Many people who believe they have adequate health insurance actually have coverage so riddled with loopholes, limits, exclusions, and gotchas that it won't come close to covering their expenses if they fall seriously ill, a Consumer Reports investigation has found.

At issue are so-called individual plans that consumers get on their own when, say, they've been laid off from a job but are too young for Medicare or too "affluent" for Medicaid. An estimated 14,000 Americans a day lose their job-based coverage, and many might be considering individual insurance for the first time in their lives.

But increasingly, individual insurance is a nightmare for consumers: more costly than the equivalent job-based coverage, and for those in less-than-perfect health, unaffordable at best and unavailable at worst. Moreover, the lack of effective consumer protections in most states allows insurers to sell plans with "affordable" premiums whose skimpy coverage can leave people who get very sick with the added burden of ruinous medical debt.

Just ask Janice and Gary Clausen of Audubon, Iowa. They told us they purchased a United Healthcare limited benefit plan sold through AARP that cost about $500 a month after Janice lost her accountant job and her work-based coverage when the auto dealership that employed her closed in 2004.

"I didn't think it sounded bad," Janice said. "I knew it would only cover $50,000 a year, but I didn't realize how much everything would cost." The plan proved hopelessly inadequate after Gary received a diagnosis of colon cancer. His 14-month treatment, including surgery and chemotherapy, cost well over $200,000. Janice, 64, and Gary, 65, expect to be paying off medical debt for the rest of their lives.

For our investigation, we hired a national expert to help us evaluate a range of real policies from many states and interviewed Americans who bought those policies. We talked to insurance experts and regulators to learn more. Here is what we found:

• Heath insurance policies with gaping holes are offered by insurers ranging from small companies to brand-name carriers such as Aetna and United Healthcare. And in most states, regulators are not tasked with evaluating overall coverage.
  
  
• Disclosure requirements about coverage gaps are weak or nonexistent. So it's difficult for consumers to figure out in advance what a policy does or doesn't cover, compare plans, or estimate their out-of-pocket liability for a medical catastrophe. It doesn't help that many people who have never been seriously ill might have no idea how expensive medical care can be.
  
  
• People of modest means in many states might have no good options for individual coverage. Plans with affordable premiums can leave them with crushing medical debt if they fall seriously ill, and plans with adequate coverage may have huge premiums.
  
  
• There are some clues to a bad policy that consumers can spot. We tell you what they are, and how to avoid them if possible.
  
  
• Even as policymakers debate a major overhaul of the health-care system, government officials can take steps now to improve the current market.