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• Student Health: What You Need to Know

The Giuntas were stunned by how little their insurance covered Brian Smith

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Officials at the University of Alaska and the Kansas Board of Regents say the modest fees don't influence their judgment and are used only to pay staff to handle student insurance. Some critics counter that the payments create a conflict of interest. New York Attorney General Andrew M. Cuomo is examining ties between universities and insurers. "The question is whether...the relationships between vendors like health insurance companies and schools cause schools to favor vendors that are best for the schools financially rather than those that are best for students," says Cuomo aide Benjamin Lawsky.

Some plans endorsed by colleges are inferior to what a savvy consumer can secure on the open market. In the case of the Giuntas, a search on the Web site eHealthInsurance.com shows several plans in the Palm Beach area for a healthy, 19-year-old male that provide $5 million in benefits for roughly the same premium the family paid UnitedHealthcare. The more robust plans have higher deductibles—up to $2,500—which patients must pay before coverage kicks in.

UnitedHealthcare says in a statement that it allows school administrators "to customize plans to meet the needs of their unique student populations. Administrators strive to balance benefits with affordability and act in the best interests of their students." Bill Truxal, who heads the company's student unit, says in an interview that colleges have sufficient clout to negotiate favorable terms. Since the Giuntas purchased more coverage than the basic plan recommended by Palm Beach, the payout to the family exceeded the school's ordinary benefit cap, the company says.

On a number of campuses, students feel pressure to purchase threadbare policies because those are the only ones the school will process. Unless students or their parents take the initiative to shop independently, Connecticut College, a private liberal arts school in New London, signs them up for a plan sold by Chickering Group, a subsidiary of Aetna (AET), offering just $10,000 in maximum benefits for an illness. The school includes coverage for "catastrophic" accidents, but this doesn't apply to major illnesses such as cancer or appendicitis. If students buy their own policies, they have to handle the reimbursement paperwork for all but the most rudimentary services provided by the campus health center. That's a burden most 19- and 20-year-olds don't want to assume.

Cate Moffett, director of Connecticut College's health center, says her small staff can't handle insurance claims for multiple underwriters. Echoing an argument made by many campus administrators, she notes that relatively few students fall seriously ill and complaints about coverage are rare.

A spokesman for Aetna, Matthew N. Wiggin, reiterates that schools need to weigh policy coverage and cost. "It's ultimately the decision of the schools to select the plan that best fits their needs," he adds.

The vigorous health of most college students helps make insuring them a lucrative niche, according to industry consultants. Most insurance companies, even if publicly traded, don't break out separate financial results for their student-oriented policies. But some schools disclose an indication of the profitability of policies sold to their students: the so-called benefits ratio. This shows the percentage of premiums returned to customers in the form of benefit payouts. Large health insurers typically have overall ratios of about 80%, meaning 20% of premiums goes to profits and administrative costs.

In several cases where BusinessWeek (MHP) was able to obtain benefits ratios from colleges or universities, the percentage was well below 70%. Anything below 75% ought to be grounds to negotiate a better deal, according to Eric Engstrom, president of Keeling & Associates, a consulting firm in New York.

At Palm Beach Community College, the benefits ratio for the spring semester of 2008 was 42.6%, according to reports provided to the school by UnitedHealthcare.