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Assessing Your Risk: Buying a Policy That Doesn't Cover Much


My friend Ariane Canas, a New York City hairdresser, was eager to tell me about a new health insurance policy she had come across. It was cheap'very cheap'as such coverage goes. I knew that she and her husband, who is also self-employed, had gotten a notice this fall from their current carrier advising of a 33 percent rate increase.

They had been paying $6,700 annually for their coverage with its $5,000 deductible and $10,000 for out-of-network services. A few years ago they had already downsized from a policy that covered more services upfront.'  So when she heard she could get coverage with no annual deductible, no coinsurance for in-network doctors, no out-of-pocket limits and didn't require referrals to specialists, her ears perked up. It's an indemnity policy, she explained, and then my ears perked up.

She wasn't talking about those old-fashioned, indemnity policies we all used to have in the days before managed care. They paid for just about everything, but disappeared long ago when it became clear that the United States was unable to control health care costs and embraced managed care as a savior that in the end didn't do much to save medical costs.

Best of all, Canas said, the premium for a family policy was only $5,359, a savings of about $1,300 a year. What did such a cheapie policy cover?  It turned out not much.

You have to put it in perspective, says Paul Fronstin, director of health research at the Employee Benefit Research Institute. You get what you pay for.'' The average annual premium for a family policy is $13,770.

The printout about the policy revealed there was no coverage for visits to primary care docs or to specialists. There was no drug coverage, no outpatient lab or X-ray services except for pre-surgical testing. Outpatient surgery was covered and so were hospitalizations at participating facilities. The printout said there was no charge for a periodic health exam, a periodic OB-GYN exam or well baby care. Did that mean those services were totally free?

What she described sounded like hospital indemnity policies that some outfits, including AARP, have been selling for years. They don't cover much but pay a set amount for each day in the hospital. Some companies have carved out a profitable niche selling them as supplemental insurance to people who also have better coverage from an employer.

The new versions of limited benefits insurance go by the name mini-med policies. They, too, offer few benefits and cap the amount they will pay out. That amount is usually low. The annual survey of employer health plans conducted by Mercer, a benefits consulting firm, found that the median annual cap for mini-med policies was $7,000.

Canas printout did not mention a cap, but said there was an unlimited' lifetime maximum, which raises the question of just what kind of a plan she is getting. Yesterday, West Virginia Sen. Jay Rockefeller (D) held a hearing looking at exactly what Americans are getting when they buy coverage with limited benefits. Are these policies really insurance, Rockefeller wants to know?

These policies are controversial. Sellers and some employers offering them to their workers argue they are better than nothing and have persuaded the Obama administration to give them a break from new rules requiring insurance companies to pay out a minimum amount in benefits. The government has exempted, at least for this year, more than 100'  employers and insurance companies including industry giants Aetna and Cigna that have thousands of policyholders in these plans.

Since Canas and her husband, a personal trainer, are healthy 50-somethings and don't get sick, they thought hospital-only coverage might be fine. But they're on the hook for large out-of-pocket expenses if something goes wrong. For the prospect of saving $1,300 a year, they are taking a large gamble.

More Blog Posts by Trudy Lieberman

author bio

Trudy Lieberman, a journalist for more than 40 years, is an adjunct associate professor of public health at Hunter College in New York City. She had a long career at Consumer Reports specializing in insurance, health care, health care financing and long-term care. She is a longtime contributor to the Columbia Journalism Review and blogs for its website,, about media coverage of health care, Social Security and retirement. As a William Ziff Fellow at the Center for Advancing Health, she contributes regularly to the Prepared Patient Blog. Follow her on twitter @Trudy_Lieberman.

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Sarah Jorgenson says
December 3, 2010 at 12:27 PM

The conversation continues surrounding mini-med policies on The Wall Street Journal's blog and NPR's blog . Do you think mini-med policies give people a false sense of security, or are they worth the money saved up front? Join the conversation with Trudy and others.

WSJ's blog:

NPR's blog: