UnitedHeathcare's plan with a 10% medical loss ratio
Is Your Kid Covered?
Insurers make big profits from college students, but some families are left with huge bills
by Ben Elgin and Jessica Silver-Greenberg
May 8, 2008
Six out of 10 colleges and universities now recommend specific health insurance plans for their students, and three of 10 require them. But… many of the policies turn out to be scanty at best, and inferior to comparably priced alternatives. This can leave families exposed to crippling medical bills they thought they’d be protected against. Insurers, meanwhile, have found that the student market can be quite profitable.
More than half of the insurance plans recommended by colleges offer benefits of $30,000 or less, according to a survey published in March by the General Accounting Office, an arm of Congress. Many plans have further limits that prevent payout of even modest maximums.
Apart from low maximums, insurers can contain payouts by imposing “interior caps” on coverage for particular types of treatment. Sean Marquis discovered the hard way how this works. After turning 26, Marquis, a medical student at Ross University in Edison, N.J., was bumped from his parents’ plan. He signed up for the school-sponsored plan with UnitedHealthcare, comforted by its $100,000 overall maximum.
Last spring, Marquis became dizzy during class. He stepped into the hallway and collapsed, fracturing a bone near his jaw. He stayed in the hospital for 48 hours, and left owing $24,098. UnitedHealthcare covered only $6,260, because Marquis had hit the $2,500-per-day cap for room, board, and miscellaneous expenses.
UnitedHealthcare says in a statement that it allows school administrators “to customize plans to meet the needs of their unique student populations. Administrators strive to balance benefits with affordability and act in the best interests of their students.”
On a number of campuses, students feel pressure to purchase threadbare policies because those are the only ones the school will process. Unless students or their parents take the initiative to shop independently, Connecticut College, a private liberal arts school in New London, signs them up for a plan sold by Chickering Group, a subsidiary of Aetna, offering just $10,000 in maximum benefits for an illness.
The vigorous health of most college students helps make insuring them a lucrative niche, according to industry consultants. Most insurance companies, even if publicly traded, don’t break out separate financial results for their student-oriented policies. But some schools disclose an indication of the profitability of policies sold to their students: the so-called benefits ratio. This shows the percentage of premiums returned to customers in the form of benefit payouts. Large health insurers typically have overall ratios of about 80%, meaning 20% of premiums goes to profits and administrative costs.
In several cases where BusinessWeek was able to obtain benefits ratios from colleges or universities, the percentage was well below 70%.
At Palm Beach Community College, the benefits ratio for the spring semester of 2008 was 42.6%, according to reports provided to the school by UnitedHealthcare.
In previous semesters the benefits ratios dipped as low as 10.2% and 13.8%. This means the college’s plan has been a veritable gold mine for UnitedHealthcare. At the University of South Florida in Tampa, which offers a plan from American Fidelity Assurance, the ratio this academic year is 35%, down from 71% and 61% the previous two years, respectively.
By Don McCanne, MD
For an insurer, payment of health care benefits is a loss. For Wall Street, the medical loss ratio (or “benefits ratio” in this article) is the ratio of the loss in benefits paid out to the revenues received in insurance premiums. A low medical loss ratio is rewarded on Wall Street by higher stock prices since less paid for health care is translated into greater profits.
It is astounding that UnitedHealthcare has been able to achieve a medical loss ratio as low as 10%, retaining 90% of the premiums for administration and profit, simply by selling college students nearly worthless products that fail to prevent financial hardship in the face of medical need.
Senators McCain, Clinton, Obama, Wyden and Bennett all have proposals that would significantly expand the role of these private insurers in financing health care for the nation. The momentum behind these proposals continues to build. Why would we ever give this industry more control over our health care financing when we can replace it with our own public insurance program that would have the highest benefits ratio attainable? Spending health dollars on health care seems like the right thing to do.