Health insurance – and the right type of health insurance – is so important.
The Affordable Care Act was created to help make health insurance more affordable and prevent insurance companies from denying coverage or increasing prices due to a pre-existing condition. However, these protections only apply to ACA-compliant plans, or comprehensive/major medical insurance.
Major medical insurance
Major medical insurance helps pay for things like preventive services, surgeries, and prescription drug expenses. You typically pay a premium every month and a portion of the costs associated with your medical care. Health insurance can also offer protection from high costs through negotiated rates with healthcare providers.
And, thanks to the Affordable Care Act, all ACA-compliant plans must meet a minimum set of requirements. One of those requirements is that all plans, regardless of category or plan type, must include 10 essential benefits.
The 10 essential benefits include coverage for:
- Prescription drugs
- Pediatric services: For children, plans include dental, vision, and medical coverage
- Preventive, wellness, and chronic disease management services
- Emergency services
- Mental health and addiction services
- Pregnancy, maternity, and newborn care
- Ambulatory services, also known as outpatient care
- Laboratory services
- Rehabilitative and habilitative services and devices
Plans must also include the following benefits:
- Birth control coverage
- Breastfeeding coverage
Plans may offer additional benefits, including:
- Dental coverage
- Vision coverage
- Medical management programs (for specific needs like weight management, back pain, and diabetes)
This is true for all plan categories (all “metal levels,” including Catastrophic plans) and all plan types (like HMO and PPO).
What is a limited benefit plan?
Limited benefit plans provide limited benefits and coverage that is typically capped at specific amounts and can only be used for specific services. These reduced benefits were created to supplement a comprehensive health insurance policy, not replace it.
The problem with limited benefit plans
When a limited benefit plan is used to supplement a comprehensive health insurance policy, then they add an additional level of coverage.
However, the problem lies when someone solely depends on a limited benefit plan as their primary coverage. Some brokers and associations bundle products together to appear as one comprehensive plan. However, limited plans provide neither catastrophic coverage nor real first-dollar coverage for benefits. They also don’t include key ACA provisions which means someone can be charged more for having a pre-existing coverage if they are even offered coverage at all.
Types of limited benefit plans
Limited benefit plans come in all shapes and sizes. Here, we evaluate some of the most common types of limited benefit plans.
Limited indemnity plans
Fixed-indemnity health insurance is a form of supplemental insurance coverage. It pays out a set (“fixed”) dollar amount (“indemnity”) per day or per medical service.
For example, you might have a limited indemnity plan that will pay you a flat fee of $5,000 if you have a heart attack. And while that sounds great now, it might only cover a fraction of the price when you add up all of the expenses such as chest x-rays, echocardiogram, MRI, CT scans, heart stent, emergency room visit, bypass surgery, intravenous medication, bloodwork and lab tests, room and care charges, and more.
On the other hand, a comprehensive health insurance plan that is ACA-compliant would help you pay a percentage of the expenses, once your deductible is met. Your doctor would file a claim with your insurance company to get paid for your treatment. The insurance company will pay them part of the cost, typically 80%. You are responsible for paying the rest. The plan specifies which expenses do and don’t qualify for coverage.
Hospital indemnity insurance
You may also see ads for hospital indemnity insurance. That’s a type of fixed-indemnity insurance that pays out when you are admitted to the hospital. For example, you might get paid $200 a day for every 24-hours you are in the hospital. And again, the payout is a fixed amount stated in your policy. This is the amount you receive, no matter what the total expenses turn out to be.
Hospital costs averaged $2,607 per day throughout the U.S., with California ($3,726) just edging out Oregon ($3,271) for most expensive. Wyoming ($1,383) has the cheapest with Iowa ($1,606) a distant second.1
AND that’s not even for an overnight stay! In comparison, a $200 pay-out doesn’t sound very helpful. That’s why fixed-indemnity insurance plans should be used to supplement a comprehensive ACA-complaint plan.
Critical illness plans
A critical illness plan is a policy that pays the insured a lump sum following the diagnosis of an illness covered under the plan. Critical illness plans often cover diseases like cancer, organ transplant, heart attack, stroke, renal failure, and paralysis, among others. There is no coverage if you’re diagnosed with a disease that isn’t on the specific list for your plan, and the list of covered illnesses varies from one plan to another.
As long as you understand the details of your coverage and are using it to supplement a comprehensive health insurance plan, a critical illness plan might be a good fit for your needs. If you’re enrolled in a plan with a high out-of-pocket maximum, a critical illness plan might make you feel more comfortable with the out-of-pocket exposure on your plan.
Medical cost-sharing plans
Some people opt out of health insurance and join medical cost-sharing programs instead. Members pay a set amount into a group fund every month. When a member gets a large medical bill, the fund pays some or all of that bill. These faith-based organizations provide coverage that resembles insurance, but they are not legally obliged to pay the bills.
In 2022, California Attorney General Rob Bonta sued one group, Atlanta-based Aliera Companies, accusing the business of scamming consumers by selling unauthorized health plans and collecting hundreds of millions of dollars in monthly premiums while declining to pay members’ medical claims.2
Unlike with health insurance, the legal system can’t force these programs to pay members’ medical bills. State governments have no control over them. In fact, 30 states have laws saying these plans are not bound by insurance company rules. Insurance watchdogs in at least 15 states have warned people to be careful with these plans. “The Insurance Department cannot assist you with any complaints about the ministry,” the Nebraska alert reads. “Your medical provider is not obligated to accept any discount from the ministry if there is no contract between the ministry and the provider.”3
When evaluating any kind of medical coverage, it’s important to understand who is administering the plan, the details of your coverage and the costs you will be responsible for. Keep in mind that if a plan is not ACA-compliant, it probably doesn’t provide ACA protections like coverage for pre-existing conditions. If you fall ill, and the insurer claims your illness began before you enrolled you might be left with no coverage at all.
It’s also important to make sure you are dealing with an insurer, agent or broker who is licensed to sell insurance in your state. Most states have their own database where you can easily check the license of an insurer or agent.
Limited benefit plans are not primary coverage
Limited benefit plans are exactly what they say – limited in benefit coverage. They are not ACA-compliant health insurance plans, nor do they provide the same protections as major medical insurance.
Limited health insurance policies provide significantly lower benefit levels than major medical insurance, and although the premiums are lower than major medical insurance, it isn’t worth the tradeoff because the coverage doesn’t compare. That’s why it’s important to understand the details of your coverage and use a limited benefit plan to supplement a comprehensive health insurance plan, never to replace it.
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