The Limited Appeal of Limited-Benefit Insurance

You'll save on premiums but may pay much more if you get sick.

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Is having some sort of health insurance—even spotty coverage—better than having no protection at all? That's the conventional wisdom behind initiatives like the bill signed last week by Florida Gov. Charlie Crist that allows insurers to sell inexpensive health insurance policies with limited benefits to uninsured Floridians. The new law is the latest example of a nationwide trend toward offering "limited benefit" or "bare bones" plans that often cover some everyday medical expenses like visits to the doctor and prescription medications but may come up seriously short if a policyholder gets seriously ill.

The governor acknowledges that the new Florida plans won't offer "Cadillac coverage." But for $150 a month or less, he says, they'll include some coverage for preventive services, drugs, surgery, screenings, and durable medical equipment, among other things. And how is that possible, you're wondering. Some plans won't provide catastrophic coverage that would pick up the tab for major medical expenses like cancer treatment or heart surgery, for example, nor will they necessarily cover all of the benefits available through comprehensive plans, like podiatry or certain transplants. There could be dollar limits or other restrictions as well.

It's easy to understand the appeal of these policies to politicians and business owners, who are scrambling to find ways to insure people amid escalating costs. But consumers need to ask hard questions about what they're really getting for their money and read the fine print of any policy they're considering. "I could cover everybody for a dollar a head, but the policy wouldn't cover a toothbrush," says Karen Pollitz, a research professor at the Health Policy Institute at Georgetown University.

Low premiums can make these plans seem very affordable, but people should focus instead on what they'd pay out of pocket if they got sick. "The whole point of health insurance is what happens if your health gets worse," says Pollitz. I've written about how people with cancer, for example, can be hard hit by coverage shortfalls.

Here are typical areas where low-cost, limited benefit plans cut corners. If you're thinking about buying one, make sure you understand that you might well be agreeing to these details:

  • total annual coverage caps, sometimes as low as $10,000
  • no limit on your maximum annual out-of-pocket costs
  • caps on coverage for specific services, like outpatient care or hospitalization
  • limits on number of visits allowed for certain services like rehab or mental health
  • coinsurance requirements rather than copayments for certain drugs or services—meaning you'll pay a percentage of the cost rather than a flat fee
  • exclusions: Your plan may not cover maternity care or chemotherapy, for example
  • preauthorization requirements for certain services
  • What do you think? Is it worth it to buy a policy that may not provide comprehensive coverage if you get sick?