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Be Wary of Limited Benefit Health Insurance Plans Posted: June 8th, 2010

By Megg Mueller

Megg Mueller is a journalist with almost two decades of experience. She has worked as a reporter and editor for the Reno Gazette-Journal, as editor of health care and education manuals and was an assistant travel editor for USATODAY.com.

Cheap health insurance sounds like a great option, and any insurance is better than none, most people would agree. But that might not always be the case when it comes to "limited benefit insurance plans." Unfortunately, people without benefits sometimes purchase these plans and find out their coverage is little better than forgoing coverage altogether.

Limited benefit health insurance plans are generally designed as supplements to more comprehensive health insurance plans, and are not meant to be standalone coverage. But with rising health care costs, these cheap health insurance policies are being offered more and more by employers and to those without insurance, so consumers should be aware of the policy's limitations and recognize the differences that are often found.

"Limited" Really Means Limited

For starters, most limited benefit health plans are very reduced plans, often covering specific illnesses, or only preventive care. They offer low, enticing premiums, but often carry very low annual coverage caps like $10,000. Other things to watch out for with limited benefit insurance plans include:

  • No limit on your annual out-of-pocket costs
  • Coverage caps for some services
  • A limited number of visits for services like rehabilitation or mental health services
  • Higher costs for some drugs or services due to co-insurance requirements rather than co-payments
  • Generally covered items could be excluded, such as maternity care or chemotherapy

Some limited benefit health insurance plans pay amounts as little as $1,500 to $5,000 per episode, and this amount doesn't include any co-insurance or deductible you've already paid. The low coverage caps are often a problem during catastrophic illnesses; you could reach your cap long before your treatment ends, leaving you to pay the rest of the bill out-of-pocket.

If you are currently without health insurance, before you choose a limited benefit policy, the National Association of Insurance Commissioners (NAIC) advises you to "figure out if the premium savings will offset the high out-of-pocket expense for medical services not covered by the limited benefit plan."

The NAIC also warn people to not act hastily. Don't be duped by promises of cheap health insurance--contact your state insurance department and confirm that the company and the insurance agent are licensed in your state.

If you're in need of health insurance, these low-premium plans can seem like your best option. But in the end, instead of spending money on monthly premiums, ask yourself if what you'd pay out-of-pocket, in the event of an illness, is less than what you'd end up spending monthly for poor coverage.