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Consumers get best protections when plans offer set benefits, cap out-of-pocket costs

Report: reform should have clear, meaningful benefit choices and financial protections so no one faces devastating health costs

July 29, 2009

Standardized Health Plans Help Consumers Choose the Right Benefits and Better Financial Protection

New report offers lessons for Congress as national health reform debate intensifies

New York, NY — Consumers are best protected when they can choose from among a manageable number of standardized health benefits packages, and when those standards include annual out-of-pocket limits covering all services, a new report finds.

In “Role Models and Cautionary Tales: Three Health Insurance Programs Demonstrate How Standardized Health Benefits Protect Consumers,” the Medicare Rights Center compares three health insurance programs — Medicare Advantage (private health plans, like HMOs, that are an alternative to the government-run Original Medicare program) and two Massachusetts programs, Commonwealth Choice and Commonwealth Care, that are at the center of the state’s health reform efforts. You can read the report here.

“This timely study provides important insights into how detailed regulatory and legislative decisions can powerfully affect the health insurance choices facing consumers,” said DeAnn Friedholm, campaign director for healthcare reform at Consumers Union.

“We hope that the legislators working on health reform will incorporate the lessons we’ve learned from these programs into their final bill,” said Joseph Baker, president of the Medicare Rights Center, a national consumer advocacy group. “Health reform is ultimately about protecting consumers. Presenting consumers with clear, meaningful options and comprehensive financial protection are essential components of real reform.”

The study compared the benefits packages offered through these three programs, how they are regulated, and how consumer counselors view the programs.

The study finds that Commonwealth Care, which serves Massachusetts residents with limited incomes, provides the greatest level of protection for consumers. In this program, plans are fully standardized and have comprehensive out-of-pocket limits that are tied to enrollees’ income. The simplified choices allow consumers to focus on the premium costs and whether plans allow access to their medical providers.

In contrast, Medicare Advantage and Commonwealth Choice allow much more variation in benefit design, making plan selection more difficult for consumers. Medicare Advantage plans allow significant leeway in benefit design and provide less rigorous protection against out-of-pocket costs. As a result, many consumers face a bewildering array of plan choices and are at great risk of choosing a plan that does not meet their healthcare needs. Commonwealth Choice plans are somewhat more standardized but allow significant variation in consumers’ out-of-pocket protections—leaving policyholders vulnerable to unexpected costs.

Drawing from the pitfalls and positive developments in all three programs, this brief makes two recommendations for consumer protections Congress should include in health reform legislation:

A cap on out-of-pocket costs: Require all health plans sold through a health insurance exchange to include a comprehensive annual cap on what consumers pay out of pocket for medical care and prescription drugs.

A standardized benefit package: Require plans offered through the exchange to have a limited number of standard benefit designs, with each design featuring standardized cost-sharing terms for the services most important to healthcare consumers.

For more information, contact:

Paul Precht, Medicare Rights Center

Lynn Quincy, Consumers Union