Cheap Health Care Plans: Let the Buyer Beware

Too good to be true? Why some cheap health plans come up short

  • Christopher Morris / VII for TIME

    Paul Gaznick, with his son Justin, at home in Methuen, Mass. He once thought he was getting a good health care deal

    (2 of 2)

    Medical-discount plans promise deep savings on doctor and hospital visits to subscribers who pay hefty enrollment and monthly fees. In reality, however, these discounts are often minuscule or far smaller than what an uninsured patient could negotiate independently. In 2005, the Federal Trade Commission issued a consumer alert for medical-discount plans, stating that "many take consumers' money and offer very little in return." Still, these plans continue to proliferate.

    Who is signing up for them? "People looking for bargain-basement health insurance who don't know what they're buying," says Jenny Libster, a senior research associate at the Commonwealth Fund, a nonprofit health-policy organization. Medical-discount plans can, in theory, be beneficial for someone who has no ongoing expensive health conditions or who can afford to pay cash for most care. But marketers of these plans are aggressively pursuing a much wider swath of consumers. "They are targeting low-income people and people with pre-existing health conditions," Libster says.

    Limited-medical-benefit plans are going after a similarly vulnerable slice of society. These plans provide often scant coverage in exchange for monthly premiums that are lower than those for traditional insurance but typically still quite high. For example, Cinergy Health charged families $479 per month for its Preferred 1000 plan, which covered $100 for one emergency-room visit per year per person and $1,000 per day of hospitalization for up to 30 days. (The average cost of an ER visit is more than $500; a single day in the hospital can easily cost more than $5,000.) Coverage for doctor visits was pretty decent — up to $70 per visit for up to five visits per year, a key selling point. But even if a family of four maxed out this particular benefit, it would have received only $1,400 in payouts after paying nearly $6,000 a year in premiums.

    The five-year-old company, which provided limited-benefit plans as well as medical-discount plans, at one point ran an infomercial promising customers "significant health coverage for a reasonable price." But what counts as "significant" coverage? Most consumers expect their health plans to protect them from mountains of debt if, say, they suffer extensive injuries in an accident or develop a chronic disease. Cinergy's products didn't offer much help in either scenario.

    "No matter how clear your member material is and how well you educate your members, they're still expecting more out of it than they may ultimately get," says Steve Trattner, president and chief marketing officer of Cinergy. "The expectations far exceed what a discount medical plan truly can offer when it comes to the traditional medical and hospital services."

    State regulators, deluged with complaints about Cinergy, have responded. New York banned the company's television ads last year, and Florida, where Cinergy is based, has accused the company of deceptive marketing. (Cinergy disputes the charge and has requested a hearing on the matter.) In February, the Better Business Bureau revoked Cinergy's membership.

    Cinergy has stopped selling limited-benefit plans to new customers, but this type of product is not going away anytime soon. In fact, bigger players are getting into the market. Traditional insurance companies such as Cigna and Aetna are offering limited-benefit plans to small businesses, retailers and young adults. These plans are geared toward common medical issues such as colds, flu and broken bones but are clearly labeled as not providing comprehensive or catastrophic coverage.

    Minor, everyday costs, however, are often not nearly as high as the cost of a limited-medical-benefit plan. Judy Spurlock, a disgruntled Cinergy customer in Batavia, Ohio, sat back recently and wondered, "How beneficial would it be for us to just take the money [for premiums] and put it in a bank account?"

    1. 1
    2. 2
    3. Next Page