According to some of those offering it, Tuition Refund Insurance is a victim of adverse selection. Adverse selection, so this thinking goes, is a cause of offering less Coverage for Mental Health issues than for Physical Health issues. To put it more simply, perhaps, adverse selection involves the concept that those who need the line of Insurance are mainly the ones who will buy it. Some background is probably required in order to understand what is going on here.
Tuition Refund Insurance has been offered for a long time. Its purpose has always been to provide Coverage for Tuition Refunds when a student is forced to withdraw before the end of the term. Historically, there was a difference between Claims payments for a student's withdrawal due to Physical problems vs. a withdrawal due to Mental Health issues. Coverage was historically greater for Physical than for Mental Health issues in Tuition Refund Insurance. The justification for the difference was said to be due to adverse selection. See Ron Lieber, "Your Money / Tuition Refunds, But Not Quite on Equal Terms" p. B1, col. 1 (New York Times, "Business Day" Section, Saturday, July 23, 2011).
To their credit, private Insurance Companies reportedly have abolished any such distinction. More in line with current thinking on the subject, they offer equality in their Coverages -- and claims handling -- of Tuition Refund Insurance with respect to Physical vs. Mental Health issues when those concerns cause a student to withdraw from a course of study and her or his tuition is not refunded. Sometimes this thinking was apparently brought about by Court decisions, and sometimes voluntarily, but this thinking is now the norm in the private Tuition Refund Insurance Industry. See Lieber / New York Times, supra.
The linked newspaper report does not offer a definition of "adverse selection" as understood in the Insurance industry. Wikipedia does offer such a definition, noting that it describes a situation where from the Insurance Company's point of view in offering Coverage, a potential Policyholder has greater information about her or his condition or status than does the Insurance Company, so that the Insurance Company generally charges a higher Premium for Coverage in these situations of different degrees of knowledge or "asymptomatic information". See Wikipedia Definition of "Adverse Selection".
This discussion is important because Sallie Mae apparently decided to underwrite or offer Tuition Refund Insurance that would provide lesser Coverage for Mental Health than for Physical Health. According to its website, Sallie Mae was brought into existence by a Federal Statute as a government-sponsored entity in 1972 but is now a publicly held, private sector corporation. Reportedly, however, Sallie Mae is for some reason not subject to Federal anti-discrimination laws in offering Health-related Insurance Coverages. As a result of the newspaper's inquiries, however, the New York Times reports that Sallie Mae is apparently now pursuing an offering that would treat Mental and Physical Health Coverages more or less equally. See Lieber / New York Times, supra.
If so , Sallie Mae is welcome to the world already occupied by private Tuition Health Insurance Companies.
Please Read The Disclaimer.
Comments