Health Insurance:

Hospital Indemnity and Specified Disease Policies Are of Limited Value

HRD-88-93: Published: Jul 12, 1988. Publicly Released: Sep 30, 1988.

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In response to a congressional request, GAO evaluated states' efforts to regulate hospital indemnity and specified-disease insurance polices and practices to determine whether: (1) the policies provide a minimum level of protection at a reasonable price; and (2) states protect consumers from deceptive marketing materials and inadequate policies.

GAO reviewed 12 states' requirements for hospital indemnity and specified-disease insurance policies, and found that: (1) five adopted rules similar to the National Association of Insurance Commissioners' (NAIC) regulations; (2) the NAIC-recommended loss ratios and those the states established ranged from 45 to 60 percent; (3) 12 states had education programs to help consumers make informed choices about health insurance, as well as procedures for reviewing and resolving consumer complaints; and (4) seven states had procedures for reviewing insurance advertising material. GAO also found that: (1) hospital indemnity and specified-disease policies provide narrow protection and are a poor substitute for more comprehensive policies; (2) 11 of the 98 hospital indemnity policies it reviewed had waiting periods of up to 30 days, while the other 87 had none; (3) 55 specified-disease policies excluded coverage for any preexisting conditions and 9 covered such conditions after 6 to 24 months; and (4) 44 hospital indemnity and 8 specified-disease policies reduced their benefits, increased their premiums, or terminated coverage when policy holders reached ages 60 or 65.

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