The Mini-Med: Our New Health Reform Threat!

Runaway cost inflation. A stagnant bureaucracy. Mind numbing complexity.

These are the monumental challenges that are confronting America’s federal government during the implementation period of its new system of universal health care. Though regulators certainly don’t need any additional headaches, last week we learned of an entirely new problem, one with a deceptively innocuous name: the mini-med!

Like Dr. Evil’s tiny clone Mini-Me in the Mike Myers comic film series Austin Powers, the mini-med health plan is a diminutive version of a full fledged insurance plan. Yet, despite its meager dimensions, it poses a sizable threat to the government’s program of national health reform.

Aflac! Aflac!

What, exactly, is a mini-med? It’s a tiny health plan that costs very little and thus delivers very little in exchange. It is sold directly to individuals by insurance companies, although businesses often help insurers to market these policies to their employees.

Aflac, for instance, offers a health policy that pays $1,000 for an initial hospitalization stay resulting from an accident, and an extra $1,000 for an admission to an intensive care unit. The insurer pays these amounts to individual policy holders, i.e. not to medical providers.

Are there any “catches” to this Aflac plan? Well, for a start, its coverage is limited to one hospital admission per year. Perhaps more importantly, its $1,000 or $2,000 stipend barely begins to cover the cost of a single day in most American hospitals, let alone the total cost of a typical multiple day stay. If we consider the additional costs of ambulance and other ancillary services as well, we can understand why insurers refer to these contracts as “mini” plans.

Nevertheless, companies as large as McDonald’s offer such plans to part time employees and other workers who would otherwise receive no employer health benefits whatsoever. Many of these companies are now complaining that new government health regulations may prevent them from helping insurers market these policies at all.

Making Business Difficult

How is the federal government making business difficult for insurers that offer mini-med plans? One new legal restriction is a requirement that all plans spend at least 80% to 85% of their revenues on medical care. Many mini-med insurers spend far less than this percentage on health care services; they explain that their average policy payment tends to be relatively small, while their administrative costs in total are large and fixed in nature. Thus, on a percentage basis, they assert that far more than 15% to 20% of their total revenue must inevitably be dedicated to paying administrative costs.

Another new legal restriction prohibits insurers from placing certain limits or “caps” on payments over specific periods of time. Coverage limits such as “one hospitalization per year” run afoul of this prohibition; mini-med plan providers are now arguing that unlimited or “uncapped” exposure to multiple claims would drive them out of business.

Such concerns have led supporters of mini-med plans to request waivers of these new regulatory requirements. Although McDonald’s publicly denied that it explicitly requested such a waiver, the Wall Street Journal reported last week that the firm indeed did so. Then, on Friday, HHS formally confirmed that it is evaluating a number of such waiver requests.

Is It Really Insurance?

There is, of course, an underlying question whose answer may determine how HHS establishes health policies for the mini-med industry sector; namely, is a mini-med plan actually a health insurance policy at all? If it is, then the new health insurance regulations may inevitably apply to it. But if it isn’t, then regulatory waivers or exemptions may indeed be granted by HHS.

On the one hand, any health cost reimbursement contract that pays a mere flat fee of $1,000 for a multiple day hospitalization cannot rationally be considered a comprehensive insurance policy. Aflac itself acknowledges this fact on its home web page, stating that “Aflac is not major medical insurance. Aflac pays you cash benefits when you are sick or hurt to use however you want.”

In other words, Aflac is disclaiming any responsibility for covering the full costs of health care. To the contrary, the firm urges individuals to spend their proceeds however they want, and not to rely on its payments exclusively to finance health care costs.

Nevertheless, the page title of Aflac’s internet home page is “Supplemental Insurance for Individuals, Insurance Coverage.” And the page title of its employer business web page is “Health Insurance Policies, Employee Benefits Program.” In other words, while Aflac disclaims any responsibility for paying “major” insurance claims, the firm does refer to its own products as “health insurance policies.” And it is explicitly positioning its program as an employee benefit.

Regardless of HHS’s pending policy decision, certain constituencies will clearly be dissatisfied with the direction of health insurance reform. But who could have predicted that one source of this dissatisfaction would be the smallest health insurance policy of all: the mini-med?