Consumer Reports Investigates 'Junk' U.S. Health Plans

Feb. 7, 2012— -- Consumer Reports is warning against so-called "mini-med" health plans that offer limited protection, usually at lower cost, but with sky-high deductibles that can leave the insured paying thousands out of pocket.

Mini-med health plans tend to appeal to industries such as retail, temporary staffing agencies and food service, according to the consumer group. The employers want to show that they have something extra to offer their staff, but, in reality, the plans offer little to no coverage, said report author Nancy Metcalf, senior program editor at Consumer Reports who writes the "Ask Nancy" blog about health insurance.

"There is this persistent dream of consumers that, if they only look hard enough, they'll find really good insurance that costs a lot less," said Metcalf. "It's not going to happen. There's no such thing as a bargain on health insurance. If it's cheap, it's cheap for a reason."

Mini-meds offer a limited benefit health plan with extensive restrictions to those under the age of 65. Most plans cap benefits at a few thousand dollars per year. While many of these companies maintain that these plans are better than no insurance at all, Metcalf argues that some people may be better off without any insurance rather than making monthly payments to a plan that will probably not give adequate coverage when needed.

"In my view, people are better off putting whatever you would have paid to that mini-med in the bank in case something happens in the future," said Metcalf.

Of course, Metcalf said that this is a last resort.

"This is an excellent report," said Jonathan Weiner, professor of health policy and management at Johns Hopkins Bloomberg School of Public Health. "It's great to see a clear discussion about these type of plans. They are not well-understood or widely publicized."

Major insurance companies, including Cigna and Aetna, offer mini-med plans that allow for minimum and capped benefits. Robert Zirkelbach, press secretary for America's Health Insurance Plans, the national trade association representing the health insurance industry, said many states use these types of plans to expand coverage for uninsured Americans.

"For many seasonal, part-time, and temporary workers, these types of plans are their only source of affordable health care coverage," said Zirkelbach. "If employers are no longer allowed to offer these plans, many workers could lose the coverage they have today - breaking the promise that those who like their coverage can keep it."

An Aetna spokesperson said the company recognizes that "limited benefit plans are not for everyone," but the limitations are labeled clearly on the first pages of the plan's summary.

"We believe that every American should have comprehensive health insurance and we have actively advocated for health care reforms to make that happen," Aetna said in a statement. "In the current marketplace, however, limited benefit plans continue to meet a critical need for people who may otherwise not have access to, or be able to afford, health insurance."

Cigna did not return ABC News' request for comment.

These types of limited insurance come in two flavors: Discount cards and fixed indemnity plans, said Metcalf. A fixed indemnity plan will pay up to a certain amount for covered events. A discount card gives discounts for the full amount of medical services.

"Health insurance plans are structured to protect you when you're sick," said Metcalf. "But these make people so much more vulnerable if they actually get sick."

While Metcalf said people should never purchase such plans, Weiner disagreed and said some people might benefit despite the limited benefits.

"In almost all instances, consumers would be far better off if they are able to get coverage from other types of more conventional health plans," said Weiner. "But if there are no other options, and consumers understand what is and is not covered by these min-meds, then the extra coverage would be helpful to those lucky enough to have only modest healthcare expenses during the year."

Metcalf warned against looking for health insurance using an Internet search engine. A consumer is bound to stumble upon mini-med plans that have great marketing, but bad benefits, she said. Instead, those seeking out an individual health plan should visit healthcare.gov, a site that allows consumers to search for base premiums based on age, location and pre-existing conditions. If there is financial hardship, be sure to check whether they are eligible for Medicaid. A person is much more likely to be eligible for Medicaid if there are children in the household.

Metcalf also suggested seeking out independent brokers who specializes in health and life insurance and represent multiple companies. They can then help navigate through the myriad of explanations of each plan.

"An individual seeking health insurance is too vulnerable and it's too dangerous to look for health insurance on their own," said Metcalf. "Never ever buy online. Don't go near a search engine or you'll get in trouble."