FTCR Calls on Calif. Commissioner to Crack Down on Some Health Plans

The Foundation for Taxpayer and Consumer Rights (FTCR) has called on California Insurance Commissioner John Garamendi to overhaul outdated rules that have allowed “Association Health Plans” to sell patients so-called “insurance” that offers no financial security in the event of hospitalization and real illness.

A sample Association Health Plan paid just $600 for a day in the cardiac care unit while the average cost of a day’s treatment for a heart attack is over $5,200, according to the petition. The Department of Insurance is planning a hearing for Sept. 20 to investigate the plans.

To read FTCR’s petition, go to http://www.consumerwatchdog.org/resources/AHP_Petition.pdf.

“Current regulations, last revised in the 1970s, set minimum coverage levels so low that they fail to prevent Association Health Plans from selling policies offering only illusory benefits. Patients do not realize that the purported benefits marketed under Association Health Plans offer no financial security in the event of hospitalization and real illness. … The public does not understand the distinction because policyholders are misled by highly deceptive marketing by these plans which promise benefits better than PPOs and HMOs,” wrote FTCR in the petition.

The principle difference between standard insurance and Association Health Plans is reportedly the lack of protection against financial catastrophe. Association Health Plans do not provide an “out of pocket” maximum on their policies. Coupled with the very limited “maximum benefits” payable in the event of hospitalization, surgery or cancer treatment, the Association Health Plans’ lack of a “stop-loss” mechanism leave seriously ill patients insured by these companies with hundreds of thousands of dollars in medical bills. The plans are typically purchased by small business owners and the self-employed through associations or affinity groups that reportedly promise better coverage for lower prices.

“Mega and Mid-West pay maximum benefits so far below the average cost of medical procedures that their ‘insurance’ plans fail to protect enrollees from financial ruin. And, just as Association Health Plans under-pay for standard procedures that traditional insurance would cover, they also exclude many benefits entirely,” wrote FTCR.

In the petition, FTCR called on Garamendi to update regulations by:

— requiring mandatory minimums of coverage that reflect the true cost of health care;

— requiring a stop-loss mechanism to prevent financial ruin in the case of illness; and,

— providing strong enforcement mechanisms that enable the Department to terminate the operation of any plan that fails to meet these standards.

“No other policy sells patients health care coverage that promises so much yet delivers so little,” said Carmen Balber with FTCR. “The Department of Insurance must update antiquated rules to force Association Health Plans to offer patients real benefits, and terminate plans that fail to comply.”

To read examples of Association Health Plan policies go to http://www.consumerwatchdog.org/resources/Mega_Brochure.pdf and http://www.consumerwatchdog.org/resources/MidWest_Brochure.pdf.

In a recent report, Garamendi’s Department of Insurance called Association Health Plans “short-sighted solutions” that have “the potential to hasten the deterioration of the already badly broken system.” Federal legislation supported by President Bush would remove state oversight of such plans altogether, a move that Garamendi and consumer groups oppose.

According to the recent Department of Insurance report, legislation pending in Congress would allow Association Health Plans to “bypass all state regulation of minimum benefits, underwriting restrictions, solvency oversight, fraud and consumer protection. Associations could form under almost any pretense and operate across state borders, free from any state’s oversight. Because of ‘cherry picking’ and compromised solvency standards, their existence would cost society more in the long-run.”