How Republicans Will Lower Health Insurance Premiums: A Return to Junk Plans

Over the years Republicans have told a lot of lies about Obamacare. Leading the way has been their claim that the law is a government takeover of health care. The truth is that, whether you get insurance from your employer or via the Obamacare exchanges, you have health insurance provided by private insurance companies. The exceptions are, of course, Medicare and Medicaid—both of which were implemented long before Obamacare passed.

But we all know that Republicans hate any form of government regulation—and Obamacare heavily regulated the insurance market. Included in the law are:

  • A ban on denial of coverage for pre-existing conditions,
  • A requirement to cover children until the age of 26,
  • A requirement that only 15% of premiums (20% in the individual/small group market) can go to overhead/profit (medical loss ratio, or MLR),
  • A list of 10 essential benefits insurers must cover, and
  • A ban on annual and lifetime caps on what insurers will pay out.

We’ve heard a lot about the first two and many Republicans are promising to keep them in place when/if they repeal and replace Obamacare. While eliminating the MLR would likely cause premiums to rise, getting rid of the last two could reduce them significantly. Doing so would bring back what Consumer Reports once called “junk health insurance.”

The most common form of these junk plans prior to the passage of Obamacare was something called “mini-med health plans.” They tended to cover the first $2,000 to $7,000 of health expenses, with the remainder coming out of the pocket of those insured. That works as long as you stay health and free of accidents. But take a look at what happened to one woman who had such coverage:

Judith Goss, 48, of Macomb, Mich., believed that the Cigna plan she obtained through her job at the Talbots retail chain was “some type of insurance that would cover something.” When the store she worked at closed in January 2011, she even paid $65 a month to keep the coverage through COBRA.

“I was aware that it wasn’t a great plan, but I wasn’t concerned because I wasn’t sick,” she says. But in July 2011 she was diagnosed with breast cancer, at which point the policy’s annual limits of $1,000 a year for outpatient treatment and $2,000 for hospitalization became a huge problem. Facing a $30,000 hospital bill, she delayed treatment. “Finally my surgeon said, ‘Judy, you can’t wait anymore.’ While I was waiting my tumor became larger. It was 3 centimeters when they found it and 9 centimeters when they took it out.”

After paying in $65/month, Judith got payment for $3,000 of her expenses to treat breast cancer and then was on her own. That’s why Consumer Reports actually says that they are worse than having no insurance…you pay in, but get almost nothing back when you need it most.

Kim Soffen and Denise Lu report that all of the Republican alternatives to Obamacare eliminate the requirement for including 10 essential benefits. Orrin Hatch’s replacement plan allows insurers to cap annual payments and Ryan’s Better Way plan doesn’t mention caps (i.e., they would return).

These are important elements to keep in mind. Allowing the return of junk health insurance would mean that Republicans can claim to make premiums more affordable. But for people in Judith’s situation, they will assume they are covered when they’re not.

Nancy LeTourneau

Nancy LeTourneau is a contributing writer for the Washington Monthly.