Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Consumer Reports Highlights Pitfalls of Individual Health Insurance Plans

By Melissa Attias, CQ Staff

April 13, 2009 -- Many people are unaware that their health insurance plans will not adequately cover their expenses and could leave them in substantial medical debt if they fall seriously ill, according to the May 2009 issue of Consumer Reports.

The report says the most problematic insurance plans are individual plans that people can secure on their own if they are self-employed or lose their job-based coverage. An estimated 14,000 Americans lose their employer-based coverage every day, the report says, forcing many of them to consider individual insurance plans.

"Individual insurance has become a nightmare for consumers," Nancy Metcalf, senior program editor at Consumer Reports, said in a news release. "It's expensive and difficult to get for people who have a less-than-perfect medical history. And people who do purchase a policy often don't understand what they've bought until it's too late and they're faced with hospital bills that their plan won't pay."

For their investigation, Consumer Reports interviewed insurance experts, regulators and people who purchased individual plans and hired a national expert to help evaluate health plan policies. The results show that in many states, people with modest incomes may not have any good options for individual coverage. Plans with affordable premiums may leave individuals in substantial medical debt if they fall seriously ill, the report says, while those with adequate coverage have unaffordable premiums.

To exemplify the problem of underinsurance, the report describes the situation of Janice and Gary Clausen of Audubon, Iowa. When Janice lost her accounting job and job-based coverage in 2004, the report says the Clausens purchased a United Healthcare limited benefit plan through AARP that cost about $500 a month and covered up to $50,000 a year. After Gary was diagnosed with colon cancer, however, his 14-month treatment cost more than $200,000 and launched the couple into medical debt, according to Consumer Reports.

AARP spokesman Adam Sohn says the sales and marketing of these fixed benefit indemnity plans have been suspended since November of last year, after Sen. Charles E. Grassley, R-Iowa, sent a letter questioning the marketing practices. AARP also is undergoing an internal review of the plans, Sohn said, and encourages members with insurance questions to call AARP for help.

"We want to make sure they have recourse and places to go to get the information that they need," Sohn said.

The Consumer Reports investigation found that both large and small insurers offer insurance plans with substantial coverage gaps. In addition, the report says the majority of states do not require regulators to assess plans' overall coverage. It is especially difficult for individuals to figure out what a policy does and does not cover because coverage gap disclosure requirements are weak or inexistent, the report says.

Bipartisan legislation (HR 1253) sponsored by Rep. Michael C. Burgess, R-Texas, would address weak disclosure requirements by requiring health insurance companies to notify individuals and employers about health benefit exclusions or limitations at the point of sale. The bill passed the House on March 31.

"Individuals have the right to know what actions will and will not be covered by their health insurance plan," Burgess said in a news release.

"We're not telling insurance companies that they have to cover everything, we're just telling them that if you don't, you have to tell," said Lauren Bean, communications director for Burgess.

To ensure individuals are purchasing legitimate health care, Consumer Reports offers four pieces of advice for those selecting a health care plan. First, the report says individuals should try to find a plan with comprehensive coverage. More specifically, the plan should not have caps on specific coverages, especially hospital coverage, outpatient treatment, doctor visits, drugs, and diagnostic and imaging tests, and unlimited lifetime coverage maximums are best. Ideally, the plan also would have a single deductible for everything and pay for 100 percent of all expenses once out-of-pocket spending reaches a certain amount, the report says.

The report also advises individuals to consider tradeoffs carefully when they need to lower their health premiums. It is better to select a higher deductible and a higher out-of-pocket limit rather than fixed dollar limits on services, according to the report.

In addition, individuals should research the company and search for complaint information online before they select a plan, the report says. Finally, the report recommends that individuals ask for an advance copy of the actual policy, read the small print before they enroll and ask for written responses to any questions so they can complain if the information turns out to be wrong.

The Consumer Reports report also includes seven clues that are often characteristic of inadequate insurance plans. For one, the report says policies with coverage limits of $25,000 or even $100,000 are not adequate because health care is so costly. The report includes a table listing the treatment costs of many conditions, beginning with the $285,946 cost of late-stage colon cancer.

In addition, the report says that "random gotchas" usually mean that a plan is inadequate. In the Clausens plan, for example, the policy only started covering hospital care on the second day, according to the report. While at first glance the statement seems harmless, the report says the first day in the hospital is almost always the most expensive because individuals must pay for surgery and emergency room diagnostic tests and treatments.

Many of the irregularities of health care insurance stem from the fact that the states, not the federal government, regulate insurance, the report says. According to Consumer Reports, most states do not have a standard definition of what comprises health insurance, with the prominent exceptions of New York and Massachusetts.

To correct this, the report says lawmakers should define all key health care terms, such as "out-of-pocket" and "annual deductible" by law. The report also recommends that health care plans have a uniform set of benefits, be made available in full for anyone who wants to examine them, include a plan coverage summary that says what is and is not covered and disclose out-of-pocket costs for a standard range of serious problems.

Publication Details