Mini-Med and the Hidden Backstop
We started the Health Reform Watch Blog at Seton Hall two years ago in part because I worried that, whatever legislation emerged from the 111th Congress, it could be severely compromised during the implementation process. As HHS continues the Herculean task of promulgating rules based on the text of the ACA, and adjudicating disputes, it is bound to make some mistakes. I am glad to say that one of our bloggers commented on one of those mistakes a couple months back, well before it got the spotlight of Congressional hearings that it deserves.
Mini-med health plans are characterized by low premiums and very low payment caps. At McDonald’s, low-level employees can get $2,000 a year of coverage for $680.68 of premiums; as Tim Noah reports, “$24 per week for a policy with a $5,000 ceiling and $32 per week for a policy with a $10,000 ceiling.” Mini-meds faced several regulatory hurdles this year, as Noah explains:
Annual limits on payouts are already being phased out under the health care law; as of Sept. 23, they aren’t allowed to fall below $750,000, which is a whole lot more than McDonald’s’ $2,000, $5,000, or $10,000. But HHS signaled it was willing to grant waivers to mini-meds. Then the mini-meds fell afoul of another pending regulation concerning the “medical-loss ratio”; i.e., how much revenue insurers spend on health benefits as opposed to overhead or dividends to stockholders.
The rule requires health insurers to spend between 80 percent and 85 percent of their revenue on medical care. No can do, McDonald’s told HHS in an e-mail obtained by the Wall Street Journal’s Janet Adamy. The high turnover rate among McDonald’s’ employees, the company said, occasions lots and lots of paperwork, so we can’t keep our administrative costs down relative to our payouts, which—in case you hadn’t noticed—are pretty darned low to begin with. On these dubious grounds, HHS granted the mini-meds an exemption through 2011 that could easily stretch to 2014.
Reporting on yesterday’s Senate Hearing on the mini-med plans, Noah describes one employee’s experience with this exciting, flexible market innovation:
Eugene Melville, a witness who works part-time for a big-box retailer . . . said he purchased through his employer a mini-med policy from Aetna with a $20,000 annual limit. In July, Melville said, he went to the doctor “for what I thought was an injury from a car accident.” The doctor noticed a lump in Melville’s neck, ordered up a biopsy, and diagnosed Melville with oral cancer. Melville figured he had close to $20,000 left to spend on the recommended treatment, but he quickly learned that within that $20,000 ceiling there were smaller ceilings–$2000 on hospital lab tests, surgical supplies, and drugs; $2000 for outpatient treatments such as chemotherapy—that effectively prevented him from using his mini-med insurance at all. Eventually he enrolled in a program for the medically indigent that did not offer the surgical options recommended by his doctor. The kicker, Melville said, was that Aetna sent him a letter suggesting that his oral cancer was a preexisting condition.
As I noted in 2008, supercheap plans have many social costs. MiniMed providers call their offerings “health insurance,” but they skip out when the really serious bills start. Then it’s up to the state to force hospitals to provide care via EMTALA, or providers to seek some way of providing uncompensated care. Medicaid, charity care, other subsidies—all form the hidden backstop that make mini-med function as a nice bonus to the minimally ill, and a fig leaf of “insurance provision” for firms shamed into some semblance of social responsibility. Just like the Fed’s long-stonewalled 2008 commercial paper intervention helped McDonald’s weather financial storms, the hidden backstop of government-funded health care saves it from the embarrassment of watching its employees die from lack of treatment if their McSurance fails to pay for more than a half-day at the hospital. In both cases, a titan of the “free market” is ultimately dependent on government intervention.
Health Reform Watch blogger Corey Klein worried about the implications when the waivers were granted in October:
Remember, a poll by the Associated Press reminds us that Americans who believe the health care bill did not go far enough outnumber those who believe the health care law went too far two-to-one. . . . [But] [t]he McDonald’s episode could be the start of many unintended consequences of the health plan. If the administration is so quick to buckle to private insurers demands, then what hope does the health care law have of actually making a difference in how American’s get their health care?
Noah concludes that “what [McDonald's] call[s] health insurance wouldn’t meet the fiduciary standards of a second-rate Christmas club.” Let’s hope this ill-advised 2011 waiver doesn’t last into 2012.