Wal-Mart has a limited benefit plan, called Starbridge.
Fast-Growing Health Plan Has
A Catch: $1,000-a-Year Cap
Employees Pay $10 or So Weekly, for Basics
That Provide Little Help for Serious Illness
By CHAD TERHUNE
Staff Reporter of THE WALL STREET JOURNAL
For legions of Americans with no health insurance, a policy
known as
"limited benefit" sounds like an appealing choice. Premiums
are often
only about $10 a week. But there's a big catch: For basic
medical care,
it often pays only $1,000 a year -- so little that some
question whether
it amounts to health insurance at all.
The policies are among the fastest-growing health-insurance
offerings
in the workplace. Sold by half a dozen insurance companies,
they cover
an estimated 750,000 employees and family members. Wal-Mart
Stores Inc.,
McDonald's Corp. and Lowe's Cos. are among major companies
making them
available to their employees.
Yoshiko Craig, a receptionist in Duluth, Ga., bought such
coverage in
April 1998. She used most of a 50-cent raise she had just
gotten, to
$7.75 an hour, to buy the plan through her employer, the big
Regis Corp.
hair-salon chain. It cost $16 a week and capped her basic
benefits at
$1,000 a year, although, as with most such plans, it let her
collect a
few thousand dollars more if injured in an accident or
hospitalized. Age
61 at the time, Mrs. Craig remembers thinking that she didn't
expect to
become seriously ill.
Five months later, she learned she had breast cancer.
Following surgery
and chemotherapy, Mrs. Craig found herself facing medical
bills of
$85,000. Ever since, she and her husband have been paying
about $10,000
a year toward their medical debt.
"The insurance wasn't any help," Mrs. Craig says.
Some health-care advocates and industry executives are highly
skeptical
of plans such as hers. At one insurance-company meeting last
year, a
roomful of agents burst into laughter when an executive
described a
limited-benefit plan. "I see no value in a $1,000 policy,"
says John
Hartnedy, Arkansas' deputy insurance commissioner, who says
what people
really need is coverage for major illnesses.
The plans spotlight the growing disparity at many companies
between the
treatment of higher-ranking employees -- who generally get
comprehensive
health-insurance policies -- and hourly workers, who tend to
be the
lowest-paid and least able to cope with medical costs.
Supporters of the limited-benefit plans say their critics
don't take
into account economic realities facing the working poor. "It's
easy for
someone to say it's a nothing program when they have money in
the bank,
credit cards in their wallet and nice health insurance," says
Charles
Shoumaker, a former human-resources manager who helped launch
the
limited plans more than a decade ago. "They don't realize that
$1,000 is
a lot of money to the working poor."
Adolfo Gutierrez, an hourly employee at an Austin, Texas,
restaurant in
the Schlotzsky's Deli chain, found value in his $1,000-limit
plan. It
saved him a couple of hundred dollars when he sprained his
hand playing
basketball last year and had to go to an emergency room for a
splint.
This week, he got treatment for a rash on his hands and didn't
pay
anything at the doctor's office. "Having health insurance is
wonderful,"
says Mr. Gutierrez, 22, whose employer, unlike most, paid the
premium.
Defenders say the simple act of giving low-income workers an
insurance
card can encourage them to seek routine preventive care. They
contend
that some measure of health coverage, however small, is better
than
none.
Cost Conscious
Some employers also say this is all they can afford, with the
economy
in low gear and health-care expenses soaring. The cost to
employers of
providing comprehensive health benefits has risen 57% in five
years, to
$5,646 per employee, according to Mercer Human Resource
Consulting.
By offering limited-benefit plans, meanwhile, employers are
able to
tell new low-level workers that health insurance is available
through
the job, even though most employers pay nothing toward it.
Think of it as getting insurance for the price of a movie or a
few
beers, some employers and insurance agents tell workers.
Enrollment in the limited-benefit health plans has grown about
20% in
each of the past two years. Insurers sell them solely through
employers.
The employers make them available chiefly to hourly workers,
either
full- or part-time, and collect the premiums by payroll
deduction. The
companies, many in the service sector, typically find that 10%
to 30% of
eligible workers purchase the coverage.
An employee-benefits administrator dreamed up the plans in
1986. The
initial idea was that the plans might help businesses retain
certain
categories of workers, such as veterans and minorities, that
entitled
the employers to a tax credit. The benefits firm, Strategic
Resource Co.
in Columbia, S.C., lined up an underwriter and later began
marketing the
plans widely.
A couple of years later, Mr. Shoumaker developed his own
version, while
he was human-resources manager for Circle K convenience
stores. He
started a firm to market it, Star Human Resources Group Inc.
He found
corporate executives dubious of a $1,000 health policy. "Many
felt
embarrassed to take anything that low," he says.
They grew more comfortable after Star signed up McDonald's in
1994, and
then retailer Target Corp. a year later. McDonald's says about
12,500 of
250,000 hourly employees at its corporate-owned and franchised
restaurants are enrolled in limited-benefit insurance. The
chain offers
those hourly employees more-comprehensive health insurance but
at a
higher price.
SLIM OPTIONS
Some features of one of the limited-benefit health plans
offered at
Regis Corp., through UICI.
* Basic annual benefit: $1,000*
* Weekly premium for an individual: $6.92
* Weekly premium for a family: $21.55
* Basic deductible: $50
* Doctor visits: $15 copay
* Accident benefit: $5,000, up to two a year, insurer pays 80%
of
covered expenses
* Accidental-death benefit: $10,000
*Per insured person
Source: Regis
Employers readily concede the plans offer scant help with a
serious
illness. The average cost of a hospital stay in 2001 was
$13,685,
according to Mutual of Omaha Insurance Co. study. Employers
and
insurance agents say they make sure workers understand what
the
insurance can and can't do.
"The concern is they understand it is a limited benefit, so we
don't
have someone enrolled in the plan who has open-heart surgery
and thinks
they have coverage for $100,000," says Bob Ihrie, a vice
president at
Lowe's. The home-improvement retailer offers part-time
employees a
choice of two Allstate Corp. plans with maximum annual
benefits of
$2,500 or $5,000. To avoid confusion with broader, largely
company-paid
insurance for full-time employees, the company schedules
enrollment on
its limited-benefit plans at a different time of the year.
Some
employers require insurance agents to come to their premises
and explain
the plans to potential buyers.
Some insurance companies have tried offering low-cost policies
that
cover "catastrophic" health costs. But industry officials say
low-income
employees haven't shown much interest because such plans
require high
deductibles -- perhaps a couple of thousand dollars -- before
coverage
kicks in. Low-wage workers are more interested in something
that covers
basic expenses, insurers say.
'Adverse Selection'
Another problem insurers cite in trying to offer a low-cost
plan with
potentially large payouts is "adverse selection":
Disproportionate
purchasing by people whose health is poor, and who are likely
to use a
lot of the benefits. With employer-sponsored plans, health
insurers
cannot reject applicants on the basis of their health.
Mrs. Craig, the hair-salon receptionist in Georgia, recovered
from the
cancer that struck soon after she bought a limited-benefit
plan. But the
bills were daunting. Indeed, a serious medical problem such as
hers is a
factor behind about half of the nation's 1.5 million
bankruptcy filings,
according to Harvard researchers who study the issue. Mrs.
Craig
rejected the bankruptcy route. The doctors "saved my life" and
deserve
to be paid, says Mrs. Craig, now 66.
She and her husband, William, a 69-year-old retired
farm-equipment
salesman, paid a deposit to each medical provider and began
sending
monthly checks. They've whittled their balance to $28,000.
Although a limited plan was of scant value to Mrs. Craig, it
can be a
big help for an employer, with few costs. Even the expense of
enrollment
is largely borne by insurance companies or their agents.
"We wanted to do something that would attract and retain
people and
give them the ability to have some insurance," says Jan Cohen,
managing
director of benefits at Budget Rent A Car System, a unit of
Cendant
Corp. About a hundred of Budget's 1,800 part-time employees
purchased a
limited policy.
The early architects of the plans figured that price would be
key for
lower-income workers, so they set weekly premiums at equal to
just one
to two hours' wages. Those premiums, in turn, dictated low
levels of
benefits: from $1,000 to a few thousand dollars per year for
basics such
as emergency-room care and doctor visits.
Some in the insurance industry have a hard time taking this
coverage
seriously. A gathering of 300 insurance agents in Las Vegas
erupted into
laughter last summer when an insurance-company executive
explained a
limited-benefit plan offered by Star Human Resources. "The
annual cap is
$1,000. That's not the deductible," said Gregory Mutz, CEO of
Dallas
insurer UICI, which had just acquired Star from Mr. Shoumaker.
Mr. Mutz told the agents not to laugh. Economically, the
potential
customers "are at the bottom of the food chain," he said. "I
don't want
to make fun" of this coverage.
Allstate, Safeco Corp. and CNA Financial Corp. have also
thrown their
formidable brand names behind limited-benefit plans. At CNA,
which
underwrites Strategic Resources' plans and has just begun
offering one
of its own, "This is an area we would like to grow
aggressively," says a
vice president, Douglas Hayes.
Restrictions Apply
One of the selling points to employees is that the plans will
cover
their everyday medical expenses. Still, the policies have
restrictions
such as waiting periods for "wellness checks" and for
treatment of
pre-existing conditions. They also involve deductibles that
policyholders must pay each year before benefits kick in.
Mrs. Craig's plan imposed a $150 annual deductible, and it
required $10
copayments for doctor visits. Besides the $1,000 basic annual
benefit,
she could collect a $500-a-day reimbursement for up to five
days of
hospitalization a year. The policy also offered up to $2,000 a
year for
surgery and $5,000 for an accident, up to two of them a year.
She paid
an extra $3 a week to get some dental and vision coverage.
"The plan is a rip-off," says Beth Todd, a 28-year-old who
enrolled in
a limited-benefit plan at another Regis hair salon, in
Asheville, N.C.,
in 1999. She says she canceled the policy after less than a
year because
it paid so little toward her treatment for a sinus infection
and
migraines.
Regis's chief financial officer, Randy Pearce, says
limited-benefit
plans don't fit every worker's needs. "But I think people vote
with
their wallet," he says, "and we have more than 7,000 employees
enrolled," or about 20% of its U.S. work force.
Some smaller companies are beginning to drop comprehensive
health
insurance in favor of these scaled-down, employee-paid plans.
Duane
Zuber, part-owner of a Comfort Inn in Grand Rapids, Mich.,
says he did
so when the state's Blue Cross Blue Shield carrier raised his
health-insurance premiums on five employees and their families
by 24% --
in a year when his revenue was down 7%. To contain his
health-insurance
cost, Mr. Zuber ended comprehensive coverage for two employees
and
offered them a limited-benefit plan.
Mariah Tompkins, a clerk earning $8.25 an hour, was one of the
two. Now
the 20-year-old spends $9.95 a week on a limited-benefit plan,
which
will pay $50 per visit for up to five emergency-room or doctor
visits a
year, plus extra amounts for hospitalization or car accidents.
"It's
kind of annoying I have less now," Ms. Tompkins says. "I would
like to
have good insurance."
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