Wal-Mart has a limited benefit plan, called Starbridge.
Fast-Growing Health Plan Has
A Catch: $1,000-a-Year Cap
Employees Pay $10 or So Weekly, for Basics
That Provide Little Help for Serious Illness
By CHAD TERHUNE
Staff Reporter of THE WALL STREET JOURNAL
For legions of Americans with no health insurance, a policy
"limited benefit" sounds like an appealing choice. Premiums
only about $10 a week. But there's a big catch: For basic
it often pays only $1,000 a year -- so little that some
it amounts to health insurance at all.
The policies are among the fastest-growing health-insurance
in the workplace. Sold by half a dozen insurance companies,
an estimated 750,000 employees and family members. Wal-Mart
McDonald's Corp. and Lowe's Cos. are among major companies
available to their employees.
Yoshiko Craig, a receptionist in Duluth, Ga., bought such
April 1998. She used most of a 50-cent raise she had just
$7.75 an hour, to buy the plan through her employer, the big
hair-salon chain. It cost $16 a week and capped her basic
$1,000 a year, although, as with most such plans, it let her
few thousand dollars more if injured in an accident or
61 at the time, Mrs. Craig remembers thinking that she didn't
become seriously ill.
Five months later, she learned she had breast cancer.
and chemotherapy, Mrs. Craig found herself facing medical
$85,000. Ever since, she and her husband have been paying
a year toward their medical debt.
"The insurance wasn't any help," Mrs. Craig says.
Some health-care advocates and industry executives are highly
of plans such as hers. At one insurance-company meeting last
roomful of agents burst into laughter when an executive
limited-benefit plan. "I see no value in a $1,000 policy,"
Hartnedy, Arkansas' deputy insurance commissioner, who says
really need is coverage for major illnesses.
The plans spotlight the growing disparity at many companies
treatment of higher-ranking employees -- who generally get
health-insurance policies -- and hourly workers, who tend to
lowest-paid and least able to cope with medical costs.
Supporters of the limited-benefit plans say their critics
into account economic realities facing the working poor. "It's
someone to say it's a nothing program when they have money in
credit cards in their wallet and nice health insurance," says
Shoumaker, a former human-resources manager who helped launch
limited plans more than a decade ago. "They don't realize that
a lot of money to the working poor."
Adolfo Gutierrez, an hourly employee at an Austin, Texas,
the Schlotzsky's Deli chain, found value in his $1,000-limit
saved him a couple of hundred dollars when he sprained his
basketball last year and had to go to an emergency room for a
This week, he got treatment for a rash on his hands and didn't
anything at the doctor's office. "Having health insurance is
says Mr. Gutierrez, 22, whose employer, unlike most, paid the
Defenders say the simple act of giving low-income workers an
card can encourage them to seek routine preventive care. They
that some measure of health coverage, however small, is better
Some employers also say this is all they can afford, with the
in low gear and health-care expenses soaring. The cost to
providing comprehensive health benefits has risen 57% in five
$5,646 per employee, according to Mercer Human Resource
By offering limited-benefit plans, meanwhile, employers are
tell new low-level workers that health insurance is available
the job, even though most employers pay nothing toward it.
Think of it as getting insurance for the price of a movie or a
beers, some employers and insurance agents tell workers.
Enrollment in the limited-benefit health plans has grown about
each of the past two years. Insurers sell them solely through
The employers make them available chiefly to hourly workers,
full- or part-time, and collect the premiums by payroll
companies, many in the service sector, typically find that 10%
to 30% of
eligible workers purchase the coverage.
An employee-benefits administrator dreamed up the plans in
initial idea was that the plans might help businesses retain
categories of workers, such as veterans and minorities, that
the employers to a tax credit. The benefits firm, Strategic
in Columbia, S.C., lined up an underwriter and later began
A couple of years later, Mr. Shoumaker developed his own
he was human-resources manager for Circle K convenience
started a firm to market it, Star Human Resources Group Inc.
corporate executives dubious of a $1,000 health policy. "Many
embarrassed to take anything that low," he says.
They grew more comfortable after Star signed up McDonald's in
then retailer Target Corp. a year later. McDonald's says about
250,000 hourly employees at its corporate-owned and franchised
restaurants are enrolled in limited-benefit insurance. The
those hourly employees more-comprehensive health insurance but
Some features of one of the limited-benefit health plans
Regis Corp., through UICI.
* Basic annual benefit: $1,000*
* Weekly premium for an individual: $6.92
* Weekly premium for a family: $21.55
* Basic deductible: $50
* Doctor visits: $15 copay
* Accident benefit: $5,000, up to two a year, insurer pays 80%
* Accidental-death benefit: $10,000
*Per insured person
Employers readily concede the plans offer scant help with a
illness. The average cost of a hospital stay in 2001 was
according to Mutual of Omaha Insurance Co. study. Employers
insurance agents say they make sure workers understand what
insurance can and can't do.
"The concern is they understand it is a limited benefit, so we
have someone enrolled in the plan who has open-heart surgery
they have coverage for $100,000," says Bob Ihrie, a vice
Lowe's. The home-improvement retailer offers part-time
choice of two Allstate Corp. plans with maximum annual
$2,500 or $5,000. To avoid confusion with broader, largely
insurance for full-time employees, the company schedules
its limited-benefit plans at a different time of the year.
employers require insurance agents to come to their premises
the plans to potential buyers.
Some insurance companies have tried offering low-cost policies
cover "catastrophic" health costs. But industry officials say
employees haven't shown much interest because such plans
deductibles -- perhaps a couple of thousand dollars -- before
kicks in. Low-wage workers are more interested in something
basic expenses, insurers say.
Another problem insurers cite in trying to offer a low-cost
potentially large payouts is "adverse selection":
purchasing by people whose health is poor, and who are likely
to use a
lot of the benefits. With employer-sponsored plans, health
cannot reject applicants on the basis of their health.
Mrs. Craig, the hair-salon receptionist in Georgia, recovered
cancer that struck soon after she bought a limited-benefit
plan. But the
bills were daunting. Indeed, a serious medical problem such as
hers is a
factor behind about half of the nation's 1.5 million
according to Harvard researchers who study the issue. Mrs.
rejected the bankruptcy route. The doctors "saved my life" and
to be paid, says Mrs. Craig, now 66.
She and her husband, William, a 69-year-old retired
salesman, paid a deposit to each medical provider and began
monthly checks. They've whittled their balance to $28,000.
Although a limited plan was of scant value to Mrs. Craig, it
can be a
big help for an employer, with few costs. Even the expense of
is largely borne by insurance companies or their agents.
"We wanted to do something that would attract and retain
give them the ability to have some insurance," says Jan Cohen,
director of benefits at Budget Rent A Car System, a unit of
Corp. About a hundred of Budget's 1,800 part-time employees
The early architects of the plans figured that price would be
lower-income workers, so they set weekly premiums at equal to
to two hours' wages. Those premiums, in turn, dictated low
benefits: from $1,000 to a few thousand dollars per year for
as emergency-room care and doctor visits.
Some in the insurance industry have a hard time taking this
seriously. A gathering of 300 insurance agents in Las Vegas
laughter last summer when an insurance-company executive
limited-benefit plan offered by Star Human Resources. "The
annual cap is
$1,000. That's not the deductible," said Gregory Mutz, CEO of
insurer UICI, which had just acquired Star from Mr. Shoumaker.
Mr. Mutz told the agents not to laugh. Economically, the
customers "are at the bottom of the food chain," he said. "I
to make fun" of this coverage.
Allstate, Safeco Corp. and CNA Financial Corp. have also
formidable brand names behind limited-benefit plans. At CNA,
underwrites Strategic Resources' plans and has just begun
of its own, "This is an area we would like to grow
aggressively," says a
vice president, Douglas Hayes.
One of the selling points to employees is that the plans will
their everyday medical expenses. Still, the policies have
such as waiting periods for "wellness checks" and for
pre-existing conditions. They also involve deductibles that
policyholders must pay each year before benefits kick in.
Mrs. Craig's plan imposed a $150 annual deductible, and it
copayments for doctor visits. Besides the $1,000 basic annual
she could collect a $500-a-day reimbursement for up to five
hospitalization a year. The policy also offered up to $2,000 a
surgery and $5,000 for an accident, up to two of them a year.
an extra $3 a week to get some dental and vision coverage.
"The plan is a rip-off," says Beth Todd, a 28-year-old who
a limited-benefit plan at another Regis hair salon, in
in 1999. She says she canceled the policy after less than a
it paid so little toward her treatment for a sinus infection
Regis's chief financial officer, Randy Pearce, says
plans don't fit every worker's needs. "But I think people vote
their wallet," he says, "and we have more than 7,000 employees
enrolled," or about 20% of its U.S. work force.
Some smaller companies are beginning to drop comprehensive
insurance in favor of these scaled-down, employee-paid plans.
Zuber, part-owner of a Comfort Inn in Grand Rapids, Mich.,
says he did
so when the state's Blue Cross Blue Shield carrier raised his
health-insurance premiums on five employees and their families
by 24% --
in a year when his revenue was down 7%. To contain his
cost, Mr. Zuber ended comprehensive coverage for two employees
offered them a limited-benefit plan.
Mariah Tompkins, a clerk earning $8.25 an hour, was one of the
the 20-year-old spends $9.95 a week on a limited-benefit plan,
will pay $50 per visit for up to five emergency-room or doctor
year, plus extra amounts for hospitalization or car accidents.
kind of annoying I have less now," Ms. Tompkins says. "I would
have good insurance."