General Business Issues

More Insurers Are Marketing Child-Only Coverage as Employers Reduce Dependent Eligibility

Reprinted from HEALTH PLAN WEEK (formerly Managed Care Week), the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans.

As employers step up scrutiny of dependent eligibility for company-sponsored health coverage — and continue to require workers to contribute more for dependent insurance — some health insurers say they have noticed an increase in the number of parents purchasing stand-alone health policies for their children. In response, some carriers are expanding availability of child-only health plans and stepping up marketing of such products.

There has been "an absolute explosion this last year" in the number of employers conducting audits of dependents on their health plans, reports Susan Johnson, a senior consultant in Watson Wyatt Worldwide's group and health practice.

Rather than relying on the honor system, these companies might require workers to submit birth or adoption certificates or court orders to confirm that children are eligible for coverage, Johnson explains. Employers remove an average of 8% to 12% of dependents (including both adults and children) from their coverage rolls after performing an audit. She estimates that 60% to 70% of these dependents are children, including nieces and nephews of covered workers or the children of a domestic partner.

In some cases, companies are refusing to cover the children of a worker's spouse. Suppose "your spouse has a child by another marriage and that child lives with the other parent, but your spouse has the responsibility to provide health care coverage," Johnson explains. The company might say, "Even if you've got a court order to provide coverage, we don't have to pay for it." Some employers also are refusing to cover college-age children if they attend a school that offers a student health program, she adds.

Johnson's firm works primarily with FORTUNE 100 companies, but she says "medium and small employers are doing this too, because they're looking for any way to cut costs."

Blue Cross and Blue Shield of Florida says demand for child-only coverage has increased as employers have tightened eligibility requirements. "I wouldn't say that it's a huge increase, but we definitely have seen it," says Margaret Gauntlett, the company's director of individual sales, who declines to quantify the growth. Florida Blues plan spokesperson Valerie Rubin says that fewer than 10% of individual contracts in the under-65 age group are for children only. In all, the Florida Blues plan has 221,000 individual contracts in that group.

The insurer just expanded eligibility for child-only products last year in response to market demand, Gauntlett says. Parents now can purchase coverage for a child as young as age one, rather than the previous age limit of three.

The Florida Blues plan makes all of its individual products available on a child-only basis — "everything from copay[ment] plans to high-deductible plans," Gauntlett says. She says copay products are most popular for enrollees under 19, and adds that parents also demand coverage for well child care and prescription drugs. Copay products are "a little more expensive" than those under which policyholders pay percentage coinsurance for all care after satisfying a deductible, she concedes. "But it's still better than paying dependent fees on a group plan."

For a 3- to 4-year-old child, monthly premiums can vary from the "$40s all the way up into the $80s and $90s," Gauntlett says, with lower rates for deductible-based products and higher costs for copay plans.

Aetna Steps Up Marketing Activities

Aetna, Inc. just started actively marketing child-only policies in mid-2006, says Rick O'Connor, who oversees marketing for the insurer's individual products. But the policies have been available for purchase since Aetna launched its individual Aetna Advantage PPO line in April 2004.

The insurer has almost 60,000 members in individual products who are 17 or younger, O'Connor says, but Aetna doesn't break out how many are in stand-alone products versus under their parents' plans.

He concurs that parents are seeking policies that allow physician office visits, particularly sick visits, without being subject to the deductible. "More generally, they are looking to get value at a low price," he says.

An Ohio family could purchase child-only coverage for as little as $33 per month, O'Connor says, through Aetna's Preventative and Hospital Care product with a $3,000 annual deductible. It has a $5,000 annual out-of-pocket maximum for a single enrollee, and covers hospitalization and other acute services with 20% coinsurance in network after the deductible is met. The plan also includes preventive health office visits and annual routine gynecological exams outside the deductible.

By contrast, the family would pay as little as $107 per month to enroll a child in Aetna's PPO 1000 plan, which has a $1,000 deductible. That product has a $2,500 out-of-pocket maximum, and requires only a copay for office visits and prescription drugs. Other major medical care is covered with 20% coinsurance after the deductible is satisfied.

Texas Blues Have 33,000 Child-Only Members

At Blue Cross and Blue Shield of Texas, child-only policies accounted for 17% of 2006 individual product sales, according to Randy Starns, director of individual health products. From January to August 2007, the Health Care Service Corp. subsidiary has sold about 11,000 policies in which children are the only enrollees, he says.

The Texas Blues plan does not track historical growth figures for child-only coverage. "But even though we don't have comparative data,.it represents a fairly substantial portion of the policies we're marketing today," Starns says. In all, 13% of the plan's total 259,000 individual members are in child-only policies, he adds.

The Texas Blues plan also makes all individual products available on a child-only basis. One of the most popular products is the PPO Select Saver, a PPO with major medical coverage, Starns says. That product covers 75% of in-network care after the deductible is satisfied. All physician office visits are subject to the deductible and coinsurance, although immunizations through age seven are covered at 100%. The average annual deductible is $2,000 to $2,500.

Suppose a parent is purchasing coverage with a $2,500 annual deductible for a Dallas-based child who is 5 to 12 years old, Starns says. The monthly premium would be $50 for a girl and $63 for a boy. For a child aged 13 to 19, monthly premiums would be $69 for a boy and $78 for a girl.

Another popular option is the PPO Select Choice, Starns says. That product is similar to the PPO Select Saver, but requires copays for office visits rather than making them subject to the deductible.

For children aged 5 to 12 years old, the same family would pay monthly premiums of $100 for a boy and $79 for a girl. For children aged 13 to 19, monthly premiums would be $111 for a boy and $125 for a girl.

The Texas Blues plan has begun emphasizing child-only coverage with its individual sales force. "We really hit on it in agent training," he says, and "we don't have any of our [marketing] pieces that don't make it real clear that we will sell to a child only." That's partly an effort to differentiate the Texas Blues plan from other insurers, since "not a lot of our competitors will" offer such coverage, Starns says. "A lot of our competitors will only sell if the parent is covered too."

Starns speculates that many insurers don't have "a lot of experience in trying to determine.the rate for a child only." In addition, insurers have higher administrative costs for a policy with a single enrollee versus one with multiple members, he says.

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