The cut-rate medical policies often offer only marginal benefits, a consumer group says in a petition to the state insurance chief.

Los Angeles Times

A consumer group petitioned state Insurance Commissioner John Garamendi on Tuesday to strengthen rules governing health insurance policies sold through associations because the plans have sometimes provided marginal benefits.

Because of soaring healthcare costs, more consumers are turning to associations — including obscure trade groups, unions and chambers of commerce — to buy health insurance at discounted group rates.

Though some associations offer legitimate policies, others have hidden clauses that cap benefits at low amounts so that policyholders can face unforeseen rate increases with little financial protection in a major illness, critics said.

“There is no more junk policy than the association health plans,” said Jamie Court, president of the Santa Monica-based nonprofit Foundation for Taxpayer and Consumer Rights, which petitioned Garamendi’s office.

On Tuesday, a spokesman for Garamendi said the Insurance Department had received the petition and planned to hold a hearing in San Francisco on Sept. 20
to discuss the issue.

“This is something we take very seriously,” said Insurance Department spokesman Norman Williams.

“We want to make sure that people get a basic insurance package and know what they are getting when they purchase health insurance.”

Experts estimate that up to 10 million people nationwide are covered by such policies. The plans may promise 100% coverage, but the fine print may set a cap on costs, such as $200 a day for a hospital visit, which at some hospitals today can run $3,000 or more.

State insurance regulations require that basic hospital benefits be of “real economic value to the insured.” But the regulations date back to the 1970s and require a maximum hospital stay benefit of only $30 a day, far below current hospital costs, the petition says.

“Current state regulations … set minimum coverage levels so low that they fail to prevent association health plans from selling policies offering only illusory benefits,” the consumer rights group said.

Still, federal lawmakers are working to ease restrictions on associations to help small businesses reduce their healthcare costs. Legislation backed by some small-business groups and by the Bush administration would allow association health plans to organize across state lines and be exempt from state laws and lawsuits filed in state courts.

Garamendi and other state insurance regulators have said they oppose the legislation, which cleared the House of Representatives in late July.