UnitedHealth grows in market questioned by critics

With the recent acquisition of a Texas-based company, UnitedHealth Group has waded deeper into the sale of "supplemental" health plans that consumer advocates say provide questionable value to subscribers.

Earlier this year, Minnetonka-based UnitedHealth Group acquired a company called HealthMarkets Inc., which includes a division for supplemental insurance policies that last year covered about 850,000 people.

For several years, UnitedHealth has been selling some forms of the coverage, which in many cases provide a lump sum of money in the event of certain health care problems such as cancer, hospitalization or a critical illness. Sometimes called "dread disease" policies, the coverage is becoming more of a target for consumer advocates as more insurers try to grow the market.

"It is very much 'buyer beware' when it comes to these products," said Sabrina Corlette, a researcher with the Center on Health Insurance Reforms at Georgetown University. The concern is that supplemental policies pay out a relatively low share of the premium dollar in benefits, Corlette said, adding that consumers who rely on the policies as an alternative to comprehensive coverage are making a risky bet.

UnitedHealth Group argues the policies are a low-premium option that works well for some consumers as an adjunct to comprehensive health insurance. These policies have become more important, the company said, as more consumers have high-deductible health plans that require significant out-of-pocket spending when people need care.

The coverage typically provides cash directly to consumers, rather than payments to doctors and hospitals for medical services. The company cites federal data showing the average cost of a hospital stay including ambulance transport exceeds $11,000, adding that nearly two-thirds of the workforce has less than $1,000 on hand to pay out-of-pocket expenses for an unexpected serious illness or emergency.

Matt Wiggin, a UnitedHealth Group spokesman, said the largest part of the business at HealthMarkets Inc. is an insurance agency that sells comprehensive insurance coverage in almost all 50 states, not just supplementary plans. Overall, HealthMarkets employs about 550 people.

"A significant portion of HealthMarkets' business is driven by their portfolio of supplemental insurance products, which are offered in 46 states and the District of Columbia," UnitedHealth Group said in a statement. "These offerings help strengthen UnitedHealthcare's portfolio of critical illness, accident, fixed indemnity and other supplemental products."

UnitedHealth Group is Minnesota's largest company in terms of revenue. The company's UnitedHealthcare division, which is the nation's largest health insurer, disclosed the HealthMarkets acquisition in May in a regulatory filing.

The acquired company's division for supplementary coverage, which is called Chesapeake Life Insurance, disclosed the acquisition in an earlier filing, saying the merger with a UnitedHealth Group affiliate called Golden Rule Financial Corp. was finalized on Feb. 1.

Financial terms were not released. In 2018, Chesapeake Life Insurance posted $222.4 million in revenue.

"We're trying to build a diverse suite of product options for the individual market, affordable options for it," said David Wichmann, the UnitedHealth Group chief executive, when asked about the acquisition during an investor conference in May.

Last year, Jackson Williams, the general counsel of a consumer group called Dialysis Patient Citizens, presented data to the National Association of Insurance Commissioners (NAIC) showing an industrywide decline in "loss ratios" for various lines of supplemental coverage.

A loss ratio shows the share of the premium dollar that is paid out in benefits, and Williams' report asserted that when the ratio falls below 50% it "indicates that paying claims is not the principal function of the product but rather an incidental function." He compiled data showing that between 2009 and 2017, loss ratios fell below 50% for at least four different types of supplemental policies including "other medical" policies sold to individuals and "specified disease" policies sold to consumers via employer groups.

"If [a benefit counselor] can sell you a dread-disease policy or a hospitalization-only policy or one of these other schlock policies, they can make a lot of money," said Williams, who is a consumer-liaison representative to NAIC. "What we're asking for is that the loss ratio for these products be disclosed at the point of sale."

Without citing products from particular companies, he added: "These limited-benefit plans I would call opportunistic. You're appealing to somebody's desire for peace of mind, but it's not really a product that adds value. ... It's a very overpriced product."

But America's Health Insurance Plans, a trade group for carriers, defended the products. Loss ratios on the products can be particularly low at the beginning of coverage, the trade group says, since premiums tend to hold steady year-to-year while benefit claims increase over time.

The federal Affordable Care Act requires that individual and group policies have loss ratios of at least 80% and requires consumer rebates when insurers pay out a lesser share on health care. But the health law excluded supplemental policies from those rules, because they are "intended to supplement, not substitute for, major medical coverage," the trade group said in a statement.

"Despite having lower premiums, the amount of work needed to administer these products can be similar to comprehensive coverage," the trade group said. "As such, a larger portion of the premium dollar will go to administrative costs."

Williams said he was skeptical of that argument.

"Many of these are 'lump sum' policies that do not review medical expenditures to quantify the claim, only the diagnosis," he said via e-mail. "A health insurer needs to have a medical director, utilization review, credentialing, quality improvement, coding, pay for performance programs, etc., and deals with Medicare Advantage and Medicaid managed care complexities, too."

Supplemental insurance policies are a small part of the overall business at UnitedHealth Group, which primarily sells comprehensive coverage, said Wiggin, the company spokesman.

A key reason for the HealthMarkets acquisition, he added, was independent of the supplemental insurance business.

The acquired company's insurance agency and "distribution" business includes "career agents, call centers, direct-to-consumer, and brokerage channels," Wiggin wrote in an e-mail. The company has more than 200 offices and retail locations, Wiggin said, and works with 3,000 agents.

"Consumers are continuing to look for ways to meet their various health and other insurance needs," UnitedHealth Group said in a statement. The purchase fits with the company's goal to "reach even more people, quickly and efficiently, and in the way they prefer to be reached."

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck