once called an Aetna limited benefit policy “virtually worthless.” Blumenthal was concerned that folks who had bought the policies “were led to believe they had significantly more coverage than they actually had.”

Often called ‘junk insurance’ by consumer advocates, limited benefit plans typically have an annual cap of $1,000 to $15,000 and have significant restrictions on specific types of care, especially hospitalizations. But the marketing materials for these plans seldom draw attention to what is not covered.

As a consequence, many people have been shocked to find that they are on the hook for hundreds of thousands of dollars in hospital care they thought would be covered by their insurance policy.

One Aetna policyholder, Lawrence Yurdin of Austin, Tex. told The New York Times in 2009 that he and his wife had been forced into bankruptcy because of unpaid medical bills totaling nearly $200,000, even though he had what he thought was adequate insurance. As the Times reported, the brochure the Yurdins were provided indicated that their policy covered up to $150,000 a year in hospital care. Deep in the fine print, however, was language that excluded nearly all of the care Yurdin received for a heart condition at an Austin hospital.

It turned out that that $150,000 was for room and board. Coverage for “other hospital services”—which included just about everything else, including expenses incurred in the operating room—was capped at $10,000.

As the Times noted, “Aetna would have paid for Mr. Yurdin to stay in the hospital for more than five months — as long as he did not need an operation or any lab tests or drugs while he was there.”

Beginning January 1, Aetna and other companies that have made millions of dollars in profits from such plans, including Cigna, where I used to work, will no longer be able to sell them, thanks to the consumer protections in Affordable Care Act. Policies will have to provide decent coverage for hospitalization and other “essential benefits,” and the annual and lifetime caps will be banned. Insurers will also have to provide information in plain language about what is covered and in a format that will enable consumers to make apples-to-apples comparisons among plans.

Aetna CEO Bertolini probably was thinking of the thousands of people who are currently enrolled in limited benefit plans when he warned of premium rate shock. And he has a point. The premiums for such plans are low compared to policies that actually cover medical care doctors and nurses provide to cure you once you’ve been hospitalized. It’s not unreasonable to think that Aetna would charge its existing limited benefit customers more for real insurance—maybe even twice as much. But because insurers market limited benefit plans to low income workers, most likely will qualify for subsidies to help them pay the premiums.

Indeed those people might be shocked when Aetna tells them how much they’ll have to pay for a plan that is not “virtually worthless.” But at least they will be saved from the kind of shock that Lawrence Yurdin experienced when he realized that the money he had been paying Aetna in premiums—some of which went to pay Mark Bertolini’s salary—was not enough to keep him out of bankruptcy court.