Michelle's Law will raise student health insurance rates

MedSave Admin | September 27, 2008

New federal legislation known as Michelle's Law or H.R. 2851 appears poised to change to student health insurance. The bill is intended to modify the employee benefit law known as ERISA to extend medical insurance benefits for up to 12 months to part-time students who are affected by disease or injury. Without this legislation, children over 18 years of age are only eligible for continuing coverage if they are full-time students or if their parents are willing to pay for "conversion coverage" at higher rates. Individual private student insurance, like the policies at MedSave.com, are unaffected.

Numerous political and consumer groups - too many to list here - have endorsed the proposed legislation. In fact, we could not find a printed argument against the bill. Opposing this bill would be like condemning Mother Theresa. After all, who would want to deny insurance coverage to a sick student? This is the fundamental logic that led to the passage of most of our maze of mandated coverage laws. (MedSave.com lists the insurance mandates for each individual state in seperate articles that can be accessed from the low cost health insurance state selection page). The Michelle's Law bill easily passed the House of Representatives this past summer and was unanimously passed by the Senate this past week.

We see two troublesome issues with this law:

The first is more of a theoretical argument. Student health insurance, like other insurance, has previously been regulated by state law. We believe, as did the writers of the Constitution, that federal control should be taken only when necessary and that the rest of our affairs should be governed by our respective state governments. We see no compelling reason to change jurisdiction of student insurance to federal law. Each state has its own provisions for providing health coverage those who are no longer eligible for group insurance. The other coverage options may be more exepnsive but the fact is that no one in any state is denied to right to remain insured when becoming ineligible for their group insurance. The Michelle's Law issue, regardless of it good intention, does not warrant wrenching control from the states on par with the other employee benefit issues that demanded state-to-state conformity under ERISA. The new law will pre-empt or override current state laws on student health insurance. Some states will be left with significant discrepancies to resolve.

The second concern is far more practical. The new law will have a dramaic unintended affect on premium rates of the student health insurance plans offered by America's colleges and universities. The legislation, as written, appear to address all group insurance, including school-sponsored group insurance plans. The new law, like most health insurance mandates will raise the rates of employer-sponsired group insurance be only 1-2%. But we expect that the effect on college-sponsored plans could easily rise by more than 30% within two years after enactment. To understand this issue, any why student plans will be affected more dramatically than other insurance plans, it is important to understand that the majority of large health insurance claims are incurred by relatively few people. Student populations, more than other demographic groups, tend to be polarized into the majority who have virually no substantial medical costs and the very few who have catastrophic medical expenses. For this reason, student insurance rates are much lower than other group insurance plans. Of course, insurance rates are based on expected expenses. Extending even a few catastrphic claims to a student health plan will have far more impact than on insurance covering more diverse population groups. Increasing rates causes an adverse selection affect wih the healthier students opting for lower priced types of insurance. In effect, the few part-time students on medical leave who elect coverage under the Michelle's Law provision will have an over-amplified affect on the premium rates paid by all of the other students.

A typical college-sponsored group insurance plan is priced at about $150 per year now, in contrast to well over $400 per month for the adult group insurance plans sponsored by employers. Michelle's law will quickly shrink the rate difference between the two types of insurance, at the expense of the students who enroll in college-sponsored group insurance.

Michelle's Law is a windfall for individual health insurance plans like those at MedSave.com. Individual insurance is exempt from ERISA, the proposed Michelle's Law, and most other insurance mandates. As a result, the average price of individual commercial student health insurance is less than half of the rate of college-sponsored healh plans. The most popular student health insurance policies at MedSave.com are priced at an average of about $75 per month. (This varies depending on college attended; see our articles on Student Health Insurance for many of the nation's top colleges).

A draft of Michelle's law can be viewed at http://files.statesurge.com/file/769457

Tags : student insurance, erisa, michelles law

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