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Health Insurance Limits May Be on the Rise, Pending Regulatory Approval

Source: USA Today

Posted on 13 Aug 2010

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The new health overhaul law aims to put an end to all annual dollar limits on health insurance policies by 2014. Federal regulators contend such limits can leave policyholders "virtually uninsured" for the rest of the year once caps are hit.

The new law would help people like Jim Arey, who was stunned to receive an $8,000 bill after two doctor visits that involved expensive treatment; Arey found the limited-benefit health insurance provided through his new employer capped doctor's office care at $2,000 a year. He unknowingly hit his cap on his first visit because of the cost of the treatment.

Starting this fall, most health care policies — except existing policies bought by individuals — will have to cover at least $750,000 in medical care per person. That ratchets up to $2 million by September 2012. But there's a catch. Insurers can seek a waiver from the government to keep their current limited plans if they can prove that offering better benefits would cause significant premium increases or force employers to drop or severely limit coverage.

That raises a tricky issue for federal regulators trying to write the rules for waivers: how to protect workers from skimpy policies without causing them to lose insurance.

Insurers and employers say a generous waiver process is needed to avoid a sudden jump in premiums. But patient advocates, such as California-based Consumer Watchdog, warn against being too lenient. All sides are pressing their cases with the Department of Health and Human Services (HHS), which is writing the rules on the waiver process but has not specified what they will say or when they'll be in place. It's not clear yet whether waivers could continue after 2014. HHS said details on the process are under development, and declined to elaborate.

Almost 2 million workers nationwide — many in the retail, service, restaurant or temporary staffing industries — have a limited-benefit health plan. Such plans, while low cost, generally include dollar limits on coverage that can range from less than $100 a day to more than $250,000 a year.

While popular among small businesses, limited-benefit plans are also offered by large employers, including home improvement retailer Lowe's, which offers part-time workers a plan that covers up to $50,000 a year in medical costs. The Regis chain of hair salons offers a limited-benefit plan as one of two options for new employees. It caps coverage at $15,000 a year and includes other limits, such as $240 a year for diagnostic X-rays or lab tests, $75 for one emergency room visit, and hospital payments of $450 to $900 a day. Those payments likely would not cover the full cost of hospital care, which can be several thousand dollars a day.

Government regulators estimated that nearly 1.7 million people have plans with annual limits of less than $750,000 this year. Only about one of every 435 people with policies covering less than $250,000 in health care expenses will exceed that amount, the regulators estimated.

The appeal of limited-benefit plans is that premiums are cheap, as low as $10 to $15 a week, for workers, and the policies do provide some coverage toward routine medical care. The plans also are solid moneymakers for insurers because of their fairly low payout for medical costs. Insurers offering the plans include big names, such as Cigna and Aetna, as well as smaller firms and companies that administer benefits for large, self-insured employers.

"The (insurance) industry loves them. And employers do, too, because it's a low-cost way for them to provide benefits," says benefits attorney Alden Bianchi, a partner at Mintz Levin in Boston. He says some insurers pay as little as 60% of revenue on medical costs, meaning they may run afoul of another part of the health reform law: a rule that insurers must spend at least 80% of revenue on medical care.

Mark Bailey, a senior vice president at Cigna, says offering limited-benefit plans to employers has "been a high growth" product for the company in the past few years, particularly among firms with part-time workers.

He's optimistic that the waiver process will let insurers keep offering such policies to employers.

In a July 21 letter to HHS, Aetna said premiums could rise dramatically if limited-benefit plans are required to meet restrictions on annual limits between now and 2014. Lower-income workers would not be able to afford the higher costs, Aetna said. After 2014, the government will subsidize the cost of more comprehensive coverage for some low-income workers.

For now, limited-benefit plans "meet a need for a very basic level of coverage that we recognize is not comprehensive," says Aetna spokesman Mohit Ghose.