Health Care Discount Plans: State Roles and Regulation

Updated: May 2011; material added January 2012

In recent years, a growing number of commercial companies have initiated and marketed Health Discount Plans to the general public. Commonly, these discount plans include features such as the following:

• An affordable monthly enrollment fee ranging, for example, from $8 to $25 or $45 per month.
• Access to a wide variety of health services including doctor and clinic visits, specialist visits and treatment, hospital services, prescription medications and medical devices, all at reduced rates. Some include dental, vision and alternative health services.
• The freedom to pick and choose among thousands of different providers.
• Discounts ranging from 5 percent to 70 percent on various services.
• Simple paperwork – “just show your card” with no waiting for reimbursement from an insurance company.
• No medical exam may be needed to qualify and pre-existing conditions may not be restricted or excluded.
• The sponsors and proponents of such plans describe them as filling an important gap in the health market. For those families with some health insurance coverage, the discount cards can provide a kind of supplement, especially for non-covered services like eye glasses, or the option of seeing another practitioner that may not be included in insurance.

For some who are uninsured (upward of 47 million nationwide in 2008) or underinsured (another 30 million), the cards and plans can be a kind of financial cushion, giving them access to discounted health care, with prices more like a large employer might pay.

At the same time, it is widely agreed that Health Discount Plans are not insurance and therefore may not fall under the regulatory or enforcement role of a state insurance department. Since they never actually provide a health service, plans may not be within the jurisdiction of a health or human services agency either.

What happens when a company advertises in a misleading manner, or takes money but does not deliver promised benefits, or otherwise acts against the interests of consumers, providers, health insurers or the state itself? As one California state agency described it, “companies offering the cards have been accused of making exaggerated or false claims as to the benefits provided by these cards, which typically come for an annual fee of less than $100.” Even when services are satisfactory, should the state require an application or registration process, public reporting of plan structures, proof of future financial stability, perhaps including annual fees payable to the state?

Because health care and health coverage is a significant state interest, almost half the states have enacted laws specifically regulating Health Discount Plans. These laws generally have a consumer protection goal and may include features such as:

• Requiring plans to have individual signed contracts with health providers before they can list them as part of the plan;
• Regulating or restricting the types of claims that can be made in ads, often requiring a visible disclaimer that the plan “is not health insurance”
• Requiring a “lemon-law” like guarantee that consumers can cancel their enrollment, and/or receive a refund if they are dissatisfied, sometimes during the first 30 days.
• Granting regulatory or enforcement power to a state agency such as an Insurance Department or Attorney General’s office.
• Requiring registration, proof or reporting of financial stability and/or an annual payment to the state for the privilege of operating a discount plan business.

As is often the case, state roles vary considerably on this topic. 25 states have enacted statutes providing a regulatory structure, with details listed in Table 1 below. An additional six states have alternative actions ranging from consumer alert notices (Iowa) to state-sponsored benefit programs (Vermont).

Typical definition: “A health discount plan is a card, program, device, arrangement, contract, or mechanism that purports to offer discounts or access to discounts on health care services or supplies and that is not insurance.” – Alaska § 21.36.030

Pharmaceutical Card Discounts:  Five states, Minnesota (SB 2579), New Hampshire (HB 591), Oregon (HB 2520), South Carolina (HB 3971), South Dakota (S 88) enacted laws, all in 1999-2001, to regulate or restrict pharmacy discount cards or buyers clubs. Texas (SB 893) also examines this issue. These laws are coded “Rx” in the table below.

Recent Laws – 2009:    New discount card laws were signed in Oklahoma, Texas, Washington and West Virginia. In 2007-08 enacted laws include Maryland and Oregon.

Table 1 below describes the 24 states with enacted laws regulating health discount plans, including live links to the laws (when available) and key features. Material includes excerpts from material compiled by the National Association of Insurance Commissioners as well as original research completed by NCSL staff.
Table 2 lists six additional states with Regulatory Advice without Legislation.
Table 3 lists several state examples of 2006-08 Actions, Not Enacted.

Table 1: State Laws Regulating Health Discount Plans

Table 2: Regulatory Advice without Legislation

Table 3: Examples of 2006-2010 Actions, Not Enacted

Sources: National Association of Insurance Commissioners, August, 2006. www.naic.org
NCSL 2007-09 legislative research for CA, DE, IL, MD, MN, NH, NY, OK, OR, SD, TX & WV.
RESOURCES:

• “Don’t get scammed by fake health plans” – CNN.Com News story, 6/3/2009.
• “Health Care Discount Plans”, National Association of Insurance Commissioners, 8/06.
• CA begins health discount card licensing, from LA Times, 10/12/06
• Covering the Uninsured in 2008.  Kaiser Family Foundation; updated 2/2009.

This report was compiled by Richard Cauchi, NCSL Health Program, Denver; initial edition January 31, 2007; updated October 11, 2009.