Student Health: What You Need to Know

The college insurance plan your school offers may not be the best deal. Here are some things to look at if you decide to shop for your own

by Ben Elgin and Jessica Silver-Greenberg

Over 5 million college students in the U.S. lack coverage under their parents' health insurance plans. Most colleges try to fill this gap by offering a school-sponsored health insurance plan. But a school's seal of approval does not mean the plan will be sufficient in a time of need. In fact, better options may be available elsewhere. Students and parents should thoroughly examine the plan before signing up. Here are a few things industry experts say you should consider when looking for a college health plan:

•Maximum Benefits vs. Deductibles. Most college plans have a very low benefits ceiling—often $30,000 or less. This won't cover large medical issues such as cancer or injuries suffered in a car accident. Other plans found on sites such as eHealthInsurance.com offer much higher coverage levels, often $1 million or more. But the deductibles for these plans are higher—meaning the student must pay more out of pocket before insurance kicks in. Buyers should think carefully about the coverage levels being sacrificed for lower deductibles.

•Interior Caps. Some college insurance plans are structured so it is nearly impossible to take advantage of all the benefits. This is done through so-called "interior caps," which put a lower ceiling on a certain type of health service like surgeons' fees and hospital room and board. Look carefully for "per day" caps on expenses or a category such as "miscellaneous expenses," which often includes an array of charges such as lab tests, X-rays, and medicine. One medical procedure can easily surpass these interior caps, and the patient will end up footing the bill.

•Prescription Drugs. Most plans put a cap on the coverage for prescription drugs. These caps, however, can vary from $400 to $5,000-plus. At the low end, the coverage may work for an occasional bout with strep throat. But patients taking prescription drugs regularly to combat afflictions such as depression or anxiety would be poorly covered.

•Exclusions. At the bottom of most insurance plans is a list of exclusions—medical issues or procedures that aren't covered. Plans vary widely: Some cover things like allergy testing, hearing tests, or elective abortion, while others don't. Look for plans that exclude coverage for issues not atypical for college kids, such as injuries suffered while intoxicated. One plan viewed by BusinessWeek went so far as to exclude coverage for accidents suffered while roller skating or surfing.

•Loss Ratios. Colleges seldom disclose a key statistic for judging their plans, known as a "loss ratio" or "benefits ratio." This measures the insurance claims paid against the health premiums collected. The average loss ratio across the industry tends to be about 80%, meaning $5 in premiums is collected for every $4 paid to the health-care providers. The remaining $1 goes to administrative costs and profit. Plans that notch ratios of 70% or lower are not delivering bang for the buck to the customers. Many college-plan loss ratios viewed by BusinessWeek were well below 70%; and some were below 50%. Ask the school's insurance office for several years of its plan's loss ratios. If they don't have the data, walk away. It means the school isn't closely monitoring the plan.

Elgin is a correspondent in BusinessWeek's Silicon Valley bureau . Silver-Greenberg is a reporter for BusinessWeek.com.