Your Money: When One Child’s Illness Is Worth Less Than Another’s

In the last couple of years, Sallie Mae has been trying to deepen its financial ties with customers, adding an online bank and a credit card.

And earlier this month, it added a curious product known as tuition refund insurance, which can make you whole if an ill child must withdraw from college sometime during the term.

The insurance, which Sallie offers in partnership with Next Generation Insurance Group, a company it recently bought a stake in, doesn’t treat all sickness equally, though. If a student withdraws because of a physical illness or injury, a family gets 100 percent of its money back. People who leave because of mental health problems, however, get only 75 percent back.

This would probably be illegal if tuition refund policies were deemed health insurance, instead of insurance that just happens to be based solely on your health. Federal law now mandates equal coverage for mental and physical illness in many instances when employers offer any health insurance for mental illness.

Even if disparate tuition insurance coverage is legal, however, it’s still offensive to people who spent their careers fighting for so-called mental health parity. “There should be a buyer beware sign blinking on and off,” said Ken Libertoff, who ran the Vermont Association for Mental Health for 30 years. “Parents need to know that there is a fatal flaw in these plans’ constructions.”

Indeed, that construction suggests a question: Is it even worth taking an insurance offer seriously when it forces you to accept less coverage for the debilitating illness that is most likely to befall you?

•

Tuition refund insurance in the United States dates back to 1930, when a company called A. W. G. Dewar offered a plan that provided tutors to families whose children were home sick for an extended period. Eventually, the insurance became a policy that paid out cash to make up for whatever a private primary or secondary school would not refund.

Dewar’s offering took root at private schools, and today it serves about 1,200 private elementary and secondary schools along with 180 colleges, where the tuition stakes can be even higher.

According to Dewar, just over half of secondary schools (though only one college) that offer the insurance make it mandatory for some or all families — say, for new students, who may have adjustment problems — or for anyone who doesn’t pay tuition in full up front. At colleges, fewer than 10 percent of parents choose to buy the tuition refund plans.

That low take rate at colleges probably reflects the “it can’t happen to me” syndrome, but perhaps some parents who have dug into the details discovered that these policies often covered mental illness differently from physical injury. Not only is the payout less, but the insurance often requires a multiday hospital stay as a sort of proof that the depression or anxiety is real.

A couple of years ago, a University of Vermont student named Sherry Williamson discovered that the Dewar policy available to her fellow students worked like that. As a registered nurse suffering from depression, she found the differing treatment difficult to stomach. “I couldn’t believe that UVM, which tries to promote diversity and be all-encompassing, would take on a policy that was clearly discriminatory,” she said.

She found her way to Mr. Libertoff, who got her complaint in front of the appropriate state agencies. Like the federal government, Vermont had its own mental health parity law, but the state ultimately used a separate nondiscrimination statute to force Dewar and the university to equalize its coverage.

In the wake of that decision, another insurance company called Markel that offers tuition refund policies decided to offer equal coverage on all policies nationwide that it sold through schools, rather than risk the wrath of state insurance commissioners.

Sallie Mae, however, chose to adopt the disparate treatment approach even though it’s using Markel as its underwriter. According to John Fees, president of the Sallie partner Next Generation, it had no choice if it wanted to offer affordable premiums to everyone in the United States and do away with any mental illness hospitalization requirement.

How much more would it have cost to offer equal coverage? “I’m not at liberty to say that at this point,” he said. “It’s a confidential business relationship with Markel.”

Mr. Fees seemed a bit miffed by my suggestion that his policy might be discriminatory on its face. “I live with a clinical psychologist, and I had this conversation with her,” he said. “The aim is never to discriminate against anyone.” When I asked Dana Tufts, Dewar’s president, about the potential for discrimination, his public relations representative, Carmen Duarte, interrupted and refused to let him answer.

Discriminatory or not, it’s possible that Sallie’s policy is actually too generous. The price starts at $599 for the maximum $50,000 in school year coverage for tuition, room, board and other related expenses, with some identity theft and medical evacuation insurance thrown in gratis. The price goes down from there if families want less coverage. Also, undergraduates who borrowed money from Sallie Mae starting July 1 get $5,000 in tuition refund coverage free.

Article source: http://feeds.nytimes.com/click.phdo?i=cf1645ab13efa6a49923b5691502fe0f