David R. Henderson  

Goodbye Mini-meds

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And so it begins.

Today, one part of Obama's new health care law kicked in. It's a part that, if enforced literally, is likely to eliminate so-called "mini-med" insurance. As I wrote:

But the reason the mini-meds are so affordable is exactly the same reason the plans are finding themselves persona non grata under the Obamacare system. The plans are defined by their low annual limits on benefits. These limits are well below the new federally mandated limits, which go into effect Thursday. The cap will rise to $750,000 and will continue to rise in subsequent years and then eventually will disappear until there is no cap.

And:
Far from providing Americans with affordable health insurance, the Obamacare plan is mortally wounding one of the last sources of such insurance. The ironic effect of a law that Obama said would extend insurance to the uninsured is to make insurance for low-income Americans less affordable and, therefore, cause many of them to go without insurance.

And:
The mini-meds cannot promise absolute coverage in the case of catastrophic health problems, and they were never intended to. That's one problem with such plans. But which is worse: having insurance that doesn't cover all catastrophic expenses or having no insurance at all?


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TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/4050
The author at Eli Dourado in a related article titled The End of Mini-Meds is not the End of the World writes:
    At EconLog, Dave Henderson notes that today marks the effective date of some provisions of ObamaCare, including the one that makes it difficult to offer insurance with low lifetime limits. So-called mini-med insurance plans are beginning to be phased o... [Tracked on September 23, 2010 8:11 PM]
COMMENTS (14 to date)
ThomasL writes:

A great article on the details:

http://ebn.benefitnews.com/news/mini-meds-outlook-lacks-clarity-2684177-1.html

Matt Flipago writes:

So are these mini-meds that insurance that caps premium, and thus defeating the purpose of insurance of covering a low risk, but high expense situation. If so, this isn't much of a tragedy at all. Could be considered good thing, as many statisticians are baffled on why people choose such bad plans.

Mike Feehan writes:

It's my understanding that HHS has agreed to permit limited benefit plans for the time being. HHS will waive the limits on restricted annual benefits for plans that are otherwise qualified, at least until other affordable options become available in 2014. HHS will also require the insurance companies to apply for such waivers, and HHS must approve any such applications.

Why does anyone buy limited benefit plans? Well, I think if people could afford better plans, they would buy them.

I think most people WANT first-dollar coverage and unlimited maximums because most people believe that if their insurance does not contain first-dollar benefits (or at least, minimal copays and deductibles) then they do not really have "insurance". In other words, they believe if they are not insulated from virtually all expense, they aren't really insured. However when people have very limited means they feel high benefit maximums are less important than first-dollar benefits and so these limited benefit plans are preferable to no insurance at all.

PPACA of course mandates comprehensive coverage and unlimited maximums even though the more logical (and ultimately more affordable) insurance strategy would seem to have been high-deductible plans with 100% coverage of "preventive" services and unlimited maximums.

Charley Hooper writes:

So with Obama, it's either gold-plated insurance or nothing. Yet if these people could have afforded gold-plated insurance, they probably would have already purchased it.

Hyena writes:

Then good riddance.

Study after study has concluded that most of our insurance benefits do us no good whatever outside of catastrophic, dental, vision and prenatal, which makes these plans very expensive: they only provide insurance coverage in cases where, really, having insurance is not doing much for your health.

Floccina writes:

IMO they should still be allowed to sell them by some other name but it could be considered fraud to call them insurance.

Lewis writes:

Isn't the point of insurance to specifically prepare for catastrophic events? Otherwise, isn't it just "insulation." I remember reading that somewhere.

Jim Ancona writes:

For all the commenters who can't understand why anyone would want these policies, try to imagine you're supporting your family making fifteen dollars an hour driving a truck. You have no savings and no assets but a seven year-old car. The only insurance your employer can afford to provide is a mini-med policy.

You are effectively judgement-proof with respect to a catastrophic illness, but a plan that pays the doctor's bill when your child gets sick would be pretty desirable. It prevents unexpected hits to your cash flow and allows you to take your child to a private MD instead of the ER or free clinic.

Do you still think ending these policies is a "good thing"?

Hyena writes:

@Jim

The issue here is that, should your child get sick, you are almost certainly better off simply paying a doctor out of pocket (or going to *gasp* a free clinic) for a prescription.

The grasping need for insurance is insane. What's worse, of course, is that if you actually have no savings you probably can't afford the mini med anyhow. But your example gets even worse: at the stated income level, the child probably qualifies for CHIP.

A.B. writes:

But which is worse: having insurance that doesn't cover all catastrophic expenses or having no insurance at all?

The first case is worse, it's a waste of money. Pay the price of moral hazard with no real risk reduction. While mini-meds shouldn't be outlawed, I won't shed a tear for those.

JimBo writes:

Be sure to re-read Lewis' comment. Spot on. This debacle we are living with is caused by 3rd party payments financed by collective economics. The real cure is the prohibition of health-care-cost-insulation policies, but with allowance for catastrophic coverage. Think HSA.

Jim Ancona writes:

I agree that insurance is best used to pay for unpredictable expenses that you could not otherwise afford. My point is that what "you can't otherwise afford" varies with your financial situation and life circumstances.

Consider car insurance: With a middle class income and significant assets (house, cars, savings), I carry both a large deductible and a large liability insurance policy on my car. The large deductible because I have savings I could use to pay it in the event of an accident, and the liability coverage because I have assets to lose if I were found liable in an accident.

If I were in the situation I described in my earlier post (working poor, living paycheck to paycheck), I might carry the lowest deductible as well as only the state mandated minimum liability coverage. My logic would be that if I got in an accident and couldn't pay the deductible to get my car fixed, I wouldn't be able to get to work and I'd lose my job. On the other hand, if I'm found liable for a judgement of half a million after an accident, I have nothing to lose anyway, so why carry any more liability insurance than I have to.

The same logic applies to health insurance in our current market. With a low income and no savings, I would not be worried about catastrophic illness, or rather, I'd worry about it but I wouldn't be able to afford to do anything to protect against it. But I would also worry about what to do if my child suffered an ear infection. A mini med policy might be the difference between being able to see a doctor or having to wait in the ER for hours.

That sort of difference might make it better than nothing for a low income person, particularly if his or her employer is paying some of the cost. It's easy for someone with a comfortable income and some savings to say that mini-meds are a bad deal, but they may be a better deal than the alternative, no coverage at all.

A.B. writes:
But I would also worry about what to do if my child suffered an ear infection. A mini med policy might be the difference between being able to see a doctor or having to wait in the ER for hours.

What makes you think you could afford the mini-med policy but not the outright cost?

Jim Ancona writes:

The fact that "I" (my hypothetical working-poor father) have no savings but "my" employer pays part of the cost of the mini-med, and the rest is deducted from "my" paycheck.

Look, I understand perfectly well why this sort of insurance is a "bad deal". It's a bad deal in the same sense that check cashing services or payday loans are a bad deal. I'm just rejecting the paternalistic point of view that the all-knowing state (or Econlog commenter) can design a better outcome than people can choose for themselves.

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