A first-ever U.S. News analysis of nearly 6,000 health insurance plans marketed to individuals and families reveals that many of the consumers who enroll in these plans may confront budget-wrecking out-of-pocket costs that deplete their savings. Large numbers of plans severely limit coverage for such services as prescription drugs, maternity coverage, mental health treatment, and rehabilitation therapy. To help consumers make more informed choices, U.S. News today launched Best Health Insurance Plans, an interactive consumer tool, to help those who are not covered by an employer or a government plan find a health plan that best meets their individual or family needs.
Each of the plans in the U.S. News database was scored and assigned a rating of one to five stars; plans available to both individuals and families were rated separately for each. A plan's score depended on completeness of coverage in as many as two dozen benefit categories and subcategories—hospitalization, outpatient surgery, name-brand prescription drugs, and emergency room visits are just a few examples—and how much of the cost consumers have to pay. A one-star plan may cover a limited set of services, a broader array of services but less of their cost, or both. A five-star plan provides a larger, thicker security blanket. (See How We Rate Health Insurance Plans.)
Plans are regulated by states and sold within their borders, so U.S. News took the additional step of comparing the characteristics of plans available in different states. Massachusetts plans consistently offered broad coverage and protection against a potential flood of medical bills. All 67 plans available to individuals received four or five stars. New York (94 percent) was next on the list, followed by Washington, D.C. (85 percent), Maryland (76 percent), and Virginia (75 percent). The states with the smallest proportion of four or five-star plans were Washington (4 percent), Alaska (10 percent), Wisconsin (15 percent), and South Carolina (19 percent), though several states including Alaska had few plans available for analysis.
The plans U.S. News rated, which are those sold to individuals and families who have no access to employer or public coverage, currently cover some 14 million people. That number could very well double once the major provisions of health reform's Affordable Care Act take effect in 2014, according to the bipartisan Congressional Budget Office, because the ACA mandates that everyone must have health insurance or pay a penalty. Millions of people who now can't afford insurance or who can't qualify for coverage because they have preexisting conditions will be able to purchase coverage through state or federal exchanges that offer a wide selection of plans with standard categories of benefits and clearly stated costs.
If consumers choose plans that fail to meet their needs, it may be because they're confused. Compared with group and government plans, which often provide more structured benefits, individual plans have long been difficult to decipher, experts say, and have offered a patchwork of benefits, costs and coverage for medical services and products. "This makes it very hard to compare value," says Roland McDevitt, director of healthcare research for Towers Watson, a global benefits consultant. That, too, is changing under the ACA. Just this month, insurers had to begin providing simpler and more complete explanations of plans' benefits and costs.
U.S. News spent several months working with data obtained from the Centers for Medicare and Medicaid Services (CMS), a federal agency that summarizes plan coverage and pricing on a consumer page but does not rate or rank plans against each other. The analysis posed many challenges, including constant flux in the number of plans available in the federal database. That is because of incomplete reporting and because health insurers periodically create new plans and stop enrolling applicants in established ones.
The Best Health Insurance Plans ratings also analyzed the monthly premium consumers are quoted when they apply. The quoted premium represents the lowest amount charged to an extremely healthy applicant; the final figure can be far higher. Our analysis showed that about one-third of the plans charged at least 25 percent of applicants a higher premium than they were originally quoted. About 1 plan in 10 charged a higher-than-quoted premium for more than half of applicants. Until health reform goes into full effect, the premiums reported by health insurers to CMS are no guarantee of what insurers will ultimately charge for coverage. After the law is fully enacted, insurers will be required to meet certain cost standards, including limits on rate increases.
Quoted premiums were sorted into five tiers, from lowest to highest. The median for individual plans was $284 per month and, for family coverage, almost exactly double that at $577. Premiums for some plans, however, were nearly four times higher. All premiums were calculated from the CMS database using weighted averages drawn from insurers' pricing information.
Research into purchasing behavior shows that health insurance shoppers are strongly influenced by the size of the monthly premium. It is a regular outlay, like a mortgage or rent payment, so weighing its impact on one's monthly budget makes sense—to a point. An individual or family that opts for an easily affordable premium can be blindsided in the event of traumatic injury or major illness. A plan that may seem like a good choice because it has a lower monthly premium may require consumers to pay much more out-of-pocket every time they need medical care. "You need to dig deeper to find out why a cheaper plan is cheaper," says Karen Pollitz, a senior fellow at the Kaiser Family Foundation in Washington, D.C.
Plans are often far from transparent about how much consumers must pay for medical services. The term "out-of-pocket maximum," supposedly meaning the most a consumer will have to pay for medical services, is misleading; 90 percent of plans exclude some combination of deductible, copays (upfront fees paid for service), and coinsurance (the consumer's share of the charges). Nearly 100 plans exclude all three. A plan member with average coverage who needs surgery could end up paying thousands more than their out-of-pocket cap.
Pollitz advises starting with the deductible, the amount you must pay out of pocket before most coverage kicks in. The median deductible of the plans in the U.S. News analysis was $2,700 for individual plans and $6,000 for families. In general, plans with lower deductibles have higher premiums. Individual plans with premiums above the $284 median had a median deductible of $2,000. For those with premiums below $284, the median deductible was $5,000.
The higher you have to climb the deductible ladder before benefits are paid out, the more vulnerable your income and savings. Medical bills tend to come in waves. A routine doctor's visit that starts with an annual physical and progresses to a tentative diagnosis can trigger a cascade of expenses, from lab tests to prescription drugs to inpatient or outpatient hospital procedures. Plans rarely cover more than a portion of those costs, which may add up to tens of thousands of dollars when severe illness strikes.
The patient's share of the responsibility for medical bills often begins with the upfront copay. More than 30 percent of plans charge copays of $35to $750 for emergency room visits. Forty-five percent of plans charge copays ranging from $10 to $125 for prescription drugs listed by plans as "preferred" choices—and nearly 1,000 plans require copays for preferred prescription drugs even after plan members have paid the deductible, the analysis shows.
But copays represent a far smaller expense to consumers than coinsurance, generally imposed as a percentage of the cost of a drug or medical service. Even after reaching the deductible, more than one-third of individual health plans require patients to shoulder coinsurance of 20 or 30 percent of the bill for diagnostic tests, medical images, emergency room visits, outpatient surgery, and hospital care, based on our analysis.
Consider the financial jolt of heart bypass surgery, performed several hundred thousand times a year in the United States. Hospital charges alone—not including bills for diagnostic testing, imaging, or rehabilitation—can cost $35,000 or more, according to Medicare data in the Dartmouth Atlas of Healthcare. Coinsurance of 20 percent of $35,000 adds up to $7,000. Nor do those amounts include charges by the surgeon and other physicians. Physicians' fees are billed separately, even if care is provided in the hospital. More than half of the health plans in the database require hospital patients to pay 20 or 30 percent of doctors' charges, U.S News found.
If a hospital's physicians aren't members of a health plan's network, the cost may climb even higher, an expense that often comes as a shock to plan members who assume their care is covered. "A lot of doctors who work in hospitals don't sign up for a plan's network," Pollitz says. "Anesthesiologists, hospitalists, pathologists, emergency docs—you may not even see them. But if they were involved in your care, they're going to send you a bill. And if they're out of network, it's going to be a big bill." The same is often true for hospital services, such as occupational therapy, that are not provided by physicians. Your wrist surgery might be covered by your plan, but the occupational therapy department at the same hospital could be out of the plan's network.
Consequences can be dire when a plan doesn't offer certain drugs or drug categories or medical services—or makes them unaffordable by requiring patients to pay a large part of the cost. "I just finished cancer treatment, and there's only so far you can go on generic drugs," says Pollitz, noting that cancer patients sometimes stop chemotherapy not because they can't afford chemo itself but because they can't afford drugs that control the side effects.
Cost and coverage across states show major variation in the U.S. News analysis. Two states that stand out are Massachusetts, a crucible of health care reform with its Health Connector program—the acknowledged template for the Affordable Care Act—and Minnesota, which has a more traditional insurance marketplace.
Judged by premiums alone, the 67 plans displayed in Massachusetts are among the most expensive in the nation, with a median premium of $528 per month, more than two-and-a-half times higher than the $196 median for the 285 plans listed in Minnesota. (Massachusetts helps defray health insurance costs by providing subsidies to any individual whose household income is less than $33,516 a year and to any family of four whose income falls below $69,156.)
Yet in Massachusetts, after the deductible is paid, about 45 percent of health plans fully cover hospitalization, hospital-based physicians' services, and imaging, compared with 19 percent in Minnesota. Why? A board established to create the Massachusetts Health Connector decided that benefits should be "fairly comprehensive," says Robert Mechanic, executive director of the Health Industry Forum, a market-based health policy center at Brandeis University in Waltham, Mass. As a result, coverage in Massachusetts is broader than in Minnesota, with health plans required to cover emergency care, hospitalization, maternity and newborn care, medical and surgical care, mental health and substance abuse, prescription drugs, cancer therapy and outpatient services, including surgery.
Average Minnesotans are at greater financial risk. Out of 285 plans in Minnesota, coverage is absent for labor and delivery in 195, for mental health services in 170, and for specialty drugs in 80. The median deductible in Minnesota is $5,000, five times as high as in Massachusetts.
Another critical difference between Massachusetts and Minnesota will soon vanish: The Massachusetts health law prohibits denying people coverage for preexisting conditions; Minnesota, as of now, does not. "People who have cancer can buy insurance in Massachusetts," Pollitz says. "In Minnesota they can't." Fourteen plans in various states currently turn down 80 percent or more of applicants. The Affordable Care Act will make that illegal beginning in January 2014.