Controversial mini-med plans to live on through waivers

March 27, 2011

Consumer advocates condemn them as the worst form of health insurance: “mini-med” plans that limit payouts to as low as $2,000 a year, leaving often unsuspecting customers to fend for themselves if they develop a costly and serious disease.

So drafters of the new health-care law made eliminating mini-meds a top priority. By 2014, the plans will be gone completely. And starting this year, virtually all are required to up their annual coverage limit to at least $750,000.

Yet more than 2.6 million Americans will continue to face far lower annual caps for at least another year because they are in one of 1,040 mini-med plans for which the Obama administration has granted waivers, according to updated figures recently released by the Department of Health and Human Services.

To get the waivers, insurers — or employers and unions offering such plans directly — had to prove that raising their annual limits would require them to substantially increase rates or drop the plan.

HHS officials ruled that nearly all the applicants had made their cases.

In recent testimony before Congress, Steven Larsen, a top HHS official, defended the waivers as a necessary stopgap until the law’s state-based market­places and federal subsidies to help many buy insurance kick in.

“It is essential that we make sure that Americans who have insurance today — even if that insurance is highly limited — can keep that coverage until reforms take effect that will increase their ability to choose among comprehensive, affordable options in 2014,” he said.

But the large number of waivers was unexpected, and it has fueled Republican charges that the law’s mandates are unsustainable.

It has also made some consumer advocates who normally defend the health-care law uneasy.

Based on the scant research available, federal officials had estimated that, assuming no waivers were granted, this year’s ban on annual limits below $750,000 would offer relief to about 1.7 million people who have been in plans with lower caps.

The waivers reveal that at least 11 / 2 times as many people had such plans, and raise questions as to whether anyone is even in a mini-med that substantially raised its annual limits rather than seek a waiver.

“It’s messy. Now you have 1,000 or more waivers, in a way to excuse all the absurdities in the private system,” said Uwe E. Reinhardt, a health economist at Princeton University. “Frankly, I don’t think anyone in the White House realized how common [mini-meds were]. . . . These things come out of the woodwork when you write a law.”

The lack of solid data on the scope and finances of mini-meds is one reason the administration also chose to temporarily exempt them from another of the law’s requirements. Nearly all other plans must now spend at least 80 percent of the premiums they collect on health care and other efforts to improve customers’ health, as opposed to profits and administrative expenses. Mini-meds must spend half that.

They will, however, be required to meet earlier deadlines for reporting financial data so HHS can decide if further exemptions are warranted beyond this year.

HHS officials also note that practically all mini-meds will be subject to the new law’s other bans on insurance practices such as limiting lifetime payouts, discriminating against children with pre-existing conditions, and retroactively canceling coverage based on a customer’s honest mistake on an application.

Plans granted the one-year waiver must also send notices to their customers informing them that the plan fails to meet the federal standard, and directing them to a government Web site where they can search for alternative insurance.

Still, the bare-bones and sometimes misleading nature of mini-meds has some consumer advocates wondering whether it would have been better simply to let them go out of business.

“A lot of us are grappling with whether something really is better than nothing in this case,” said Carmen Balber of Consumer Watchdog. “We shouldn’t be placing junk health insurance on life support for the next few years.”

But she said her views are complicated because HHS has not disclosed the range of annual limits offered by plans to which it has granted waivers.

“There’s a big difference between a plan with an annual limit close to the maximum and a plan that caps out at just a few thousand a year,” she said.

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