Even AARP Members Get Taken on Health Plans

I belong to AARP. In fact, I have for a number of years (OK, not THAT many!) and feel well represented and well advised by the many services, publications and products it offers.

But Senator Chuck Grassley of Iowa isn't so sure that a couple of the health insurance plans AARP has offered are exactly kosher.

Called "limited benefit" health plans, these plans are the opposite of what we traditionally think a health plan should do. Health insurance should be there for us when we get sick. The sicker we are, the more we will rely on a health plan to help us pay for treatment. Yet, in a limited benefit plan, that's not what happens.

Limited benefit plans are comparatively inexpensive. On the face of them, co-pays or deductibles may look very similar to "regular" health plans. The difference? They put a cap on what an individual can spend in a year.

So picture this scenario: You have a limited health insurance plan to help you keep premiums down. Then you fall down the stairs, or you are diagnosed with cancer, or some other negative health happenstance befalls you -- and you find out that once you've hit $10,000, you are out of luck. The rest of the expenses will have to come from your pocket.

Does that sound like a lot to you? It's not. As a point of comparison, when I suffered my misdiagnosis in 2004, my out of pocket expenses were $ 7,000, and that did not include the oncologist or testing labs who made mistakes and who I refused to pay. Yup. It cost me $7,000 and they were WRONG. Can you imagine what it would cost if they had been right?

In response to Senator Grassley's request, AARP has withdrawn its limited benefit plans from the market, and it will transition those who have purchased them to other plans. The AARP has many excellent ones, so of the 45,000 people or so who need a new plan, they are bound to find one that will help them.

But the rest of us need to know that if pricing on health insurance seems surprising low -- then there's a reason. Due diligence should uncover these limited benefit plans for what they are. You're wise to expect there is a catch, and then to figure it out.

If you aim to keep your costs low, you'll do better to take a look at catastrophic (high-deductible) plans -- those that don't pay much (if anything) early on, but certainly cover problems that are more catastrophic in nature. When paired with a Health Savings Account, they can be a good way to manage the cost of care.

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A follow up article published November 18, 2008 -- how AARP is suspending sales of these limited health plans while they are reviewed.

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