Consumer advocates
question whether "supplemental" health policies provide good
value.
With
the recent acquisition of a Texas-based company, UnitedHealth Group has waded
deeper into the sale of “supplemental” health plans that consumer advocates say
provide questionable value to subscribers.
Earlier
this year, Minnetonka-based UnitedHealth Group acquired a company called
HealthMarkets Inc., which includes a division for supplemental insurance
policies that last year covered about 850,000 people.
For
several years, UnitedHealth has been selling some forms
of the coverage, which in many cases provide a lump sum of money in the event
of certain health care problems such as cancer, hospitalization or a critical
illness. Sometimes called “dread disease” policies, the coverage is becoming
more of a target for consumer advocates as more insurers try to grow the
market.
“It
is very much ‘buyer beware’ when it comes to these products,” said Sabrina
Corlette, a researcher with the Center on Health Insurance Reforms at
Georgetown University. The concern is that supplemental policies pay out a
relatively low share of the premium dollar in benefits, Corlette said, adding
that consumers who rely on the policies as an alternative to comprehensive
coverage are making a risky bet.
UnitedHealth
Group argues the policies are a low-premium option that works well for some
consumers as an adjunct to comprehensive health insurance. These policies have
become more important, the company said, as more consumers have high-deductible
health plans that require significant out-of-pocket spending when people need
care.
The
coverage typically provides cash directly to consumers, rather than payments to
doctors and hospitals for medical services. The company cites federal data
showing the average cost of a hospital stay including ambulance transport
exceeds $11,000, adding that nearly two-thirds of the workforce has less than
$1,000 on hand to pay out-of-pocket expenses for an unexpected serious illness
or emergency.
Matt
Wiggin, a UnitedHealth Group spokesman, said the largest part of the business
at HealthMarkets Inc. is an insurance agency that sells comprehensive insurance
coverage in almost all 50 states, not just supplementary plans. Overall,
HealthMarkets employs about 550 people.
“A
significant portion of HealthMarkets’ business is driven by their portfolio of
supplemental insurance products, which are offered in 46 states and the
District of Columbia,” UnitedHealth Group said in a statement. “These offerings
help strengthen UnitedHealthcare’s portfolio of critical illness, accident,
fixed indemnity and other supplemental products.”
UnitedHealth
Group is Minnesota’s largest company in terms of revenue. The company’s
UnitedHealthcare division, which is the nation’s largest health insurer,
disclosed the HealthMarkets acquisition in May in a regulatory filing.
The
acquired company’s division for supplementary coverage, which is called
Chesapeake Life Insurance, disclosed the acquisition in an earlier filing,
saying the merger with a UnitedHealth Group affiliate called Golden Rule Financial
Corp. was finalized on Feb. 1.
Financial
terms were not released. In 2018, Chesapeake Life Insurance posted $222.4
million in revenue.
“We’re
trying to build a diverse suite of product options for the individual market,
affordable options for it,” said David Wichmann, the UnitedHealth Group chief
executive, when asked about the acquisition during an investor conference in
May.
Last
year, Jackson Williams, the general counsel of a consumer group called Dialysis
Patient Citizens, presented data to the National Association of Insurance
Commissioners (NAIC) showing an industrywide decline in “loss ratios” for
various lines of supplemental coverage.
A
loss ratio shows the share of the premium dollar that is paid out in benefits,
and Williams’ report asserted that when the ratio falls below 50% it “indicates
that paying claims is not the principal function of the product but rather an
incidental function.” He compiled data showing that between 2009 and 2017, loss
ratios fell below 50% for at least four different types of supplemental
policies including “other medical” policies sold to individuals and “specified
disease” policies sold to consumers via employer groups.
“If
[a benefit counselor] can sell you a dread-disease policy or a
hospitalization-only policy or one of these other schlock policies, they can
make a lot of money,” said Williams, who is a consumer-liaison representative
to NAIC. “What we’re asking for is that the loss ratio for these products be
disclosed at the point of sale.”
Without
citing products from particular companies, he added: “These limited-benefit
plans I would call opportunistic. You’re appealing to somebody’s desire for
peace of mind, but it’s not really a product that adds value. ... It’s a very
overpriced product.”
But
America’s Health Insurance Plans, a trade group for carriers, defended the
products. Loss ratios on the products can be particularly low at the beginning
of coverage, the trade group says, since premiums tend to hold steady
year-to-year while benefit claims increase over time.
The
federal Affordable Care Act requires that individual and group policies have
loss ratios of at least 80% and requires consumer rebates when insurers pay out
a lesser share on health care. But the health law excluded supplemental
policies from those rules, because they are “intended to supplement, not
substitute for, major medical coverage,” the trade group said in a statement.
“Despite
having lower premiums, the amount of work needed to administer these products
can be similar to comprehensive coverage,” the trade group said. “As such, a
larger portion of the premium dollar will go to administrative costs.”
Williams
said he was skeptical of that argument.
“Many
of these are ‘lump sum’ policies that do not review medical expenditures to quantify
the claim, only the diagnosis,” he said via e-mail. “A health insurer needs to
have a medical director, utilization review, credentialing, quality
improvement, coding, pay for performance programs, etc., and deals with
Medicare Advantage and Medicaid managed care complexities, too.”
Supplemental
insurance policies are a small part of the overall business at UnitedHealth
Group, which primarily sells comprehensive coverage, said Wiggin, the company
spokesman.
A
key reason for the HealthMarkets acquisition, he added, was independent of the
supplemental insurance business.
The
acquired company’s insurance agency and “distribution” business includes
“career agents, call centers, direct-to-consumer, and brokerage channels,”
Wiggin wrote in an e-mail. The company has more than 200 offices and retail
locations, Wiggin said, and works with 3,000 agents.
“Consumers
are continuing to look for ways to meet their various health and other
insurance needs,” UnitedHealth Group said in a statement. The purchase fits with
the company’s goal to “reach even more people, quickly and efficiently, and in
the way they prefer to be reached.”
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