A College Health Insurance Scandal?

New York Attorney General Andrew Cuomo has been investigating college-sponsored health insurance plans and what he has discovered sounds disturbingly similar to the “pay-for-play” student loan scandal that Higher Ed Watch helped uncover several years ago.

At the heart of the probe is the question of whether colleges, when making lucrative deals with health insurance corporations, are truly acting in the best interests of their students — or whether they are allowing other considerations, such as their cozy relationships with some of the biggest college health insurance providers, such as United HealthCare and Aetna, to come into play.

In a letter to college presidents last month, Cuomo said that he found that “some health insurance brokers, agents and consultants, as well as some health insurers, have made contributions to the schools or provide items of value to the school or its employees.”

“In some cases, these contributions are seemingly innocuous, such as meals at moderately-priced restaurants,” the attorney general wrote. “In other cases, insurance agents have treated school employees to shows and expensive dinners, and brokers, agents, plan administrators, and insurers have contributed thousands of dollars to school events, such as golf tournaments.”

These contributions, Cuomo wrote, “call into question the schools’ objectivity” in selecting the best providers for their students. This is particularly worrisome because many of these plans are very costly to students and their parents but provide insufficient coverage. For example, Cuomo and others have found that many of these plans:

• Have low coverage rates:  In his letter to colleges, Cuomo said he found plans with annual caps of $25,000 or lower, and others that had per-illness annual caps as low as $1,000 to $2,500. The Government Accountability Office (GAO) issued a report in 2008 that found similar restrictions, as well as troubling examples of schools that place per condition per lifetime caps on outpatient services (such as emergency services or chemotherapy) of as low as $1,200. As Cuomo wrote, this is simply not enough money to cover expenses from standard illnesses and surgeries for a patient in today’s healthcare system. As a result, these plans often leave students who become seriously ill “with large, unreimbursed medical bills.”

• Exclude certain services and conditions from coverage: Both Cuomo and the GAO found that many plans do not provide coverage for pre-existing conditions, or for injuries sustained while under the influence of alcohol or drugs – which, unfortunately, are pretty much an occupational hazard on college campuses. In addition, many school plans don’t cover testing or treatment for allergies or for mental-health conditions. As a result, students and families that are paying for the coverage need to find other ways to cover “critically needed medical care.”

• Overcharge students for the services provided to maximize profits: A good way to measure how profitable an insurance plan is for the insurer is to look at the ratio of how much money the insurer pays out to its customers in benefits to how much money the customer pays the insurer in premiums. Large group healthcare plans commonly distribute at least 80% of premiums back to customers in the form of medical benefits. In contrast, Cuomo’s investigation (as well as a 2008 investigation in Business Week) found plans that pay as low as 30%, which is less than 30 cents for every dollar in premium. That means that, for every dollar spent on health insurance, these students were getting less than half the benefits of adults on typical group insurance plans. “Students who purchase these plans are paying hundreds of dollars per year more for their health insurance than they would if reasonable loss rations were being met,” Cuomo wrote.

All of this is bad enough, but it’s even worse because colleges strongly discourage students from opting out of their school-sponsored health plans. Some institutions make participation in the school plans mandatory, even if a student or the student’s family has alternate health insurance that offers more-comprehensive coverage. Others allow students to opt out but charge them much higher rates when they try to use their own insurance at the campus health center.

Is there a “pay-for-play” college health insurance scandal? At Higher Ed Watch, we have not done enough digging to know the answer to that question. But the allegations that Cuomo has brought up are disturbing and certainly deserve more attention.