The Deception of Junk Insurance

In an article to the New York Times, Julie Arkison thinks back to how things were before the Affordable Care Act created standards and regulations for her health insurance. At the time, the health insurance policy she had, which was from the same health insurance company that covers her now, didn’t cover the costs of doctor visits except for a gynecological exam and a yearly checkup.

“I couldn’t even go to my regular doctor when I was sick,” said the 53 year-old, self-employed horseback-riding teacher from Saline, Michigan.

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“The problem these days is that you won’t know whether an insurance is good or bad till you’re facing medical bills and it’s too late” – Stephen A., a worried health insurance consumer. 

Julie’s medical insurance did not cover any of the exams before or after her hip surgery, the physical therapy to regain mobility after the operation, the crutches she needed to get around while she recovered, or any of the medications she needed to recover. In the seven years she mostly paid out of pocket until she could purchase a new health insurance policy through the marketplace created by the Affordable Care Act, Ms. Arkison estimates she spent $20,000 on treatment.

The Senate Republican leaders are struggling to secure the votes required to repeal and replace the healthcare law, the centerpiece of their argument to win conservative support is a provision to the law that would allow health insurance companies to sell bare-bones health insurance policies again. A new version of the bill released on Thursday involves an idea from Senator Ted Cruz of Texas that would permit health insurance companies to market all different kinds of plans as long as they offer health insurance policies in compliance with Affordable Care Act standards. These measure also allow health insurance companies to take into account a person’s health status when determining whether or not to insure them and at what cost.

Insurance regulators from the state say the proposal is a throwback to the days when health insurance companies, even household names like Blue Cross Blue Shield and Aetna, sold bare-bones health insurance policies so skimpy in benefits that they could hardly be called medical coverage at all. These health insurance policies were dubbed “junk insurance.” The plans had a very low monthly premium but often came at the cost of five-figure deductibles and lack benefits for serious situations. Many of these policies failed to pay for medical care that is considered to be essential.

For example, one Aetna plan defined hospitalization coverage as basically for room and board. The health insurance policy capped coverage at $10,000 for “other hospital services,” a category comprised of such routine care as medication and operating room expenses.

The Affordable Care Act drastically changed the landscape of the health insurance industry by requiring health insurance companies to offer comprehensive benefits, which include doctor visits, prescription drugs, maternity care, mental health, and substance abuse treatment, in order to formally qualify as a health insurance policy. “The new bill opens the door to junk insurance,” said Dave Jones, the California insurance commissioner.

A 34 year old man named Ned Scott who lives in Tuscon, AZ said the health insurance policy he had before the Affordable Care Act left him with $40,000 to $50,000 in medical bills after being diagnosed with testicular cancer in his late 20’s.

“I thought it would cover things,” Mr. Scott said, but once he needed coverage, he found out just how limited his “junk insurance” was. Ned’s health insurance policy limited outpatient services to $2000 a year, a category that encompassed all his treatment, from chemotherapy to CT scans.

Most Republicans, President Trump included, argue that giving health insurance companies the leeway to offer cheaper, less-comprehensive plans will give people more freedom of choice over their treatment options. This Senate bill “ensures consumers have the freedom to choose among more affordable plans that are tailored to their individual health-care needs,” said Senator Cruz.

Proponents of the bill argue that it would allow Americans to purchase health insurance policies that they normally wouldn’t be able to afford. Republican Senator Jeff Flake of Arizona supports the idea of allowing health insurance companies to sell health insurance policies that don’t comply with the standards of the Affordable Care Act. Mr. Flake told The Arizona Republic in a recent interview that the current proposal would allow “183,000 Arizonans who can’t afford insurance because it’s just too expensive to buy a product that meets their needs.”

On Friday, July 14th, two main trade associations in the industry, Blue Cross Blue Shield Association and America’s Health Insurance Plans, sent a letter to the Senate voicing their adamant opposition to the healthcare proposal, which they say would cause a divide in the marketplace, essentially creating two distinct markets. According to BCBSA and AHIP, the proposal “is simply unworkable in any form and would undermine the protections for those with pre-existing medical conditions, increase premiums and lead to widespread terminations of coverage for people currently enrolled in the individual market.”

“These plans lacked transparency that would give consumers an idea of what they were actually purchasing,” said the senior business analyst of a consumer advocacy group known as Community Catalyst, Ashley Blackburn. People currently purchasing health insurance policies benefit not only from the standards set in federal law by the Affordable Care Act, but also the fact that these health insurance policies are divided clearly into categories with different levels of coverage. “We’re really moving back to a market where people are going to have a hard time reading through their plan options.”

Under the new association plans, small businesses and self-employed individuals become more vulnerable to junk health insurance policies that would leave them unprotected. State regulators finally cracked down after some of these health insurance policies inevitably became insolvent. In the early 2000s, four associations left nearly $50 million in unpaid medical bills to their customers, according to a research overview of these health insurance policies’ history published in the journal known as Health Affairs.

Many states have been adopting an aggressive stance against these junk insurance policies, but either way the Senate proposal would make health insurance policies mostly exempt from state oversight. “There are a lot of consumer protection laws that states have passed that would have to be overruled or ignored,” said Rebecca Owen from the Society of Actuaries, a health research actuary service.

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