Saturday, August 17, 2013

Individual Health Insurance: The Maternity Coverage Gap

Individual health insurance with maternity coverage has become an oxymoron in the United States. An oxymoron is a figure of speech that combines contradictory terms such as: dark light, living dead, etc. The terms have become contradictory because of market forces: the only people willing to buy maternity coverage plan to use the benefit. Insurers respond by eliminating coverage from basic plans and creating maternity riders designed not to appeal to couples planning a pregnancy; which leaves many couples with very limited options. Fortunately, a hybrid option exists.

The costs of covering a planned normal pregnancy are quite high: $6,000 to $12,000 depending upon the type of delivery. If you have group health insurance your plan likely covers normal labor and delivery as the Pregnancy Discrimination Act requires group health plans to cover normal pregnancy. But there is no such law governing plans issued in the individual market, and insurers have grown wary of offering plans that cover normal delivery in this market: the only people buying coverage plan to use the benefit.

Maternity Insurance Riders

Insurers have responded to this market based dilemma by eliminating maternity coverage from base plans and introducing maternity riders. The rider structure allows them to market competitively priced plans to the majority not planning on having children, and the option to upgrade coverage for those who are. However, the population segment interested in the rider plans to generate $6,000 to $12,000 in incremental claims (and far more if complications arise). A rider priced at the mid point - $8,000 in additional annual premium would be outrageously expensive.

Long Waiting Periods

So instead they offer riders with long waiting periods and/or long deductibles. These features limit the benefit to almost zero, but do minimize the sticker shock. The insurer has found a way to offer coverage without losing money on a planned event. But the potential customers (couples planning to have children) are left scratching their heads about the value.

A long waiting period forces couples to pre pay premiums in advance of using the benefit. But many couples decide to start a family right away. Waiting twelve months BEFORE getting pregnant is just not an option for many. Waiting an additional twelve months makes matters worse if a couple is nearing the end of their age based fertility window.

Large Deductibles

Deductibles are structured in an insurers favor. Should you pay an additional $300 per month for a maternity rider with a $5,000 deductible? If you have a simple delivery the policy may cost more than you receive in benefits. But that's the idea behind insurance. It's there to cover you in case of the unexpected, not something you are planning to do.

Supplemental Insurance

Supplemental insurance sold as a voluntary employee benefit offers a hybrid solution to the maternity coverage gap. Because they are sold through employer groups, normal labor and delivery is covered. Because they are voluntary, there is no direct cost to employers to make the option available to all employees. Couples can purchase individual health insurance for basic needs, and add supplemental insurance instead of a devalued maternity rider.

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