August 12, 2008

More Turn to Professional Groups for Insurance

Victoria Knight  /  Wall Street Journal

As health-insurance premiums rise and the economy struggles, an increasing number of small-business owners and individuals without job-based insurance are turning to professional associations and trade and affinity groups that offer grouplike health coverage to their members.

State medical associations, bar associations, local chambers of commerce and associations for people with similar interests or hobbies often offer insurance to their members. Before you can enroll in a plan, you must first join the association, which typically involves paying a membership fee and proving you meet its entry requirements. Once you are a member you can enroll in health plans offered through the association.

The premiums can be cheaper and the benefits better than if you purchased coverage on your own because the associations' greater market clout may give them better negotiating power with insurers. But the cost and quality of coverage and the recourses available to consumers who feel they have been wronged can vary substantially, as insurance sold in this way tends to be more loosely regulated than individual health insurance or coverage offered by large employers.

Phony insurance is sometimes sold through real or bogus associations. From 2000 to 2002, 144 such scams left more than 200,000 policyholders with more than $252 million in medical bills, according to a 2004 report by congressional investigators. Illegal health plans flourish during periods of high premium increases. On Thursday the National Association of Insurance Commissioners issued an alert to consumers warning them about fraud.

"There are some good association plans out there, but consumers need to tread carefully," says Leon Rousso, a certified financial planner in Ventura, Calif.

Last month HealthMarkets Inc.'s insurance subsidiaries – MEGA Life and Health Insurance Co., Mid-West National Life Insurance Co. of Tennessee and Chesapeake Life Insurance Co. –agreed to pay $20 million to settle violations found by regulators in 29 states relating to health coverage the companies sold to the self-employed through the National Association for the Self-Employed, Americans for Financial Security and the Alliance for Affordable Services. The companies' insurance agents didn't adequately explain what the policies covered, investigators found.

"Consumers thought they were buying major medical policies when in fact they were getting mini-meds," said Washington state Insurance Commissioner Mike Kreidler, an initiator of the three-year, multistate probe. (A so-called mini-med offers more limited coverage than a traditional plan.) "When they became hospitalized they discovered the plan covered virtually nothing," Mr. Kreidler said.

As part of the settlement, insurers must provide toll-free numbers that consumers who purchased policies before August 2005 can call to receive information about coverage. Among other things, the companies must improve agent training and oversight, how they process claims and how they handle complaints or face additional penalties of up to $10 million. "We have worked closely with insurance regulators during the multistate examination and settlement process, and we understand our obligations to regulators, as well as our customers," said HealthMarkets Chief Executive Phillip J. Hildebrand.

Kevin Lucia, an assistant research professor at Georgetown University's Health Policy Institute, who has co-authored several studies of association health plans, says consumers are often confused about what they cover. Many consumers mistakenly believe they are buying "group" coverage with the same benefits they would have under a large, employer-sponsored plan.

Under federal law, employer-sponsored plans must take everyone or no one and charge them the same irrespective of health. But the coverage associations offer is typically regulated by state laws that offer fewer consumer protections, allowing insurers to pick whom they take and what they charge. When coverage is sold in many states through national associations, almost no consumer protections apply, according to Mr. Lucia. This can benefit consumers, depending on the association and insurer. For instance, because they spend less on marketing and have lower compliance costs, insurers selling through associations can offer members lower premiums.

Mr. Kreidler, Washington state's insurance commissioner, says associations that provide a variety of member services, such as professional development, rather than just health insurance, and that have stricter entry requirements, tend to offer better plans. Kim Holland, Oklahoma's state insurance commissioner, advises customers to call their state's insurance department to confirm that the insurer that underwrites an association's plan is licensed in that state, is financially sound and has a good track record of paying claims.

If you are buying a policy from a national association, find out if your state regulator is authorized to intervene if you have problems. If the association is based in another state, your state's regulator may not be able to act, according to Mr. Lucia.

"Don't just look at the premiums," says Stephen Finan, associate director of policy at the American Cancer Society. Look at the deductible and other out-of-pocket costs and at benefits. If you have a past or existing condition, is it covered? If you get sick, will you be able to renew the policy? Look for a well-established plan with a history of reasonable renewal rates.

Finally, it is important to explore all options, including policies insurers sell directly to individuals or small-business owners, as they may offer more comprehensive coverage for less, regulators say.

TIPS FOR CONSUMERS
In buying health coverage through an association:

  • Be prepared to pay a membership fee.
  • Read fine print to see what a plan covers and excludes.
  • Find out if the insurer underwriting the plan is financially sound.
  • Ask if your state regulator is authorized to intervene if you have problems.