Junk Insurance – The Pros, the Cons and Why It Still Exists
What Is Junk Health Insurance?
Junk health insurance refers to a type of health insurance with a low monthly fee but coverage and discounts up to a very low ceiling. Junk health insurance plans are often called mini-med policies or limited-benefit health insurance policies. A common cutoff point for these policies is $2,000 or $5,000 in claims. When medical bills exceed this point, patients are liable for the rest. Given the fact that insurance is supposed to prevent accidents or illnesses from wiping people out financially, this makes mini-med policies nearly useless to those who enroll in them.
When you have health insurance, you need to make sure everything’s covered. With junk health insurance, it can be nearly impossible to get coverage. For example, many mini-med policies do not cover pre-existing conditions for the first six months of enrollment while catering to industries with 70% or higher turnover.
If someone was previously diagnosed with asthma, arthritis or is currently pregnant, they receive no coverage for the first six months that they pay into the plan. With 70% turnover or higher, where seven or ten employees leave in a year, half or more of the employees end up leaving the company before their pre-existing conditions are eligible for coverage under the mini-med policy.
Is Catastrophic Health Insurance Junk Health Insurance?
Catastrophic health insurance typically requires the insured to pay the first few thousand dollars of medical bills before kicking in to cover the rest. Catastrophic health insurance is cheaper than comprehensive health insurance because it rarely covers preventative care, and patients are required to cover regular doctor’s visits and routine care.
Catastrophic health insurance is rarely used except in case of accidents, severe illness or hospitalization. Because it is rarely used, like car insurance, patients pay into catastrophic health insurance plans knowing that they rarely need it but will be covered when the medical bills equal tens of thousands of dollars. However, catastrophic health insurance is not junk health insurance.
Catastrophic health insurance is modeled on the traditional insurance model, only paying out in the face of a catastrophe like home insurance only paying out when one’s home burns down. It doesn’t save consumers money on regular doctor’s visits, but it will save them from bankruptcy after a heart attack or car crash.
Consumers who get catastrophic health insurance in an effort to save money and are disappointed when it doesn’t pay for a doctor’s strep throat diagnosis don’t have junk health insurance; the catastrophic health insurance simply wouldn’t kick in until someone is hospitalized or seriously hurt.
Why Should We Watch Out for Junk Health Insurance?
Junk health insurance provides coverage up to a few thousand dollars. Those paying into mini-med health insurance plans often think they are getting catastrophic health insurance coverage, only to discover that only the first few thousand dollars of the medical bills are covered. Patients only realize that they do not actually have catastrophic coverage until after catastrophe strikes, though they could have sought catastrophic health insurance care for a similar price if they had known the mini-med plan was not the same type of coverage.
When you read the coverage offered by health insurance policies, you want to make sure everything’s covered. Unfortunately, mini-med health insurance policies have so many loopholes and exclusions that even those who aren’t excluded under the six month pre-existing coverage exception receive no assistance from the insurer. For example, a promised $3,000 annual limit on coverage turns out to be $1,000 for in hospital care and $2,000 for outpatient care. This leaves the patient on the hook for $2,000 on an emergency room bill even when he thought that the mini-med policy would pay $3,000.
Mini-med policies often have exclusions for things like chemotherapy, medical equipment like wheel chairs, ambulance charges and prescription medication. Even some full health insurance plans limit prescription coverage to generic drugs.
Another problem with junk health insurance is the discount that doesn’t exist. For example, the mini-med policy promises 20% or 50% discounts on medical services with participating health service providers. In the fine print, the truth is that there are few if any participating health service providers, so the discount is meaningless.
Aren’t Junk Health Insurance Plans and Mini-Med Plans Illegal?
The Affordable Care Act, also known as Obamacare, supposedly outlaws junk health insurance plans. The Obama administration issued over 1,200 Obamacare waivers that allowed those policies to remain in effect and employers who received the waivers in compliance with the law without having to buy much more expensive health insurance policies for their employees. For those businesses with waivers, junk health insurance no longer met the law's requirements as of January 1, 2014. For everyone else, mini-med policies are legal but fail to meet the requirement for Obamacare compliant health insurance in January, 2013.