This is a great day in the health insurance industry! Rarely is an insurance company held liable for improper conduct. The majority of the time the "Big Guy" takes advantage of the "Little Guy." Sadly, the "Little Guy" often has no recourse. But this is not the case as of July 24, 2008.
After many years of repeated violations of insurance conduct laws the National Association of Insurance Commissioners (NAIC) helped levy one of the largest market conduct fines in insurance history against Mega Life & Health, Midwest National Life a.k.a. Health Markets, formerly U.I.C.I. and endorsed and promoted by the National Association for the Self Employed (NASE) and the Alliance for Affordable Services.
In my opinion, after warning consumers for years about these companies, the 20 Million Dollar Fine they received is not nearly enough and it has come much too late!
Health Markets is still slinging their garbage plans in many parts of the country and hundreds of innocent consumers who purchased a plan through the National Association for the Self Employed call me each week to tell me that they had no idea about the extreme limitations included in the "insurance coverage" provided by Mega Life & Midwest National Life.
Many consumers were not even aware that the plans they purchased were "schedule plans" and in many instances, only paid out $100,000 per illness. Misleading? Sure. In fact, during the sales process, the emphasis seems to be on the one million or two million lifetime maximum and NOT the $100,000 per illness maximum.
Something that many consumers also didn't understand about these plans is that many did not have a
"stop loss number."
To understand what a "stop loss number" is exactly, let's take a look at the three main parts of a health insurance plan:
- Calendar year deductible: This is the amount the insured pays first, before the insurance company shares in any medical expenses that are not covered on a "first dollar" basis.
- Coinsurance: This is the percentage the insured pays of a specific dollar amount of medical bills incurred throughout the course of each year, called the "stop loss number" before the insurance company pays $100 of the medical costs.
- Stop Loss Number: This is the dollar amount of medical bills that the insurance company agrees to share with you, each year, before they will pay 100%.
The average insurance consumer is usually familiar with the deductible. Deductibles can range from $250 to $10,000. Typically, the lower the deductible, the more expensive the plan, because the insurance company is assuming a greater risk.
The same holds true for the Coinsurance. Health plans are sold with different Coinsurance percentages. Plans can be 50/50, 70/30, 80/20, 90/10 or 100% or a variation. These numbers refer to percentages. The first number (e.g. 80/20) refers to the percentage the insurance company will pay, usually for in-network charges after the insured meets his/her calendar year deductible. The second number (e.g. 80/20) refers to the percentage the insured pays.
These percentages are typically based on a specific dollar amount, known as the "stop loss number." Here's where it get's tricky. Quite often, health insurance plans have different "stop loss numbers". I have seen some plans that have a "stop loss number" as low as $2,000 and as high as $25,000 or some with none at all.
Let's figure out the insured's maximum out of pocket on an 80/20 plan that has a $1,000 deductible and an 80/20 split of the first $5,000 ("stop loss number".)
$1,000 + 20% of $5,000 ($1,000) = A Maximum Out of Pocket of $2,000.
Now, let's figure out the insured's maximum out of pocket on an 80/20 plan that has a $250 deductible and a $10,000 "stop loss number."
$250 + 20% of $10,000 ($2000) = A Maximum Out of Pocket of $2,250. (note: total does not include any separate "service deductibles" or access fees. Many low quality plans also have these.)
Again, after this brief 80/20 cost sharing with the insurance company, also know as a the coinsurance percentage split, most major medical plans will pay 100% of in-network covered charges up to the Lifetime Maximum amount that is specified in the policy.
On quality comprehensive health insurance plans, the Lifetime Maximum benefit is usually five million dollars. Typically, plans from reputable health insurance carriers do not have a "$100,000 per illness" or reduced benefits for other medical treatments, like Organ Transplants.
Unfortunately, it is only when an unsuspecting insurance consumer develops a life threatening medical condition that they find out that on the 80/20 plan they purchased, they are responsible for paying 20% of the medical expenses up to the Lifetime Maximum (e.g. 20% of One Million Dollars or $200,000.). In addition, if they have a $100,000 per illness cap, they will also be responsible for all of the medical expenses that exceed $100,000.
Would you buy a policy like that if it was fully explained to you? Most definitely not, and the NAIC apparently agrees. This is one of the reasons why after a 3 year, 29 state investigation, Mega Life & Health, Midwest National Life a.k.a. Health Markets, formerly U.I.C.I., endorsed and promoted by the National Association for the Self Employed (NASE) and the Alliance for Affordable Services finally got what they deserved!
For more information, you can also read a scathing Market Conduct Report, which was included in the fine to warn future innocent consumers.
If you or a loved one have fallen "victim" to any of this organizations or have been approached by an agent selling one of these "insurance products" please feel free to contact me for help and advice.
About the author: C. Steven Tucker, is the President of Small Business Insurance Services, Inc. He is a multi-state licensed insurance broker who has been serving the Small Business community and Self-Employed for 15 years. C. Steven has served as a Subject matter expert for the Wall Street Journal and Fortune Small Business Magazine and hosts his own internet radio show, entitled, "Health Insurance 101." He is also touted for being a consumer watchdog against greedy insurance companies, insurance scams and unscrupulous agents on Twitter.
