The Nation’s Underinsured Trigger Passionate Debate : Medicine: Coverage that is both affordable and adequate is increasingly hard to come by as costs skyrocket.

When they bought a health insurance policy two years ago, Suzanne Mast and her husband picked the cheapest and most comprehensive coverage they could afford. That wasn’t easy on their $24,000 annual income, but the Wheaton, Md., couple decided they could swing it if they excluded prenatal and maternity benefits.

“A policy that covered maternity benefits was twice as expensive . . . (but) you don’t have a baby every year,” said Mast, 33. “We decided we’d just come up with the money when we did.”

What Mast didn’t anticipate was how hard that would be. Three months ago, she gave birth to her second child, who was delivered by a midwife who charged $3,000.

“What it meant was me working a lot of odd jobs. It put a lot of strain on our marriage, on our family and on the pregnancy. We had this bill looming on the horizon, and we had no choice. We had to pay it.” The Masts are lucky there were no complications. “There was no room for any misfortune,” Mast said.

The Masts are among a burgeoning group of Americans whom health policy experts are calling the underinsured. Unlike the uninsured--the roughly 37 million Americans who lack any health insurance whatsoever--the underinsured have private policies that are either inadequate or place them at significant financial risk.

Although there is no disagreement about what it means to be uninsured, the question of who is underinsured is a matter of impassioned debate. Determining precisely which benefits should be included in an adequate insurance package is the focus of much of the wrangling over the two dozen major health-care reform bills pending in Congress.

“It’s not like pornography; you know it when you see it,” said Cathy Hurwitt, legislative director of Citizen Action, a Washington-based consumer advocacy group. “It really depends on how you define under-insurance.”

The definition varies considerably, notes Judith Waxman, a lawyer with Families USA, a nonprofit Washington-based foundation that lobbies for health-care reform. “That’s why the debate about what constitutes an acceptable benefits package is raging and will continue to rage.”

Hurwitt’s definition, like that of many advocates, is broad. “We would say that under-insurance is insurance that doesn’t let you get the health care you need,” she said. “For example, if your policy doesn’t cover immunizations but does cover catastrophic expenses resulting from measles, then you’re underinsured.”

A more commonly accepted definition is the one promulgated by the Pepper Commission, a bipartisan blue-ribbon panel created by Congress and chaired by Sen. John W. Rockefeller IV (D-W.Va.) to study health insurance problems. The underinsured, the commission concluded in its 1990 report, are those whose policies leave them vulnerable to spending more than 10% of their income on medical care. In 1987, the commission estimated, 20 million Americans were underinsured.

But even those who use the Pepper Commission’s definition say they regard it as imperfect.

“The definition is clearly income-related,” said Cathy Schoen, an economist who worked on the national health insurance plan proposed by the Carter Administration in the late 1970s. Spending 10% of one’s income has a different impact for a factory worker earning $15,000 than for an executive earning $150,000, Schoen noted.

Numerous studies, including the Pepper Commission’s report, have found that under-insurance is most severe for those, like the Masts, who buy individual policies. Individual coverage is typically more expensive and less comprehensive than large group policies, because there are not hundreds or thousands of other people among whom to pool risk.

Increasingly, however, under-insurance is becoming a problem for those in large groups. Employers, stung by health-care costs that are rising much faster than wages or inflation, are transferring the financial burden to workers.

“Companies are not doing away with insurance entirely, but what they are doing is shifting more and more costs to their employees,” said Waxman, who served on the staff of the Pepper Commission.

That is what a recent survey by the Service Employees International Union, which represents health-care workers, found. The union, whose 1 million members have an average annual income of $28,000, reported that the cost of premiums paid by workers as well as their maximum out-of-pocket contribution rose 50% between 1989 and 1991; during the same period, wages increased by 9%.

Between 1987 and 1991, the union said, health insurance premium costs increased by 95%; the employees’ share of that tab rose 197% and the amount paid by the employer rose 83%.

“Here you have a unionized population that is relatively well off, and you’re seeing a tremendous change in the last three or four years,” said Peggy Connerton, the union’s research director.

Employers and insurance companies are imposing other measures to pare costs. Many have adopted stricter underwriting--or screening--practices and have greatly expanded the list of pre-existing conditions for which treatment is temporarily, or permanently, excluded.

Most plans impose deductibles, some as high as $5,000, that policyholders must meet before their claims are paid. In some cases, coverage of children or of specific conditions, such as pregnancy or alcoholism, has been eliminated. Other plans have imposed a $50,000 lifetime limit on medical expenses, an amount easily exceeded by treatment for cancer or injuries sustained in an automobile accident.

A growing number of health plans are instituting co-payments, requiring that policyholders pay 20% or more of their medical bills. Although many large group plans cap such expenses by placing a ceiling on liability--a “stop-loss” after which the insurer pays 100%--others do not.

Both advocates and industry officials agree that the growing practice of excluding treatment of pre-existing conditions--ranging in severity from acne to AIDS--is swelling the ranks of the underinsured. One in three Americans, an estimated 81 million people, has at least one pre-existing condition, according to a 1991 Citizens Fund report based on data from a 1989 federal survey.

“It’s a real problem, because just about everybody has something,” says Michael P. Mullen, an independent insurance broker in Washington who specializes in employee benefits. “If it’s not your toe or your leg or your side, well, then maybe you see a psychiatrist, which makes (insurance) companies really nervous.”

Underwriting guidelines are far more stringent than they were five or 10 years ago, according to Mullen. “Most insurance companies will ask you questions from head to toe, and then last comes the kicker: ‘Have you ever taken medication or seen a doctor in the last five years?’ ”

In the industry’s view, there are two remedies to the problem of under-insurance: bare-bones policies that cover basic medical care and are aimed at individuals and small groups and high-risk pools that sell policies to people who are medically uninsurable because they have been, or are, seriously ill. The latter operate in 18 states.

Bare-bones policies generally include some hospitalization and physician services. These policies require states to waive benefits they had previously ordered insurance companies to provide. Many in the industry contend that mandated benefits, such as treatment for newborns or payment for psychiatric care, have driven up costs and stymied reform.

“What we’re saying is that you don’t have to have a Cadillac policy (that pays for everything); it’s OK to have a Chevy,” said Pat Schoeni, of the Health Insurance Industry Assn. of America. The clearest example of a Cadillac plan, in Schoeni’s view, is the coverage negotiated by the United Auto Workers for its members, their dependents and retirees. Under the UAW plan, Schoeni said, workers pay nothing for health care--no premiums, co-payments or deductibles.

By contrast, bare-bones policies--Schoeni’s Chevy--offer basic, no-frills medical care at a reasonable cost to business and workers, she said.

Critics of the health insurance industry vehemently disagree. “Bare-bones insurance is neither a Cadillac plan nor a Chevy; it’s a broken jalopy,” said Ron Pollack, executive director of the Families USA Foundation. “What it does is provide you with a low premium and then socks it to you if you get sick.”

A 1991 survey by Families USA found that the bare-bones plan sold in Kansas has an annual deductible of $5,000 and that those marketed in Maryland and Virginia cap benefits at $50,000 annually. Maryland’s bare-bones policy imposes a nine-month wait for treatment of a pre-existing condition. Many bare-bones plans are marketed and administered by Blue Cross-Blue Shield.

The plan in Virginia, which has fewer than 100 subscribers, is typical. It pays for preventive, prenatal and maternity care and covers 80% of hospital expenses, after a policyholder has paid a $250 deductible for each hospitalization. The plan covers 30 days’ hospitalization annually and 13 well-child visits during the first six years of life.

Schoeni acknowledged that bare-bones policies have gaps. “It’s not the Cadillac plan,” she said, “but you’ve got to weigh the cost and ask, ‘Is bare bones better than nothing?’ ”

Risk pools, most of which operate at a substantial deficit, have other drawbacks, says Pollack. Premiums are expensive, and policies provide limited benefits, he said.

Tennessee’s 5-year-old risk pool may be a case in point. Operated by Blue Cross-Blue Shield, the plan, which has an operating deficit of $5.3 million, has 3,040 subscribers.

Quarterly premiums for those between the ages of 18 and 65 range from $347 to $1,633, depending on a subscriber’s age and area of residence. After a $1,000 deductible, the plan pays 60% to 80% of “reasonable and customary” charges, as determined by the insurance company.

Many policies, even those generally considered to be comprehensive, don’t cover prescription drugs, leading some patients to skip medication ordered by their doctors.