YONKERS, NY — A new Consumer Reports investigation finds that many people who believe they have good health insurance actually have coverage so riddled with loopholes, limits, and exclusions that it won’t come close to covering their expenses if they fall seriously ill.  The full report is available in the May 2009 issue of Consumer Reports and online at www.ConsumerReportsHealth.org.  The report includes a table listing the staggering treatment costs of many common conditions, leading off with late-stage colon cancer at $285,946.

At issue are so-called individual plans that consumers sometimes get on their own after losing their jobs or if they are self-employed.  An estimated 14,000 Americans a day are losing their job-based coverage, cites Consumer Reports, and many may be considering individual insurance for the first time in their lives.

“Individual insurance has become a nightmare for consumers,” says Nancy Metcalf, senior program editor at Consumer Reports.  “It’s expensive and difficult to get for people who have a less-than-perfect medical history. And people who do purchase a policy often don’t understand what they’ve bought until it’s too late and they’re faced with hospital bills that their plan won’t pay.”

One couple, Janice and Gary Clausen of Audubon, Iowa, told Consumer Reports that they expect to be paying off medical debt for the rest of their lives because they didn’t realize how much treatment can cost.  The United Healthcare limited benefit plan they bought through AARP proved hopelessly inadequate after Gary Clausen received a diagnosis of colon cancer.  His treatment cost well over $200,000.

Findings Show How Difficult it is for Consumers to Get Good Health Policies on Their Own

For its investigation, Consumer Reports hired a national expert to help evaluate a range of health plan policies and interviewed consumers who bought those policies, as well as insurance experts and regulators to learn more.  Among the findings from the investigation:

• Health insurance policies with gaping holes are offered by all kinds of insurers — large and small.  Most states do not task regulators 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.
• In many states, people of modest means may 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.

“A good plan should pay for necessary care without leaving you with lots of debt,” Metcalf says.  “Decent insurance covers more than just routine care — it’s supposed to protect you in case of a catastrophically expensive illness.  But many individual plans do nowhere near this job.”

Consumer Reports identifies seven clues that a health plan might be junk:

• Limited benefits.   Do  everything  in  your  power  to  avoid  buying  a  product  labeled  “limited benefit” or “not major medical” insurance — a sure warning sign of inadequate coverage.
• Low overall coverage limits.  Health care is costly.  Policies with coverage limits of $25,000 or even $100,000 are not adequate.
• “Affordable” premiums.  If premiums are very low, chances are good that the policy doesn’t cover very much.  To check how much a comprehensive plan might cost, Consumer Reports recommends visiting ehealthinsurance.com and examining the more expensive plans available in one’s state.
• No coverage for important medical care.  If the policy doesn’t describe coverage for a specific medical service, such as outpatient chemotherapy, assume that it’s not covered.
• Ceilings on categories of care.  A $900-a-day maximum benefit for hospital expenses doesn’t pay much of a $45,000 bill for heart bypass surgery.  Consumer Reports advises consumers to make sure that their plan covers hospital and outpatient medical treatment, doctor visits, drugs, and diagnostic and imaging tests without a dollar limit.
• Limitless out-of-pocket costs.  Consumers should avoid policies that fail to specify a maximum amount they’ll have to pay before the insurer begins covering 100 percent of expenses. Some policies, for example, don’t count co-payments for doctor visits or prescription drugs toward the maximum.
• Random gotchas.  The AARP policy that the Clausens bought began covering hospital care on the second day.  That may seem benign, except that the first day is almost always the most expensive, because it usually includes charges for surgery and emergency-room diagnostic tests and treatments.

Why all the confusion about health insurance?  Consumer Reports says one reason is that health insurance is regulated by the states, not by the federal government.  Most states (Massachusetts and New York are prominent exceptions) do not have a standard definition of what constitutes health insurance.

How Consumers Can Protect Themselves

A good plan will cover legitimate health care without burdening consumers with oversized debt.  Consumer Reports offers the following advice for choosing a health plan:

• Seek out comprehensive coverage.  Try to find a plan that has no caps on specific coverages but especially on hospital coverage, outpatient treatment, doctor visits, drugs, and diagnostic and imaging tests.  When it comes to lifetime coverage maximums, unlimited is best and $2 million should be the minimum.  Ideally, there should be a single deductible for everything or, at most, one deductible for drugs and one for everything else.  And the policy should pay for 100 percent of all expenses once out-of-pocket payments hit a certain amount, such as $5,000 or $10,000.
• Consider trade-offs carefully.  If a trade-off is necessary to lower health premiums, opt for a higher deductible and a higher out-of-pocket limit rather than fixed dollar limits on services.  Policy limits on services can be exhausted quickly, leaving consumers with tens of thousands of dollars in medical bills to pay on their own.  Unfortunately, consumers who can’t afford either the higher premiums of a more comprehensive policy or high deductibles really have no good choices.
• Check out the policy and company.  First, look for the warning signs identified by Consumer Reports.  Next, do some research.  The National Association of Insurance Commissioners posts complaint information online at https://www.naic.org/.  Running a Google search on companies and policies can help, too.
• Don’t rely on the salesperson’s word.  Ask for an advance copy of the actual policy (though you may not always get it) and read the small print before signing up.  Ask your agent or sales representative to give you written answers to your questions.  That way, if the information turns out to be wrong, you can complain.