Child-only health insurance policies are dropping like flies

Maryalene LaPonsie | October 20, 2010

By: Maryalene LaPonsie

It's the latest battle of wills between the government and the nation's insurers. In September, the Obama administration announced the implementation of a provision of the health care reform law that would prevent insurance companies from denying coverage to children because of pre-existing conditions. Many companies then promptly responded by dropping their child-only policies in states across the nation.

Now, the feds are firing back by encouraging states to require companies to offer these plans to their residents. California was the first to oblige by enacting legislation that bars any company from offering individual health plans in the state for five years if they don't also issue child-only policies.

Racing to beat the ambulance

Chief among insurer concerns is the question of whether parents will now use child-only plans as a quick fix when a child is facing a serious illness. Since children cannot be denied medical coverage when they are sick, there is no incentive for parents to maintain ongoing medical health insurance for healthy kids.

Instead, once a child has been diagnosed with an expensive ailment, parents can sign them up for coverage. The insurance company gets stuck with the bill for costly treatments without the benefit of premiums paid during more healthy times.

To appease company concerns, some states such as Colorado and Oregon have enacted uniform open enrollment periods. These allow parents a one month period in which they can sign up for a child-only health plan. Some health insurers argue that a similar federally mandated open enrollment period for sick children would allow their companies to again offer these plans in all states.

The federal government isn't so keen on the insurance company proposal since it would mean that sick children only have the option of enrolling in a policy once or two a year while healthy kids could enroll at any time. The Obama Administration has said that such an open enrollment system would be 'inconsistent' with the intent of health reform.

The California approach to child-only plans

Meanwhile, California is taking a hard line approach to the issue. Instead of passing an open enrollment period, Governor Arnold Schwarzenegger signed a law that basically put insurers on notice that if they wanted to do business in the state, they need to offer child-only plans. According to the new law, any company refusing to write the plans would be prohibited from selling any type of individual health insurance in California for the next five years.

As the tug-of-war continues over health care reform, children seem to be the latest unintended casualty. As the government continues to work to expand medical coverage, health insurance companies prove that it is impossible to regulate every facet of business and that loopholes will always be found.

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