High deductibles make low-cost plans risky

When Nancy Warrington became pregnant five years ago, she quit her job to become a full-time mom. With that, she lost the family’s employer-subsidized health benefits.

Shopping for individual health insurance on their own, Warrington and her husband, Todd, settled on a plan with a $2,500 annual deductible and a $335 monthly premium.

“We were just looking for something [with a premium] we could afford,” said Warrington, 35. “The high deductible didn’t even dawn on me.”

The insurance was a mixed blessing. Although it covered Nancy’s appendicitis, Todd’s back injury and an assortment of other medical needs over the years, the annual deductible also saddled the San Diego couple with more than $10,000 in debt.

Their case illustrates a problem with high-deductible health plans, a fast-growing type of coverage now held by about 10 million people in the U.S. The plans, with annual deductibles of $1,000 or higher and monthly premiums that can be less than $100, are a good fit for relatively healthy people with some financial means, most experts agree. The median annual income of those using high-deductible plans is about $75,000, according to a recent federal report.

The plans also are popular with young people who don’t expect to run up significant medical bills.

Although the lower premiums make the plans attractive, cash-strapped families like the Warringtons run the risk of being unable to afford the deductibles, critics of the plans say.

Such consumers might forgo needed medical treatments to avoid running up out-of-pocket bills -- possibly threatening their physical well-being, critics say. For these and other reasons, such plans are far from a desirable solution for the nation’s approximately 47 million uninsured, they say.

High-deductible plans, also called consumer-driven health plans, have grown in recent years as an answer to rising healthcare costs. Employers are increasingly offering them to workers, but they are far more common in the individual market, where consumers buy health insurance on their own.

Supporters say the lower premiums mean more people can afford to insure themselves against catastrophic illnesses or injuries.

And the higher deductibles, at least in theory, will drive costs down by making consumers more price conscious, supporters say. Because they are responsible for more of the costs upfront, those consumers might think twice before running to the emergency room for any minor ache and might opt for cheaper generic prescription drugs.

“I always get generic drugs,” said Amy Fink, 35, a self-employed photographer who enrolled in Blue Cross of California’s Tonik plan two years ago. The insurance has an annual deductible of $1,500 and costs $100 a month.

Fink, who owns a portrait studio in Thousand Oaks, said she was generally in good health and hadn’t come close to reaching the deductible since enrolling in the plan. The $1,500 is well within her financial means, she said.

WellPoint Inc., parent company of Blue Cross of California, markets Tonik in five other states and targets recent college graduates and young entrepreneurs like Fink. The company says such consumers are turned off by the high price of comprehensive health insurance and are more likely to go uninsured because medical care is a low priority in their lives. The company calls this demographic group “young immortals.”

Tonik plans, with labels such as “thrill-seeker,” “part-time daredevil” and “calculated risk-taker,” are advertised for as little as $77 a month and offer deductibles that range from $1,500 to $5,000.

Members must make $20 to $40 co-payments for the first four doctor visits and $100 for each trip to the emergency room, but otherwise they are responsible for most bills up to the deductible. After the deductible is met, the plan pays for all covered medical expenses. To keep costs down, some expenses -- such as maternity care -- are not covered at all.

“I don’t plan on getting pregnant any time soon,” Fink said. “I appreciate the fact that I am not paying for things I am not going to use.”

But the point of insurance is to cover unforeseen events, critics of high-deductible plans say. Plans like Tonik “cherry pick” the healthiest consumers while saddling less healthy and poorer patients with overwhelming medical bills should they become gravely ill or unexpectedly pregnant, critics say.

“If you can’t afford the deductible, it really isn’t affordable insurance,” said Jerry Flanagan, an advocate with the Santa Monica-based Foundation for Consumer and Taxpayer Rights.

Nancy Warrington said she and her husband, an electrician, believed they were in relatively good health. But soon after getting their insurance, the couple experienced a series of health problems. None were serious, but all were expensive, including MRIs for Todd’s back pain and a skin cancer test for Nancy, which turned out to be negative.

“It just kept snowballing,” Nancy Warrington said. The couple have since moved into a more comprehensive employer-subsidized plan with smaller deductibles after Todd got a job with health benefits, but they are still feeling the effects of their old deductibles. One hospital has tapped into their checking account and collects $82.22 every month, she said.

Still, the Warringtons are better off having had the high-deductible policy than having gone without any insurance, said Jeff Miles, a Marina del Rey insurance broker and past president of the California Assn. of Health Underwriters.

“They may have a large medical debt, but they would be bankrupt if they didn’t have the plan,” Miles said.

For most consumers, high-deductible plans offer protection if not a bargain, he said. The savings in premiums more than offset the higher deductibles, except possibly for plans offered by health maintenance organizations, he said.

HMOs keep costs down in part by restricting the network of doctors and hospitals available to members. Although some HMOs have begun offering high-deductible coverage as well, generally their premiums and deductibles are lower than those of preferred provider organizations, or PPOs.

“An HMO may work better for you than a high-deductible PPO,” Miles said, “if you don’t mind” the restricted network.

Some high-deductible plans also offer tax advantages, however. Consumers with plans carrying annual deductibles of at least $1,100 for individuals or $2,200 for families that meet certain other federal requirements qualify to open health savings accounts. Those accounts, similar to individual retirement accounts, allow holders to reserve pretax dollars for medical expenses.

Critics, however, say high-deductible plans tied to health savings accounts are not much of an advantage for those who can barely afford the premiums. According to a report last year by the U.S. Government Accountability Office, only about 55% of people who have such accounts put any money in them.

“Who can put money away in a savings account?” said Laurel Kaufer, 45, a San Fernando Valley legal mediator and single mother of two who has a $3,000 family deductible and a monthly premium of $671.

“I am not saving money doing this,” she said. “I can’t afford anything else.”

Last year, while visiting her eldest son at the University of Arizona, Kaufer had a dizzy spell but put off going to the emergency room partly out of financial concern, she said. It turned out to be nothing serious.

“Still,” she said, “there should be no consideration of dollar figures when it comes to your health.”

daniel.yi@latimes.com

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(BEGIN TEXT OF INFOBOX)

A trade-off for low premiums

The trend: About 10 million Americans are enrolled in high-deductible health plans. The plans, with annual deductibles of $1,000 or more, generally offer lower premiums.

What’s behind it: The plans are being promoted as a solution to rising healthcare costs.

Consequences: Proponents say the lower premiums can help decrease the ranks of the nation’s 47 million uninsured. Critics say the plans enrich insurers while leaving some consumers with huge medical debts.