Many Insurance Plans Heap Healthcare Costs on Consumers

Plans with lower premiums could burden members with crushing costs.

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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.

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