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?

Health Systems and the Public Interest, Part II

You lie!

That’s the shout that rang out across the venerable chamber of the United States House of Representatives last week. It was hurled across the room by an angry politician at the President of the United States during a nationally televised speech at a joint session of Congress.

No such brazen heckling had ever occurred in the history of the republic. After being chastened by members of his own Republican Party about his grievous offense, the Congressman issued an immediate apology to President Obama. Nevertheless, commentators across the nation decried the coarsening of our social and political discourse.

But let’s consider the condition of our society for a moment. In retrospect, isn’t it a bit surprising that it actually took so long for this to happen? Politicians have been demonizing each other for many years, and have watched their supporters attend and disrupt the public events of their opponents. Sooner or later, it was inevitable that such incivility would seep into the hallowed halls of Congress.

So what has protected our federal government from such unruly outbursts until now? Most likely, it has been sheer institutional inertia that has protected our government from the coarsening effects that have plagued our society, inertia that is also impeding – and perhaps protecting as well – our health care system from the upheaval of massive reform.

Government Inertia

Last week’s Part I of this column concluded by noting our public consensus that the federal government should play some role, even if just a limited one, in ensuring health care access for all Americans. It explained that such a consensus places politicians squarely in the midst of all reform efforts, which proves to be both a blessing and a curse to innovators who are seeking to improve the system.

On the one hand, intense government involvement is a mighty force that applies the powers of legal regulation and budget spending to enact sweeping change. But on the other hand, such involvement is also a deadening force that buries the possibility of change under a blanket of feasibility studies, public feedback meetings, and arcane parliamentary activities.

Our government is indeed a massive bureaucracy that, like any huge organization, struggles to adapt to changing conditions across numerous sectors. Financial service industry reform initiatives, for instance, are now stalled despite the recent bank-induced economic collapse that almost plunged the world into a Second Great Depression. And although scientists agree that global warming will dramatically affect future climate conditions, a national plan that effectively addresses the challenge remains elusive.

National Health Care: How Did We Get Here?

Our entire national health system, of course, can be characterized as a haphazard collection of programs that were originally created under social conditions that are now obsolete. The programs, though, have never been modified to adapt to contemporary conditions because of government inertia.

Consider, for instance, the motley assortment of health programs that cover the majority of working adults in this nation; namely, plans offered by for-profit insurers. Why are employers involved with their employees’ personal health insurance policies at all, as opposed to their personal property or liability insurance policies? Well, they only began offering health insurance as a fringe benefit when the government temporarily placed price controls on wages, and simultaneously made business expenditures for employee health insurance contracts tax deductible.

Health benefits were then viewed as a simple avenue for modestly increasing employee compensation at a time when wage increases were prohibited. Today, of course, wage increases are commonplace … and yet the government regulated system of health insurance remains rooted in place.

A similar situation exists in Medicare, the federal program that insures all citizens over 65 years of age. It was originally created during the Johnson Administration’s War on Poverty to provide an affordable and relatively inexpensive array of medical services to seniors in the final few years of their lives.

Today, of course, it covers an overwhelming array of incredibly costly services. And many seniors now live well into their 80s, 90s, and even their centenarian years, relying on Medicare to finance their care for many decades. And yet the government system of insurance for such individuals remains rooted in its original form.

What Comes Next?

President Barack Obama entered public office with a promise to enact Change We Can Believe In. And citizens across the ideological spectrum agree that change is indeed required to address the various failings of our national health system. But can we actually believe that our government possesses the will and the ability to enact such change?

In today’s volatile social and political environment, it is undoubtedly a fool’s game to undertake predictions about any proposed legislative initiative. Nevertheless, considering the government’s longstanding condition of institutional inertia, it may be unrealistic to hope that truly universal coverage will become a reality in the near future.

Insurance reform? Yes, that is realistic … and in fact is likely. An expansion of new initiatives to serve the uninsured? That too is realistic … and would actually represent a continuation of trends that have promoted programs such as Medicaid and CHIP.

But government legislation that would provide every legal resident with universal health care? Though we can always hope for such an outcome, it may be unrealistic to expect one any time soon.