Making a Killing on "Mini-Med" Plans

One of the reasons I left my job as a PR executive for the health insurance industry was because I could not in good conscience be a pitchman for the sort of fabulously profitable benefit plan that often provides little more than the illusion of coverage.

Known as "mini-meds," these plans have become popular among businesses like fast-food chains that have many low-wage employees. The common features of these plans: high deductibles, modest benefits and low annual caps on medical coverage. Some of these plans provide as little as $2,000 worth of care each year.

Consumer advocates call these plans "junk insurance." That's because what workers get in these plans for their hard-earned money may actually put them at risk of going bankrupt or losing their homes if they get seriously sick or injured.

My view is that these mini-med plans should be illegal -- and they will be in 2014, thanks to the health care reform law. They would disappear even sooner if employers and insurance companies that sell these plans had to comply with a provision of the law already in effect that requires them to provide at least $750,000 in medical coverage annually. Trouble is, many insurance firms and employers are squirming their way out of complying with that provision.

Corporations Threaten; Obama Administration Issues Waivers

They're doing so with a time-honored form of sabre-rattling. Many employers that offer mini-meds -- most notably McDonalds -- say they will stop doing so if they have to meet the annual limit this year, because adequate coverage would cost them more money. McDonalds, by the way, is a $79 billion company that makes a tidy profit. Most Wall Street analysts who cover the fast-food industry recommend to investors that they buy the company's stock, and for good reason. Last year, according to Yahoo! Finance, McDonald's profit margin was 20.55 percent, and its return on equity was almost 35 percent.

But the threats seem to be working. The Obama administration is worried that many Americans would be dumped into the ranks of the uninsured if it doesn't offer temporary exemptions from that $750,000 annual cap. So the administration has been granting waivers of that provision to hundreds of employers, insurers and even unions that provide benefits to members. Republicans and other critics of "Obamacare" have cited the number of waivers as evidence that the law isn't working.

The administration counters that the ability to grant waivers shows both that the government is flexible and that it is taking prudent steps to ensure that people can keep what coverage they have, until better options are available when the law is fully implemented in 2014. In 2014, states must have health care "exchanges," or virtual insurance marketplaces, up and running.

Here's what Stephanie Cutter, assistant to the president for special projects, wrote in a White House blog post last October as the first round of waivers were about to be granted:

"In extreme cases, when this new policy will cause market disruption and decrease access to health care, the law allows the Department of Health & Human Services (HHS) to issue waivers from the ban on restrictive annual limits for mini-med policies."

She noted that the waivers would be approved only if the insurers, employers and unions requesting them could show that the new annual limit rules would lead to significantly higher premiums or a significant decrease in access to care.

"The good news is that in 2014 'mini-med' policies will be a thing of the past," Cutter added. "The bad news is that today they are the only option for many Americans who can't afford coverage in the individual market."

The growth of mini-meds is a key reason why the ranks of the underinsured had reached 25 million by 2008, according to a Commonwealth Fund study. Mini-med growth is also a reason why some insurance firms have been reporting record earnings.

Big Profits for Insurers, but Almost Nothing for the Insured

I talked about mini-meds in June 2009 testimony before the Senate Commerce, Science and Transportation Committee. I told the panel that big insurers, Aetna and CIGNA in particular, have spent millions acquiring companies that specialize in mini-meds. CIGNA, for instance, paid $175 million to buy Phoenix-based Star HRG and its 200,000 policyholders in 2006. To explain why big insurers wanted to get into this business, I noted in my testimony that the underwriting criteria established for these plans essentially guarantee big profits. It is almost like shooting fish in a barrel.

In CIGNA's Starbridge Select mini-med plan, according to a Web site entry that was removed after my Senate appearance, pre-existing conditions are not covered during the first six months, and employers offering the plan must have an annual turnover rate of 70 percent or more, so most of the workers don't even stay on the payroll long enough to use their benefits. The average age of employees must not be higher than 40, and no more than 65 percent of the workforce can be female. Employers don't pay any of the premiums -- the employees pay for everything.

In May 2009, Consumer Reports carried an investigative story revealing that many mini-meds provide little or no hospitalization. The magazine also reported that people who buy these plans are often misled by marketing materials into thinking they're purchasing far more comprehensive care. In many cases, the magazine noted, it is not until they actually try to use the policies that they realize the insurer will provide little help in paying the bills.

Of the 1,040 one-year waivers that have been granted by HHS so far, most have been to employers. Two of the largest, as measured by the number of people affected, however, went to -- you guessed it -- Aetna and CIGNA. A government Web site listing the waivers shows that each of the insurers has more than 200,000 people currently enrolled in mini-meds. While that is not a big percentage of the their total number of policyholders, the premiums those people pay to be underinsured make a substantial contribution to the firms' bottom lines. No wonder the insurers want to use mini-meds to the max.