The Affordable Care Act put in place a series of requirements that all health insurers must comply with, including providing insurance coverage to people with pre-existing conditions, providing coverage to children up to the age of 26 through their parents’ job coverage, and offering “minimum essential coverage.” The ACA goal was to ensure that coverage was available to people needing to buy it and that the coverage would meet most of their needs. But, the ACA did not ban indemnity insurance–bare bones insurance that offers little value if you need costly care–and the Obama administration has not been able to ban indemnity insurance either.
In brief, hundreds of thousands of people buy indemnity insurance as a substitute for a comprehensive health insurance policy because indemnity policies tend to cost a lot less than a health insurance policy. With an indemnity policy, if you need health care services, the policy will pay some limited amount for specific categories of health care services. But, you cannot count on an indemnity policy to cover the care you may need, nor can you expect an indemnity policy to offer meaningful protection against catastrophic health care costs, a key reason to have health insurance.
If you get hit by a car or diagnosed with breast cancer, or fall and break your hip, your out-of-pocket costs with indemnity insurance only are likely to be in the tens of thousands of dollars, if not in the hundreds of thousands of dollars. Without proper health insurance, through Medicare, Medicaid, the state health insurance exchange or a job, it’s easy to go bankrupt paying for your medical care. Indemnity plans are of little help.
The U.S. Department of Health and Human Services (HHS) has been trying to block the sale of indemnity insurance plans in an effort to protect consumers. But, recently, a federal court ruled in Central United Life v. Burwell that HHS does not have the authority to stop their sale. The court sees indemnity insurance as a supplement to the comprehensive or “minimum essential coverage” people are required to have under the ACA. It believes that the notice required on indemnity insurance letting people know that these indemnity policies do not replace the coverage required under the ACA and that consumers could need to pay a tax penalty if they do not have ACA-required coverage is adequate consumer protection.
Consumer advocates and others disagree. Many people buy indemnity insurance not realizing how little value it offers. They get stuck with huge bills if they need costly care. And, allowing people to buy these policies even when they don’t have a health insurance policy hurts people with health insurance whose premiums indirectly include the cost of paying for care people with indemnity insurance only cannot afford. Put differently, hospitals and doctors charge health insurers higher rates to offset the cost of uncompensated care they deliver; and care to people with indemnity insurance only is often uncompensated.
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