Health Insurance’s Best-Kept Secret?

During the early 1990s, Angela Stark’s health insurance premiums rose so fast that she almost fell into the ranks of the uninsured. A single mother, self-employed, she was in no position to go without coverage; one short hospital stay would mean bankruptcy.

“But I just couldn’t pay the premiums anymore,” says Stark, now 48, who runs an Internet appliance-rental business from her home in Culver City. “So I called my agent and said, ‘There must be another way.’ ”

There was, and there is. Stark’s agent recommended a type of policy that industry analysts say is vastly underused: low-cost, high-deductible insurance, sometimes called bare-bones, or catastrophic, protection.

Bare-bones plans differ from standard individual policies in that they usually do not cover maternity costs, prescription drugs or specialized services such as physical therapy and chiropractic. Instead, they provide blanket security, at a bargain rate, against the sudden illness or accident that rings up huge hospital bills.

Stark now has to pay the first $2,000 of any hospital stay, she says. She also pays her own way for routine doctor visits. But the plan costs just over $60 month, compared with nearly $200 a month she was paying for comprehensive care. And it covers all hospital costs after she’s paid her share.

“I’m healthy, I’m not on any medications, I go to the doctor maybe once or twice a year,” she says. “Why should I be paying hundreds a month?”

The same logic applies to hundreds of thousands of Californians who, according to health-care analysts, are now uninsured or over-insured: people in their 20s between school and work; those in their 50s or early 60s who have retired, or switched to part-time work, while still too young for Medicare; lower-income families who have some assets to protect but no health insurance; or healthy people who are paying for full, comprehensive coverage through work but don’t use it.

“These are all good candidates for bare-bones type of coverage,” says Steven Lindsay, legislative advocate for the California Assn. of Health Underwriters.

“Most people don’t realize how fast hospital bills add up,” says Michael Chee, spokesman for Blue Cross of California, the state’s largest provider of individual policies, for people who aren’t covered. “We’re not talking hundreds of dollars or thousands of dollars but tens of thousands. And that’s just after the first few days in the hospital.”

In a recent study, a Harvard researcher found that nearly half of the 1 million Americans who filed for bankruptcy last year did so in part because they couldn’t cope with medical bills.

Chee says Blue Cross’ bare-bones coverage has a $2,000 deductible; it then pays 80% of the next $2,000, and everything after that. The policy sells for between $20 and $60 a month, depending on the client’s age, among other things. The price goes up an additional $10 to $20 with each family member you put on the plan, says Chee.

Such no-frills plans are becoming easier to find. Some university alumni associations are beginning to offer their members variations on bare-bones coverage. The same goes for many large and small employers, whose health plans give workers the option to choose catastrophic coverage for themselves. For example, Aetna US Healthcare, the nation’s largest insurer, offers a plan to some of its clients with a deductible of $2,000 and premiums of less than $20 a month.

These policies are not popular; insurers estimate that only about 5% to 10% of people choose them. But agents say that’s because bare-bones plans don’t fit consumer expectations of health insurance. “People figure that if they’re going to go to the doctor, the insurance should pay,” says Lindsay. “And if they’re not going to the doctor, then why have the insurance at all?”

Jim Armitage, a broker with Arroyo Insurance Services in South Pasadena, has another reason: “People just don’t know these policies are out there.”

It is telling that those who do choose the policies tend to be professionals who are very familiar with hedging risk. “Farmers, CPAs and lawyers,” says Lindsay, “those are your big buyers of catastrophic coverage.”

Beware terminology, however, when asking about catastrophic insurance. The terms “bare bones” and “catastrophic” are thrown around loosely and can mean different things. Last year, for example, Aetna US Healthcare unveiled what it calls its Affordable HealthChoices program, an array of inexpensive individual and family plans that some in the business call bare-bones. But the policies pay for only a portion of hospital expenses.

A true catastrophic plan is just that: a policy that covers all costs after the first several thousand dollars. Many individual health plans cover 70% or 80% of medical costs after the deductible has been spent.

“But even 10% of a huge hospital bill is going to be pretty huge,” says Stark. “If something happens to me, God forbid, I’d rather know that after a couple of thousand dollars, I’m covered.”