Student Health Insurance: The “Broken Doughnut Hole” in National Health Reform

March 7, 2011

When Sarah considered leaving her job to attend graduate school, her biggest financial concern was how she would afford adequate health insurance. Sarah depends on expensive prescription drugs to manage a chronic condition, so student health insurance plans are not an option for her. A call to the Health Center at Brandeis University revealed that their PPO plan offered by Harvard Pilgrim Health Care had an attractive annual premium of only $1,500, but it did not cover prescriptions after the first $2,000. Without insurance, her prescriptions cost that much per month. Sarah thought, “this is worse than the Medicare doughnut hole.” In fact, it’s more like a doughnut hole that at a certain point breaks in two.

Had Sarah been younger, she could have stayed on her parents’ health insurance plan until age 26, as permitted in President Barack Obama’s Affordable Care Act. Yet, she was about to turn 27, so national health reform did nothing for her. Sarah’s only options were to go on COBRA (which was prohibitively expensive), purchase private insurance at market rates, or find a plan through the Health Connector, the insurance exchange established under the 2006 Massachusetts health reform law. Still, the least expensive Connector plan that covered her prescriptions cost three times as much as student health insurance at Brandeis, forcing Sarah to take out additional student loans. The Affordable Care Act grossly overlooks students over age 26 and younger students whose parents are on Medicare or do not have health insurance.

A growing number of people like Sarah are choosing to work for several years after college before seeking a graduate degree which has become a requirement for employment at many companies. The National Center for Education Statistics reports that the average age of graduate students is 33. Many students who leave their jobs to enter full-time programs face the burden of providing quality health insurance for themselves and their families. Furthermore, only 30 percent of young adults have health insurance, three times higher than the uninsured rate among children. Americans of any age should not have to sacrifice health coverage to further their education. Policy solutions must allow students beyond 26 to stay on their parents’ health insurance plans, and also improve student health insurance itself.

Student health insurance plans rank among the worst in the nation for coverage. Many offer remarkably low benefit ceilings, sometimes as low as $2,500 annually. Others limit certain areas of coverage such as preventive care and chemotherapy. University sponsored health plans spend only an average of 30 cents of every dollar on policy holders’ medical claims. Anything under 75 percent is considered unacceptable. Under the Affordable Care Act, all insurance companies are now required to spend 80 to 85 percent on claims, but the industry is not going to give up their 70 cents without a fight.

A sensible way to improve student health insurance is for universities to band together to create insurance exchanges similar to the Health Connector. Critics may argue that providing comprehensive coverage will put student health plans out of business, but by expanding the risk pool across institutions, premiums could remain low and insurance companies could offer comprehensive benefits while still making a profit. A university-based insurance exchange addresses the concerns of interest groups including the American Council on Education and the American College Health Association that if student health plans do not meet the “minimum essential coverage” under the individual mandate, these plans will need to improve their offerings, becoming more expensive. With more policy holders on each plan, the cost of covering prescriptions or other significant expenses for someone like Sarah would be offset. Students who anticipate having considerable medical expenses could have the option of purchasing a slightly more expensive plan, but still more affordable than what one would pay through a system like the Health Connector. A logical place to start is by forming consortiums of schools within the same state to serve as pilot models. If successful, the pilots can become the basis for a nationwide insurance exchange specifically designed to meet the needs of students.

With the cost of education between $10,000 to $40,000 per year, students like Sarah should not have to borrow additional thousands of dollars to pay for their prescriptions. As someone who is bettering herself through education, Sarah should not be penalized for preparing herself to realize the American Dream and make her desired contribution to society. The doughnut hole needs to not only be repaired, but eliminated altogether.

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