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Are College Health Plans a Bad Buy? Posted: April 30th, 2010

By Maryalene LaPonsie

Whether you are a parent or a student, you have undoubtedly prepared for many of the usual expenses while doing your college planning--tuition, books, room and board, food. But what about health insurance? It may come as a surprise to many incoming freshman and parents, but an estimated two-thirds of private colleges and a quarter of public universities require students to have health insurance coverage.

For those students without their own coverage, colleges often offer a school-sponsored health plan. Many of these plans might seem like cheap health insurance; however, it's a good idea to take a closer look at the details of any health insurance plan before signing up for coverage.

New York Attorney General Investigates

To address concerns from parents and students, New York Attorney General Andrew M. Cuomo launched an investigation of student health plans. The results show that health insurance provided by colleges may offer little in the way of adequate medical coverage.

Among the findings, many school-sponsored plans:

  • Exclude pre-existing conditions or charge significantly more for coverage
  • Cap total coverage at $25,000 or less
  • Apply per-illness caps that may limit benefits to only a few hundred dollars
  • Provide no prescription drug coverage or severely limit benefits
  • Charge excessive premiums

While health insurance offered by schools may have annual premiums as low as under $100, some plans charged more than $2,500 for subpar coverage. In addition, many of the plans reported paying out claims that were only a small fraction of the premiums they received, resulting in excessive profit margins.

In a statement released by his office detailing the investigation findings, Attorney General Cuomo said, "Many of the sponsored health care plans looked at during our investigation leave students at risk while providing massive profits for insurance companies."

The Future of Student Health Plans

As part of his investigation, Attorney General Cuomo subpoenaed 10 of the largest student insurers. He also sent a letter to more than 300 colleges, universities and trade schools. The letter urged schools to review their student health plans and make changes as needed.

The recommended changes are that schools:

  • Provide adequate coverage without any caps or prescription drug limitations
  • Maintain loss ratios of approximately 85 percent to avoid excessive profits. In other words, student health plans should pay out claims worth 85 percent of the money an insurer takes in from premiums
  • Pay insurance brokers, agents or consultants working with the school on a fee basis, rather than commission basis. Schools should also be required to disclose all health insurance quotes received, as well as whether they receive fees or commissions from insurers
  • Prohibit schools and school employees from receiving anything of value from insurers or insurance brokers, agents or consultants
  • Clearly disclose the cost of mandatory health insurance on admissions and acceptance materials
  • Reject policies that have coverage exclusions, such as those for pre-existing conditions and preventative care

Other Health Insurance Options for Students

While many schools require that students have medical insurance, it is not necessary to purchase the school-sponsored health plan. Instead, you can opt-out of school health plan coverage by demonstrating that you have comparable insurance elsewhere. Here are three options worth considering:

  1. Remain on Your Parent's Health Plan: The federal health care reform bill allows students to remain on their parents' health plan until they are 26 years old. Students can benefit from health insurance offered through their parent's employer and save their cash for tuition and other college expenses
  2. Buy Short-Term Insurance: A short-term policy offers cheap medical insurance for periods of six months to a year. These plans are ideal for students who expect to graduate and begin employment shortly thereafter
  3. Look for Catastrophic Coverage: For healthy young adults, a catastrophic health plan can be a smart. These plans offer the cheapest health insurance because they generally have high deductibles. While catastrophic coverage normally does not pay for preventative care, it can be a financial life-saver if you end up hospitalized

No matter which option you choose, it is important that you maintain some type of medical insurance. You can find free health insurance quotes online to compare short-term and catastrophic coverage with your school-sponsored health plan.