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Big Changes in College Health Plans

June 04, 2012

Some colleges are dropping student health-insurance plans for the coming academic year and others are telling students to expect sharp premium increases because of a provision in the federal health law requiring plans to beef up coverage.

The demise of low-cost, low-benefit health plans for students is a consequence of the 2010 health-care overhaul. The law is intended to expand coverage to tens of millions of uninsured Americans, but it is also eliminating some insurance options.

Many students already have coverage through their parents and aren’t affected by the changes. Parents who get insurance from an employer have traditionally been able to enroll dependents on their plans up to the age of 22 if they are full-time college students, and about two-thirds of students have that kind of coverage, according a 2008 study by the Government Accountability Office. The health-care law has since increased the age at which children can be on their parents’ coverage to 26.

Around 600,000 students, about 7% of the total number of 18-to-23-year-olds in college, bought their own insurance, generally plans arranged by schools for which students pay all the premiums, the GAO study said.

Bethany College in Lindsborg, Kan., this past year offered a 12-month plan that cost students $445, while capping payouts at $10,000. For the 2012-13 academic year, the Obama administration said the payout cap must be at least $100,000. Bethany said students would have had to pay more than $2,000 to get that new level of coverage.

“We decided not to offer coverage for our students next year given the proposed increase in premium,” said Bob Schmoll, Bethany’s vice president for finance.

Mr. Schmoll said his school wished it could have kept the limited-coverage plan, which he said was a “fairly robust program for the type of need that most students of that age have.” Even the old premium was “for many a struggle to pay,” he said. Students previously had to sign up for the school’s plan if they didn’t have other insurance. Now students won’t be required to have health coverage.

The new rules are likely to affect a broad swath of American colleges, particularly small ones. Some 60% of schools’ plans had coverage of $50,000 or less for specific conditions, and almost all of the rest had some sort of payout caps that they will have to do away with by 2014, the GAO study found.

The Obama administration argues that the most-limited-benefit plans colleges previously offered hardly counted as coverage at all.

“Given today’s health system,” the plans “wouldn’t represent a good value,” said Michael Hash, director of the Office of Health Reform at the Department of Health and Human Services. Plans with caps starting at $5,000 or $10,000 “would likely not begin to cover the first day in the hospital,” he said.

The 2010 federal health law aims to ensure that all Americans have solid insurance coverage, whether from their employer, a government program or other source. Starting in 2014, people will have new options to buy insurance through exchanges or enroll in the Medicaid program.

Most people will also be required to carry a set level of insurance or pay a penalty. That provision is at the heart of the constitutional challenge to the law, which the Supreme Court is set to rule on by the end of June.

Should the law survive, it will put an end to insurance plans that limit the amount of money they pay out for covered health benefits, and most plans currently have to offer at least $1.25 million in coverage.

Some unions and employers can still offer plans to lower-wage hourly workers that have limited benefits similar to those of the student plans, because they were given waivers by the administration allowing them to continue those plans until 2014. Schools can’t apply for the same waivers for student plans.

In all, millions of Americans are likely to be affected as insurance premiums are adjusted in response to new coverage requirements.

Lenoir-Rhyne University of Hickory, N.C., the University of Puget Sound in Tacoma, Wash., and Cornell College in Mount Vernon, Iowa—all private liberal-arts colleges—have told students they are dropping school-sponsored limited-benefit insurance plans starting in the fall. The three colleges said students’ premiums would have gone up roughly tenfold, and they said they could no longer justify making students sign up if they didn’t have their own insurance.

Smaller colleges and those serving lower-income students typically have had the skimpier plans, and they are among the first to announce significant changes. Some schools are still deciding what to do next year.

Catholic colleges are concerned about a separate requirement for their insurance plans to start covering contraception without out-of-pocket costs. Two, Franciscan University of Steubenville in Ohio, and Ave Maria University in Florida, have cited both the birth-control requirement and the elimination of lower-benefit plans as reasons they are dropping coverage.

Obama administration officials said they expected only a few schools to drop health-insurance plans entirely.

The administration is phasing in the requirements for the student plans. In the 2013-2014 school year, plans must cover at least $500,000 in medical expenses, and the year after that plans can’t have any payout cap.

For those colleges that choose to keep their health-insurance plans, students may see sharply rising premiums.

The State University of New York at Plattsburgh said its 2011-2012 premium was $440 for a plan that covered up to $10,000 for each injury or sickness. Officials said the premium for the coming year would be $1,300 to $1,600 for a plan that meets the new requirements. The school will continue to require students to carry insurance, either through the school or not.

Oregon State University currently arranges a plan for students but doesn’t require them to carry coverage. Last year, when the plan covered up to $50,000 in benefits, it cost $2,421 for 12 months, a figure that the school expects to rise.

George Voss of Oregon State’s student health service said he worried that increased premiums could lead to fewer healthy students signing up, leaving only the sicker ones and triggering a death spiral of higher premiums and even lower enrollment. “At some point it becomes untenable to have a plan,” he said.

Backers of the limited-benefit plans said they enabled students to see doctors and fill prescriptions without significant out-of-pocket costs, and few ran into difficulty because young people rarely have big-ticket medical expenses.

However, those who did “were finding themselves left out in the cold,” said Jen Mishory of Young Invincibles, a group that encouraged the Obama administration to move quickly in introducing stiffer coverage requirements. “We wanted to make sure that student health insurance had these protections as soon as possible.”