While nearly 30 million Americans don’t have health insurance of any kind (and that number is unfortunately rising), another 44 million Americans are underinsured. In fact, the Commonwealth Fund reports that in 2018, 45% of American Adults under 65 were uninsured or underinsured.

A contributing factor to this incredible number of uninsured and underinsured  are the number of people who have been duped into purchasing “Fake Insurance”. That is, insurance that doesn’t actually cover what it should (or finds convenient reasons to deny coverage), leaving individuals out to dry when they have an accident or otherwise incur large medical bills.

This article will delve into the warning signs that you may have this type of insurance and then talk about what you can do about it.

 

Warning Sign 1: Your plan needs to be renewed every 3-6 months

Believe it or not, there are still some types of health insurance plans that are allowed to deny insurance coverage for ‘pre-existing conditions’. While the ACA requires that all marketplace plans provide coverage for treatment of pre-existing conditions, it also ‘grandfathered’ in certain plans as allowed to continue denying insurance coverage among pre-existing conditions. Chief among these are short-term health insurance plans.

Short-term plans are designed to cover people for a short amount of time during transitory periods in their life in which they struggle to find other types of insurance (usually this comes after switching jobs when “Open Enrollment” for general plans is closed). These plans cannot last longer than 3-6 months (the exact length varies on a state by state basis).

While these can be legitimate plans for certain people in certain circumstances, some less than scrupulous companies brand these as standard health insurance plans for people to buy. They get around the the 3-6 coverage limitation by having the insurance “renew” every 3-6 months (that is having patients reapply and get a new policy before the timing is up).

According to the Kaiser Family Foundation, these plans also regularly engage in a process called post-claim underwriting. That is, after a claim for an expensive service or condition is submitted, the insurer conducts an investigation specifically with the goal of finding evidence that the condition can be considered pre-existing and thus denied. 

In our experience, insurance companies will take a very broad view of pre-existing conditions, and use almost any symptoms even remotely related to the condition as evidence that the condition was pre-existing. Because the appeals process is stacked against patients, often the only recourse is through a lawsuit, which can be prohibitively expensive for everything but the most egregious bills.

 

Warning Sign 2: Your Plan Is “Gap Insurance” or a “Supplemental Plan”

Supplemental Insurance or Gap Insurance was originally designed to be a second level of insurance  layered on top of an individual’s main health insurance. The idea behind this type of insurance is to help cover initial out of pocket expenses before an individual meets their deductible in a standard health insurance plan.

Because this insurance is designed to be used in addition to other insurance, it often has a cap on the maximum amount that it will pay. After that cap – it’s up to the individual, or the other insurance company, to pay the rest.

Unfortunately, some companies are selling this insurance to individuals who don’t have another health insurance plan. These individuals are often led to believe that they only need one insurance plan (which is normally the case). Since supplemental plan insurance premiums are low, they choose are more likely to choose this plan than standard full coverage insurance plans.

Everything seems great until an accident happens and the individual has to go to the emergency room. These plans only pay out the first $2,000 – $5,000 of medical bills,  and then leave the rest up to the individual. Even worse, these plans often don’t have much of a contractual discount, leaving individuals with hospital bills at or near the chargemaster rate instead of a more standard insurance negotiated rate (see Section 1 of our Guide To Lowering Your Medical Bills for an in-depth explanation of the chargemaster rate and  discussion on how patients are gouged by hospital chargemaster prices).

At Resolve, we regularly see patients with this type of insurance racking up tens or hundreds of thousands of dollars worth of medical bills because of a medical emergency. The insurance company pays out $2k-$5k and leaves the patient stuck with the rest. While we are experts at negotiating these crazy medical bills down (and can help if you’re stuck with them), this isn’t something that anyone should have to deal with in the first place.

The best way to ensure that you’re not signing up for supplemental or gap insurance is to buy your plan through your employer or through the ACA marketplace. Barring that, ask the agent you’re speaking to directly if you’re buying a “Major Medical” insurance plan (this is often the term used for a primary insurance plan that covers people the way insurance should). If not, run the other way.

 

Warning Sign 3: There’s a CAP on the amount of money your health insurance will cover

This is similar to warning sign 2 in that this is a high likelihood indicator of a gap or supplemental plan (though not always, we’ll get into that below). 

Insurance is supposed to function as a way to limit your total risk by covering extremely expensive medical bills (after you’ve paid a certain amount out of pocket). However gap or supplemental insurance will cover the first dollars out and then stop paying after $2k-$5k (as described above) – leaving the patient with the rest. This is the exact opposite of insurance and something you should run away from as quickly as possible.

We’ve seen countless incidents of patients who thought they were covered, had an accident, ran up a hospital bill in the tens or hundreds of thousands, and were shocked when their limited benefit plan only covered the first $10,000 in care.

 

Warning Sign 4: Your Out of Pocket Maximum is extremely high

Some insurance companies hide limited medical coverage by offering plans with extremely high out of pocket maximums.

We go over key health insurance terms in our blog post 10 Key Health Insurance Terms to Know, however when understanding how much you might need to pay in the event of a medical emergency or situation there are 3 key terms to understand:

Deductible: the amount of money you need to pay out of your own pocket before an insurance plan will start paying. This can range from $500 to $10,000 (or more). Generally the higher the deductible the lower the premium, but the more risk you’ll be taking. You want to balance the expected amount of healthcare you’ll need over the next year with the deductible amount when buying insurance.

Co-Insurance: The amount of the medical bill that you’re responsible for once your deductible has been paid. This is usually a percentage (such as 20%) of the amount above the deductible. For instance, if you have a $5,000 deductible and 20% co-insurance and receive a $10,000 bill, you’ll be responsible for paying $6,000 ($5,000 deductible plus 20% of the remaining $5,000, or another $1,000). Be very careful of this number, as some companies will hide a high co-insurance with a low deductible to make a plan seem more attractive than it really is.

Out of Pocket Maximum: The maximum amount of money that you need to spend in deductibles, co-payments, and co-insurance in a given year before the insurance company will cover everything. This is usually a round number and can be as high as $20,000 or more (which means you would need to spend $20,000 before your insurance company covers the rest). Once you hit this, you no longer need to worry about paying for medical care.

Basically the way it goes is you’ll have to pay all of your hospital bill until you hit your deductible amount. Then your co-insurance kicks in and you only pay a portion of your medical bill until you hit your out of pocket maximum. Only then is the entire amount of the remaining medical bill covered.

For 2020, ACA compliant plans have an out of pocket maximum limit of $8,200 for individuals and $16,400 for families (see link here for more info on out of pocket maximums). 

If your out of pocket maximum is more than this, you should be extremely wary as this means you aren’t covered by an ACA compliant plan, and could have significant other gaps in your coverage (not to mention running the risk of having to pay an extremely high amount out of pocket).

 

What You Can Do

The best weapon for consumers in this case is knowledge. Understanding as much as possible about health insurance plans and asking specific questions about the plan you’re considering is a good way to ensure you don’t end up with fake health insurance. The healthcare.gov website is a great resource for this.

The other alternative is to buy a healthcare plan on the healthcare exchange (again, go to healthcare.gov to find plans on your state’s health insurance exchange). While these plans may be a little more expensive, you can rest assured that they don’t have hidden provisions that allow many fake health insurance plans to get out of covering needed medical care.