Affordable Health Insurance for 2008
Federal law ensures that all Americans have access to major medical insurance but no provisions are made to ensure that this type of full coverage is affordable. Major medical insurance is still unaffordable to many people yet the numbers of uninsured Americans and Medicaid applicants both declined in 2007 for the first time in recent history. The rate of health care inflation slowed to its slowest pace in eight years. Part of the reason for these favorable trends is the use of new low cost health insurance plans. The most popular health insurance plans for 2008 offer a limited level of benefits at a more affordable price. Coverage is available to most applicants without regard to medical history. Some types of insurance still limits coverage for pre-existing conditions over the short term, but other insurance options are now available for those with more costly chronic medical issues. While not all states have approved the new types of low cost/limited benefit insurance plans, most Americans now have more affordable choices than were available in other recent years. The greatest immediate risk is that consumers may misunderstand the new coverage provided by the low cost insurance plans, presuming these are the same as full major medical plans of past generations.
2007 marked a decisive change of direction in the quest for affordable health insurance. The change was so dramatic that employee benefit professionals across the county announced the "death" of the traditional employee benefits industry as we know it. Independent researchers at The Employee Benefits Research Institute point out that some of the current market change may be due to normal market cycles. Yet at least some of the change is likely attributable to the popularity of new limited benefit health plans now available to most Americans.
Three sequential events combined to cause this dramatic change in health insurance by late 2007 that will carry over into 2008:
Failure to address the health insurance affordability problem. In 1996 a federal law known as Health Insurance Portability and Accountability Act (HIPAA) ensured that health insurance was available to all Americans. Unfortunately HIPAA does not address the pricing of health insurance and guaranteed coverage under HIPAA is often not affordable. As a practical matter, there is no advantage to making insurance available if the majority of those who need coverage cannot afford to pay for the coverage. The price of HIPAA coverage is based on the actual claim history of those who need guaranteed issue coverage and so the monthly premium is often larger than a family's mortgage or rent payment. The "unaffordability factor" can be measured by comparing the average family health insurance premium with the average family income. In 1987 this ratio was 7 percent. Today it is 17 percent.
Expansion of consumer-driven health plans like Health Savings Accounts with large deductibles and gaps in coverage. Beginning in 2006 some health insurance companies began offering lower amounts of guaranteed issue coverage at affordable prices. Because this limited benefit insurance does not offer full protection and can be combined with any other health insurance, it is referred to as "supplemental insurance". Congress added a blessing to this approach by allowing this type of insurance without jeopardizing the additional tax benefits of a health savings account.
Approval of limited benefit insurance as supplemental coverage in most states. Mini-med plans have been approved at record-setting pace by insurance regulators across the country. Even states like New York and Vermont that have traditionally had the most stodgy and old-fashioned insurance laws have approved some of the new health insurance plans.
Writer Ezra Klein summed up the current situation nicely in The American Prospect (December 17, 2007) by saying "In economics, there's a famous dictum known as Stein's Law, which states that when something cannot go on forever, it will stop. Our health-care system, as currently composed, cannot go on forever. It will wreck our economy, collapse our businesses, render both private and public insurance unaffordable. And so, it will stop. Reform is not a question of if, but when and how." The surprise in this case was "how". Few people expected the health care system to reform on its own without national legislative mandates. It is too soon to make a final judgment, but the portfolio of 2008 health insurance policies gives a strong indication that the industry has indeed changed by consumer demand.
The dramatic change in our health insurance markets came about quietly, without grabbing news headlines and with relatively little national political debate. The health plans that emerged as the leaders for 2008 are less expensive and far less complicated than health insurance of the past. Of course the lower cost of insurance is directly attributable to the fact that they cover less and leave consumers exposed to greater financial risk.
Growth of group mini-med plans. The trend toward limited benefit health insurance policies has hit full stride. Limited benefit insurance plans are sometimes referred to as "mini-med plans", "supplemental insurance" or "basic health insurance". A few large employers like WalMart now offer these limited benefits employee health plans to its employees in place of traditional major medical insurance. Mini-med plans typically have a maximum dollar amount of coverage limitations built into the insurance policy. The dollar amount of coverage limit might be compared to the coverage limits we select when we purchase other types of insurance like auto or homeowners insurance. In contrast, traditional major medical health insurance historically provides virtually unlimited maximum coverage amounts -occasionally reaching into millions of dollars. More than a dozen new limited benefit health insurance policies were introduced by national insurance carriers in 2006 and 2007. One unique characteristic of mini-med plans is that they may be combined with any other insurance. For this reason, many are considered to be supplemental insurance. Of course no one recommends keeping only limited benefits when stronger coverage is available and affordable. Yet many consumers are electing to limit their medical coverage by choosing these plans and foregoing more comprehensive and more expensive coverage options. It seems that since there is no requirement to have major medical insurance before purchasing supplemental insurance, many consumers are opting for only the least expensive option. Mini-med plans are not a comparable replacement for group major medical insurance.
Supplemental insurance can be used in combination with any other insurance, Health Savings Accounts (HSA) and Health Reimbursement Arrangements (HRA). While most of these new plans are considered "group insurance", many are also available to individuals.
Expanding the role of individual short term medical insurance. Individuals who but their own health insurance typically need it for relatively short periods of time, typically a year or less. They need fast affordable coverage without too many obstacles to the enrollment process. Common buyer profiles are those laid off from employment, recent graduates, and people starting a business. Short term medical insurance is the best choice for most individuals who are replacing group health insurance. This is especially important for recent graduates and young buyers who might otherwise be tempted to purchase the least expensive insurance that does not provide adequate protection.
Relatively few insurance buyers need coverage for more than a year and less than one percent of insurance buyers keep the same policy for more than three years even when renewability is available. (The relatively few that do need long term insurance coverage frequently have chronic medical conditions where this type of insurance is not suitable. See the article "Finding Health Insurance to Cover Pre-existing Medical Conditions"). In response to this observation, short term medical insurance plans have evolved to the point where some can be stretched to 36 months if necessary. About half of the states have approved this type of "stretched" short term major medical coverage. Short term medical insurance is significantly less expensive than continually renewable health insurance and offers the liberal benefits and high coverage limits of other major medical policies. Most of these policies are purchased directly online which meets the fast/efficient "get it now" mindset of this target market. Some states still limit the length of short term medical insurance (see the article titled "How Long Can I Be Covered By Short Term Health Insurance?") and not everyone is eligible due to underwriting standards (see the article titled "Am I Eligible For Short Term Health Insurance?").
The most popular 36 month short term medical insurance option is offered under the brand name Secure 12x3 STM. Other well established high quality options for shorter lengths of time are American Health Shield and Simple STM.
MedSave.com lists more than a dozen choices to help match the best-suited
insurance for a particular location, health condition or other specific
situation. See the articles titled "Which
Short Term Medical Insurance is Right for Me?" and "Health
Insurance for Special Situations".
Use catastrophic insurance. An increasing number of Americans opt for catastrophic insurance that leaves all of the routine medical care to out-of-pocket expense, a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA). These policies have a deductible that averages about $5,000 and cost about a third less than conventional coverage. The least expensive in this category is frequently Golden Rule Insurance. The best results may come from the specialty insurance plans from Celtic Insurance. One emerging trend is that the employer pays for the catastrophic coverage while employees pay for supplemental insurance and for funding the HSA account.
The overall effect of all of these trends is that the dollar amount spent on
health insurance policies purchased online at MedSave.com in the second half of
2007 was more than 10% lower than the cost of coverage for the same period in
2006. Some buyers were likely replacing full coverage health plans with limited
benefit plans. Others who were previously uninsured were able to afford
insurance for the first time. This is not because the insurance costs less, but
rather because of the widely increased ability of buyers to buy different types
of health insurance with less expensive "trimmed down" coverage provisions.
Health insurance is controlled primarily by state law rather than federal regulation. This means that the availability of affordable health insurance varies from state to state. Some states have a long history of refusing to allow the offering of lower priced health insurance. Residents of New Jersey, New York, Washington state feel that their states' actions unfairly prohibit them from accessing health insurance available to most other Americans.. Consumer sentiment logically questions why the low cost health insurance policies that are legal and available to residents of Connecticut, for example, should be illegal and unavailable to residents of neighboring New York.
In December 2007, New York state insurance regulators approved the sale of at least one MedSave.com limited benefit health plan that will be available to consumers by January 2008. (Enrollment forms were not available as of the publish state of this article). Other states like Vermont and Massachusetts are expected to follow this lead later in 2008. By the end of 2008, we expect that new lower cost health insurance options will be available in all states.
The only low cost health insurance allowed in New Jersey is an accident insurance. In the last week of 2007, New Jersey Governor John Corzine admitted that his state's experiment to legislate insurance had been a failure. New Jersey's insurance rates are very high and the rate of uninsured residents has jumped to the highest in the nation after the state's legislature banished low cost health insurance plans more than a decade ago.
Unfortunately, the residents of a few states including Minnesota and Washington will find fewer low cost health insurance choices available as some leading low cost health plans withdrew from the state. 2008 Availability Listings will be updated on a state-by-state basis at MedSave.com.
The long term price trend of health care has not changed significantly in several decades. Some economists note a short term decline in the rate of health care inflation, the fact is that health care costs continue to rise year after year. The surprise in recent years is that the actual dollar amount that employers and individuals are paying for their health insurance is coming down and a larger portion of health care costs are being paid though methods other than private health insurance means. This change is accomplished simply by the employer or the consumer purchasing less insurance! Few insurance buyers pay the $1000+ per month premiums for full coverage managed care health insurance plans that were typical only a few years ago.
Large employers including most fortune 500 companies and the federal government employees' health plan are promoting high deductible health insurance plans for their employees. For many employees, this is the only option that makes sense. The employer typically pays most of the premium so the employee contribution is minimal. In co
The trend is still in its infancy, and will likely continue through 2008 and beyond. It is unclear whether this cost-shifting will have any effect on health care costs overall, but it has
The average price of individual health insurance purchased by a consumer is more than $300 per month while employer-provided individual coverage costs more than $400 nationally. In contrast, The average cost of a limited benefit or supplemental insurance plan is less than $150 per month, regardless of whether purchased by a consumer or an employer.
The lowest cost health insurance listed at MedSave.com is the lower level option of Basic Health Insurance simply because it provides the lowest level of benefits.
The most expensive are the CelticCare PPO plans, considered to be the "Cadillac" of private health insurance for individuals who require the best unrestricted coverage. These can be designed to provide full coverage with small out-of-pocket expenses in cases where a business wants to maximize health benefits for its executives. Since health insurance is fully tax deductible, the cost is offsets the high premiums in partnerships and LLCs
Most of the new low cost health insurance plans are available entirely through online enrollment without personal sales by agents or brokers. This method allows better control of important communications by the insurer's home office and significantly reduces the risk of errors, omissions and misrepresentation.
A few insurance companies like Mega Life continue to market limited benefit health insurance by sending commission-based sales agents out to the homes and businesses of its prospective customers. The policyholder complaint statistics published by he National Association of Insurance Commissioners (NAIC) confirm that this method of sales leads to greater distortion of important communications on the limitations of the insurance coverage. The inherent conflict of interest of a commission-based sales agent or broker or, in some cases, simply inadequately educated sales representatives is especially dangerous with low cost health insurance.
The nation's largest health insurance companies including the Blue Cross Associations, Aetna and Kaiser have shown leadership in developing new low cost limited benefit health plans. In New York state, for example, Aetna introduced a new series of lower cost plans for small businesses in late 2007. Still, the most competitive and most popular low cost insurance products continue to be insured by smaller specialty insurance companies life Standard Life, Markel Insurance, Fairmont Specialty Insurance and United States Fire Insurance Company. While these insurers may not be household names, they all command respectable financial ratings and maintain a strong consumer reputation.
The percentage of employers who offer employer-sponsored health insurance continues its slow long term decline. Yet almost all of the businesses that dropped health insurance had less than 10 employees and in most cases the employees are able to find better coverage on their own as individual consumers. There is no indication that the percentage of people without insurance suffered this past year and there are some preliminary signs that the number of uninsured Americans is actually on the decline. Small group insurance is simply "priced out of the market" according to brokers by the legislative mandates that regulate this type of coverage. It seems likely that in some cases high priced group insurance was replaced with less expensive (and less regulated) individual health insurance.
Following are a few additional statistics that surfaced about employer involvement in low cost health insurance:
The largest expansion of employer-provided health insurance industry in 2007 was among retail firms including Walmart as mentioned earlier in this article.
The dollar amount of the employee's contribution in 2007 increased by more than 10% over 2006. This change is expected to continue, although the rate of cost increases is likely to moderate.
Most large employers now offer health savings accounts although most do not make substantial contributions to the accounts. The availability of free health savings account administration and low cost investment account options with firms like Vanguard Funds makes this option more popular with employees. Affiliated Web sites like www.healthsavingsaccount-hsa.com list resources for starting a health savings account online.
Employers can best utilize the new types of limited benefit plans by incorporating a flexible Health Reimbursement Arrangement as the core of their health benefits design. This allows each employee to customize insurance to meet their own needs and raises the overall efficiency of the health insurance program.
MedSave.com provides enrollment support for low cost health insurance plans for individuals and small businesses. Further announcements about health plan changes for 2008 will be made over the coming months on this Web site as details become available.