Mini-Meds and Other Junk Insurance Plans Still In Business as Consumers Wait For Health Reform to Kick In

Plus, how to avoid common pitfalls when buying insurance on your own

Yonkers, NY – Brand name insurance companies are selling health coverage as skimpy as a hospital gown.  The leading example of so called “junk health plans,” cited in a new report in the March issue of Consumer Reports, are mini-meds, which the magazine describes as “legal but inadequate.” Other misleading products include fixed benefit indemnity plans and medical discount cards.

Because the federal government has granted waivers—a total of 1,231 covering 3.9 million people as of January 2012—to several large, well-known companies, mini-med junk plans continue to operate, and disappoint, even though they represent the type of misleading and extremely limited health coverage that the Affordable Care Act was designed to eliminate.  The waivers will expire in 2014 when health reform goes fully into effect.

“Mini-meds appeal to large employers in industries such as retail, food service, and temporary staffing agencies who want to be able to tell their employees ‘I have something for you.’ But in reality, these plans are extremely limited in their coverage.  The problem is that many consumers don’t know how to judge the merits of a health plan so they get sucked in,” says Nancy Metcalf, senior program editor, Consumer Reports, and the author of CR’s “Ask Nancy” Blog on health insurance. “But if they have a catastrophic illness or accident, they’ll quickly realize their coverage is hopelessly inadequate.”

Fifty health insurance companies have federal waivers to offer “mini-med” policies until 2014.   These well-known brands have the highest enrollment:  Cigna Starbridge (265,000 enrollees), Aetna SRC (209,423), BCS Insurance (115,000) including McDonald’s hourly employees, and American Heritage Life Insurance Co. (Allstate; 69,945).

Surveys by Consumer Reports have identified health care costs as one of the most burdensome financial woes for consumers.  “Consumers don’t realize that a bargain on health insurance isn’t like a bargain on a flat-screen TV.  With health insurance, you truly get what you pay for,” says Metcalf.  “If what you’re being offered is dirt-cheap, then it’s probably not going to give you meaningful coverage.”

Other misleading products include fixed benefit indemnity plans and medical discount cards, which are aimed at people who don’t have employer group insurance,  not  even  a  mini-med.  If  you’ve ever received a fax or robo-call or seen a late-night TV ad offering affordable health insurance, it was most likely for one of these products.  And they are all over the Internet, ready to ensnare unsuspecting consumers who type “affordable health insurance” into their favorite search engine. Although often marketed as if they were real health insurance, they are not.

Fixed benefit indemnity plans will reimburse a set sum, generally low, for medical services, after which a consumer is on his or her own, most likely with a lot of medical debt.  The medical discount cards promise discounts on services and other products in exchange for a monthly fee.  “As with mini-meds, these products could leave you on the hook for tens of thousands of dollars of medical debt if you should ever become seriously ill,” says Metcalf.

The report, available online at www.ConsumerReports.org, details eight signs a plan might be junk, plus these tips for avoiding pitfalls when buying insurance on your own:

• Don’t shop from a search engine. “If you Google ‘affordable health insurance,’ you will see sites that promise instant quotes.  You should avoid this option at all costs,” says Metcalf.  Brand-name major medical insurers rarely market to consumers in a direct-to-consumer fashion and it’s hard to tell who is legit.  Instead, consult a reputable independent health insurance broker who handles products from multiple companies.
• Don’t respond to flyers on telephone poles, faxes, robo-calls, or late-night infomercials.
• Look up real plans at Healthcare.gov.  On this federal web site consumers can search for all legitimate licensed health plans sold to individuals in their given state.
• Check with your state insurance department.  Consumers who submit questions to Consumer Reports’ “Ask Nancy” blog are rarely aware that health plans sold to individuals are regulated by the states.  Most state insurance department websites have a guide that explains which major medical plans are licensed by the state.
• Make sure everything is covered.  Until health reform goes fully into effect in 2014, insurers can sell plans that don’t cover some basic medical services. Many plans don’t cover prescription drugs, or cover only generics. Some plans in New Jersey cover only $500 a year in outpatient diagnostic tests and don’t cover drugs or cancer chemotherapy. Avoid these types of plans. Even if you don’t need costly services now, you could down the road.
• Find out whether your group plan is a mini-med. The government requires all mini-meds with waivers to include a disclaimer that reads something like this one on a Cigna plan: “Your health coverage…does not meet the minimum standards required by the Affordable Care Act.”   A disclaimer such as this one is a major red flag, says Metcalf.
• Know your COBRA rights.  If you leave your job and your workplace has 20 or more employees, the federal COBRA law entitles you and your dependents to stay on your group plan for up to 18 months so long as you pay the full premium yourself, which can be costly.  To learn more about COBRA, go to the Department of Labor’s website at www.dol.gov.
• Consider Pre-existing Condition Insurance Plans.  If you have a serious pre-existing condition and can’t find a carrier who will insure you, you are eligible for coverage under the Pre-existing Condition Insurance Plan created by the health reform law.
• Investigate public programs.  If your income is on the low side, your children may be eligible for free or low-cost insurance through your state’s CHIP program, and depending on your state’s eligibility rules, you may be able to get on Medicaid.

About Consumer Reports

Consumer Reports is the world’s largest independent product-testing organization. Using its more than 50 labs, auto test center, and survey research center, the nonprofit rates thousands of products and  services annually. Founded in 1936, Consumer Reports has over 8 million subscribers to its magazine, website and other publications.  Its advocacy division, Consumers Union, works for health reform, product safety, financial reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.