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Impending death for mini-med health insurance plans

mini-med-health-insuranceA provision in the health care reform law will probably spell an end to mini-med plans, a bare-bones form of health insurance.

Mini-med plans, also known as limited benefit plans, are low-cost insurance policies that provide narrow coverage, usually with a maximum dollar amount per year. While they offer basic benefits, these plans do not provide the comprehensive coverage that you’d need if you suffered from a catastrophic injury that required a lengthy stay in the hospital.

Premiums for these health insurance plans range from $20 to $190 per month for single coverage and $100 to $500 a month for family coverage, according to a 2010 “Mini Med Plans” report from the National Center for Policy Analysis.

Who buys mini-med health insurance?

These plans are typically offered to low-wage, part-time or seasonal employees but they are not subsidized by employers (meaning the employee pays the full cost of the premium). Most full-time employees who receive health care benefits from their employer are not enrolled in mini-med plans.

Under the health care reform law, health insurance companies will be prohibited from establishing annual dollar limits on coverage, starting in 2014. For plan years starting between Sept. 23, 2010, and Sept. 22, 2011, plans cannot limit annual coverage of essential benefits (hospital, physician and pharmacy) to less than $750,000. The annual dollar limit cannot be less than roughly $1.2 million for plan years starting on or after Sept. 23, 2011, or $2 million for plan years starting between Sept. 23, 2012, and Jan. 1, 2014.

"There are penalties that the government can impose" if the plan doesn't meet those requirements, says Kathryn Wilber, senior council on health policy for the American Benefits Council, a Washington, D.C.-based trade association that advocates for employee-benefit programs.

Health insurance companies receiving waivers

In the meantime, the U.S. Department of Health and Human Services has issued temporary waivers to allow workers to keep their mini-med plans. For example, the fast-food giant McDonald’s received a waiver for its plan.

These waivers last for one year and are permitted only if the health insurance company certifies that the waiver is necessary to prevent a big increase in premiums or a decrease in access to coverage. Some insurers that have obtained a waiver can sell new policies to employers and individuals.

"For many Americans, this type of plan might be the only thing available to them that might be affordable," Wilber says. "This [waiver process] was a good outcome for consumers who were relying on these plans and who don't have access to other options and likely won't until 2014."

Health insurance plans that receive waivers must notify their customers that the plan does not meet the law's minimum annual requirement for essential benefits and has received a one-year waiver of this requirement. The notice must include the dollar amount of the plan's annual limit and a description of the benefits to which the limit applies.

Roughly 2 million Americans were enrolled in mini-med plans in 2010, according to the National Center for Policy Analysis. Ten percent of large employers (those with 500 or more employees) offered a mini-med plan in 2010, according to Mercer, a New York City-based consulting firm.

Health insurance rates have skyrocketed  

Due to skyrocketing health insurance rates over the past five years, Congress wanted to address concerns about cost. The provision that bans annual dollar maximums is intended to reduce out-of-pocket costs for patients who would have exceeded the maximum.

"Many consumers have purchased coverage that was subject to low annual limits without knowing what they were buying. When they became ill and needed treatment, the rug was pulled out from under them as they learned that they had exhausted their plan's coverage," Ron Pollack, executive director of Families USA, a Washington, D.C.-based nonprofit organization that advocates for health care consumers, stated in a press release.

Judy Dugan, research director of Consumer Watchdog, a Washington, D.C.-based nonprofit consumer advocacy organization, warned in a letter to the White House, "Some of these mini-med policies are capped at a few thousand dollars of coverage per year, hardly enough to pay for a brief emergency room visit or one night of hospitalization. Yet because they are defined as health insurance, workers who accept these junk policies may be excluded from public benefits or hospital charity aid if they fall seriously ill."

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