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health insurance research

Student health insurance reform

by Tony Novak, CPA, MBA, MT,    revised April 5, 2012


Editor's note: For purpose of this article the term "college" is used for brevity to apply to any U.S. institute of higher learning including any college, university, trade school, graduate or professional school. The term "student" is meant to apply to an enrollee at any of these institutions. Laws, insurance products and issues discusses in this article apply equally to all members covered by this definition. 


The passage of the Patient Protection and Affordable Care Act of 2010 (PPACA) left the future of student health insurance in doubt. An implied objective of national health insurance reform was to apply the same regulatory standards to all health insurance. Yet we generally recognized that students, as a group, have different health care needs, priorities and financial resources than other adult populations. It seems inappropriate, unproductive and unfair to include young adults under the same rules that apply to other health insurance so Congress excluded student health plans from some reform provisions. This month the U.S. Department of Health and Human Services addressed some open questions and confirmed the distinctions.

Freedom Benefits, along with others, have previously raised questions and reported on related issues including:

A minority of legislators like Jay Rockefeller of West Virginia that presume that any health insurance not matching the federally-stated standards is "junk insurance" that should be outlawed. These minority viewpoints that would have restricted consumer choices did not prevail. The PPACA law does allow special considerations for student health insurance but the specific details are not specified in the law. Last week the Health and Human Services administration issued guidance with respect to student health coverage that will result in little change, if any, to student health insurance until at least the 2012-2013 academic year.

Current Rules

Student health is now considered to be a special class of individual coverage when detailed in a written contract between a college  and the insurance company to make coverage available only to students and their dependents. This guidance was announced in a Notice of Proposed Rule Making (rather than as an interim final regulation), which means that the rule is not effective immediately as has been the case with most regulations relating to PPACA reforms. The proposed student health rules could  be effective for the 2012-13 school year if not further delayed or changed. Until then, student health insurance is not subject to PPACA reforms. Even when the new rules are effective, student health would be excepted from the current guaranteed issue and renewability provisions of PPACA. It is still undetermined, for now, whether student health insurance will be subject to the minimum Medical Loss Ratio provisions of PPACA. Under these rules the health status of the student may not be used as a condition of eligibility.

The Department of Health and Human Services accepted public comment regarding whether student health insurance should receive some sort of special accommodations with respect to Minimum Loss Ratio provisions or be treated as exempt from these rules under the special rule for limited benefit plans due to the unique characteristics of the student health market.

On March 16, 2012 the Department of Health and Human services issued final regulations on student health insurance. The final regulations includes a timetable for adaption of PPACA compliance requirements with regard to plan annual limits. Beginning in 2013. student health plans will be subject to medical loss ratio (MLR) requirements in 2013. Student health insurance plans must also notify participants that they may be eligible for coverage under their parents' plan until age 26.

Annual limits

The proposed rule included a phase in period for compliance with restricted annual limits. To ensure the continued availability of coverage for students, the final rule modifies the phase in schedule so that student health plans cannot have annual limits of less than $100,000 on essential health benefits for policy years beginning on or after July 1, 2012 but before September 23, 2012, and $500,000 for policy years beginning on or after September 23, 2012, but before January 1, 2014. For policy years beginning on or after January 1, 2014, annual limits on essential benefits are prohibited.

Medical Loss Ratio (MLR)

To ensure that students receive value for their premium dollar, the final rule makes student health plans subject to the reporting and rebate requirements of the medical loss ratio rule starting in 2013. The Affordable Care Act stipulates that the reporting requirements and methodologies for calculating the medical loss ratio “be designed to take into account the special circumstances of small plans, different types of plans, and new plans.” To address the special circumstances of Student Health Plans, HHS will apply a methodological adjustment to the way the medical loss ratio is calculated for those plans. Similar to mini-med and expatriate plans, the adjustment will address the unusual expense and premium structures of student health plans. These changes to the methodology for reporting and rebates apply only in calendar year 2013, after which time no adjustment is provided. In addition, HHS added to the MLR rule a provision that requires student coverage to be aggregated nationally as its own pool rather than on a State by State basis, and to report experience separate from other policies.

Notice Requirement

The regulation requires a health insurance issuer to disclose to the student in the insurance policy and other plan materials that the policy being issued does not meet the minimum annual limits requirements. Students must also be notified that they may be eligible for health coverage as a dependent under their parents’ employer plan or individual market coverage if they are under the age of 26. The regulation contains model language to satisfy this requirement, using terms easily understood by students and their dependents. HHS will require insurers that sell student health plans to provide this notice prominently in order to improve transparency and ensure consumers are aware of the product they are purchasing. The notice requirement sunsets in 2014 when annual limits are prohibited.

Parents' employer-provided coverage

Continuing the parent's employer-provided health plan is typically the best option when the employer plan is partially paid by the employer and the plan provides adequate coverage in the location of the student's college.

Employer provided health insurance is not sufficient alone when: 1) the plan is an HMO that has few providers in the student's college area, 2) the insurance uses a family Health Savings Account or has a high deductible. Contradictions created by HIPAA privacy laws and other practical considerations (not covered in this article) prove to make this an unworkable solution. 3) . In these exceptions, separate or supplemental insurance is recommended. In most cases a combination of a supplemental insurance for the small, local expenses plus the employer-provided plan for catastrophic claims is the best solution.

PPACA requires that these insurance plans may now remain in force until a child is age 26. Previously the insurance terminated upon completion of education.

Short term medical insurance

Students not eligible for parent's coverage or a school-sponsored plan continue to prefer a short term major medical insurance policy.

The plans preferred by students   

The insurance choices of students, not surprisingly, differs from the recommendations of their parents, government regulators and school administrators. Students choose plans with no policy deductible, full coverage fro routine expenses and no paperwork. Plans that emphasize the maintenance of a student's privacy and are easy to understand seem to have an extra advantage. The most choice among students who purchase their own coverage is Core Health Insurance (insured by United States Fire Insurance Company) and Value Med Insurance (insured by Guarantee Trust Life Insurance Company or United National Life Insurance Company). Student shoppers tend to put less value on catastrophic coverage and "essential health benefits" as defined by law, especially after passage of health insurance reform laws in 2010. Ironically, it was the intent of the federal law to diminish the use of limited benefit or mini-med plans in favor of high deductible plans that offered "essential health benefits". Student insurance buyers have turned in the opposite direction from 2010 to 2012, boosting the popularity of limited benefit insurance for students.

College-sponsored health plans

These plans are current offered by 2500 to 3000 colleges, according the federal government and are typically designed to provide easy hassle-free care with an on-campus medical facility. Yet the popularity of these facilities is reportedly on the decline in recent years as students are increasingly becoming more aware of privacy and quality of care issues. In some cases these are mandatory health plans and the new federal ruling allows these plans to remain unaffected for at least the 2011-2012 school year. The college-sponsored insurance plans will continue to be issued primarily by Aetna, Assurant and UnitedHealthcare.


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