Estimate Of "Junk" Health Insurance Market

With names like 'Mini-Meds,' 'Discount Health Cards,' 'Medical Discount Plans' and 'Fixed Benefit Indemnity Plans,' they sort of sound like health insurance. In fact, that's exactly how they were marketed and sold - often on late night television.

One such company called HealthcareOne LLC had a particularly effective TV ad that pushed ' A Real Healthcare Plan Starting As Little As 25 Cents A Day.'

Operating primarily out of a suburb of Phoenix, it was estimated that HealthcareOne was taking in about $500,000 to $600,000 per month - before the FTC shut it down. The list of DBA's was impressive:

* Health Care One LLC * HealthCareOne * Americans4Healthcare * Citizens4Healthcare * EasyLifeHealthcare * Elite Healthcare * Global Healthcare * Republic Healthcare

It wasn't uncommon to get local media coverage as a kind of imprimatur of legitimacy.

Benefits Card Firm Planning Big Handout - The Phoenix Business Journal, October, 2006

'We intend to give away over 1 million Rx Cards. This is basically to generate trials of our programs with the hope of having consumers and companies use our more comprehensive health care programs.' Michael Jay Ellman (CEO and Individual in FTC Civil Action here)

At least in this case, the FTC was able to mail refund checks to about 50,000 people totaling more than $1 million ( here).

But that's an outlier - a notable exception - right? Big, reputable health insurance brands wouldn't stoop this low - right? Here's a list of some of the biggest Mini-Med sellers - and the reason they gave to Consumer Reports ( here) for selling these junk products:

' Policies are offered to ... workers who typically are not eligible for any other employer sponsored-group health coverage.'' It's still some coverage for people who may not have any other options.'* BCS Insurance 115,000 enrollees, including McDonald's hourly employees. ' It's a matter of affordability. These are largely part-time and hourly workers.'* American Heritage Life Insurance Co. (Allstate ) 69,945 enrollees. ' Employers ... wanted to provide a more affordable voluntary benefit option to their ... lower-wage employees.'

The stories are hard to imagine - including this one (among others) in that same Consumer Reports article ( here):

In September 2010, Missouri regulators issued more than $1 million in fines against 13 companies and individuals that sold discount plans misrepresented as comprehensive health insurance. Regulators said many were promoted through faxes advertising 'AFFORDABLE HEALTHCARE PLANS!' and consumers were told, 'This is not a discount plan!' One woman bought a plan to get the advertised free flu shot. A year and a half later, all she had to show for her $1,717 in payments was one denied claim ... for the flu shot.

Three years ago, some of the companies that had been promoting Mini-Meds to their employees threatened to drop even this wafer-thin coverage. Recognizing that no affordable options were in place (yet), the Government relented to the pressure and started issuing waivers. Again, according to the Consumer Reports article:

As of January 2012, the government had given waivers to 1,231 plans covering 3.9 million people. Consumer Reports - March, 2012

Those waivers were only effective until January 1, 2014 - and while that's likely a sizable amount of the 'junk' insurance market, it's only the largest visible portion we know of.

But those are the junk policies. What about all the cancellations of legitimate policies with better-than-junk coverage? Kaiser Permanente was quoted as cancelling about 160,000 plans - and Covered California (the new public exchange for California) said that about 900,000 in that state would likely receive cancellations - if they hadn't already ( here and here).

Some of that was easy to explain because the Affordable Care Act (ACA) created a new baseline of coverage with its Essential Health Benefits ( EHB here). Plans that weren't 'grandfathered' in (plans sold before the ACA's passage in 2010) would have to be changed in order to meet the new EHB's - or cancelled outright. Many carriers elected to send notices of cancellation - for another simple reason - the need to re-price all the products.

But some of it was even more frustrating and challenging - and goes a long way to explaining how we arrived (in 2012) with 'an estimated 84 million people [who] did not have health insurance for the full year or were underinsured' (Commonwealth Fund here).

We arrived at this sobering statistic largely through the ability of insurance carriers to filter out the more expensive beneficiaries. Those were the easy to find because they were individuals (often newly unemployed) and could also be identified with pre-existing health conditions. This is also why many carriers have either avoided the individual market altogether as simply too risky. Within this individual market, if you can selectively screen for the healthiest people, it is possible to create an affordable plan that has better-than-junk benefits.

Of course, as long as direct health care costs continue to rise, the spiral is ever upward. In order to maintain even some affordability carriers have to keep filtering out more people and continually reduce benefits (all the way down to junk).

Under the ACA, this pricing spiral ended, but it comes with a cost. Without the ability to deny coverage, the carriers have to effectively reset all of their pricing to account for both EHB's and 'guarantee issue.'

Of all the pricing transparency we've seen this year, this is undoubtedly the one that was least expected - and for many - the one that is least affordable. It remains, however, the primary explanation for 84 million Americans who have no insurance or were (euphemistically) underinsured. Not all of the cancellations were junk - but all of the plans need to be re-priced for both EHB's and guarantee issue.