Bare-bones health plan left family swimming in debts

TACOMA — When her youngest son, Cole, awoke one night last month writhing in pain, Theresa Devers pleaded with him to hang on until morning so they wouldn't have to go to an emergency room.

Then, when they got to a Tacoma hospital and found out that the 11-year-old's appendix had ruptured and he urgently needed to be transferred to Seattle, Devers asked without success if she could drive her son there instead of having him taken in an ambulance. And when they arrived at Seattle's Swedish Medical Center, Devers urged the staff to skip tests or procedures unless they were vital.

Anxious actions of a mother without health insurance? Actually, the family has what many critics say is just as dangerous: a bare-bones insurance policy that Devers says has left her family financially devastated.

They're among about 42,000 people in Washington who have health coverage through MEGA Life and Health Insurance, an Oklahoma-based company that is being investigated by insurance officials in Washington and 34 other states. Regulators found that MEGA and two sister companies have misled consumers, denied legitimate claims and mishandled complaints.

A settlement with the states is expected later this year.

With monthly premiums often less than half those of comprehensive health plans, MEGA and its affiliates have enrolled 700,000 self-employed workers, business owners, students and others in 44 states who want coverage that's inexpensive, if not expansive.

But many customers say they either weren't warned — or failed to understand — that some policies cover only a small fraction of actual health costs, leaving them with crippling bills.

Doug Holt, a spokesman for HealthMarkets, MEGA's Texas-based parent company, defends the plans, saying they offer coverage for people who would otherwise go without.

"Some coverage is better than no coverage," Holt said. "It's not ideal, but it's a difficult choice that people make all the time."

But some experts charge that such plans actually exploit that sense of desperation.

"You're giving money to a company for what? In return for protection? That's not what you're getting," said Karen Pollitz, a professor at the Georgetown University Health Policy Institute.

"Why should we allow these things to be called health insurance?"

"Crummy coverage"

Theresa Devers, 44, doesn't recall the name of the salesman who showed up at her house about five years ago touting a MEGA health plan. Devers, a former home- and auto-insurance saleswoman herself, was home-schooling her three sons at the time while her husband, Preston, was a self-employed concrete contractor.

The Deverses, all active and healthy, figured they could pay minor medical bills themselves and buy an insurance plan for major illnesses. MEGA offered a basic hospital-expense plan for less than $300 a month, and it seemed like a good deal.

Like many consumers, Devers had only a fuzzy notion of what doctors and hospitals really cost. And the MEGA policy seemed straightforward — it offered up to $300 a day for hospital room and board, $300 for an ambulance trip and up to $6,000 in clinic fees for same-day surgery.

The agent never cautioned that the coverage might be inadequate, Theresa Devers said.

"If he told me $6,000 was sufficient, why go overboard and get $12,000?" she said.

Then in December, Preston Devers had knee surgery at Allenmore Hospital in Tacoma. Hospital charges for the six-hour stay — not including all the surgeon's fees — totaled $34,605.

MEGA paid only $6,333 of it.

Then, less than two months later, her son Cole came down with what she first thought was the flu. Though it got serious, it wasn't until the third day that the family finally took him to the emergency room.

"I would have brought him in sooner if we hadn't had such crummy coverage," Theresa Devers said. "How can these policies be legal?"

Low-cost risks

Under Washington rules, such stripped-down insurance plans — also called fixed-indemnity or basic hospital-expense plans — are exempt from mandatory benefits such as maternity or chemical-dependency services.

MEGA and its affiliates, Mid-West National Life Insurance and Chesapeake Life Insurance — all owned by HealthMarkets — are the leading sellers of such policies in the state, with a total of 73,000 customers. They are sold through associations, including the National Association for the Self-Employed, which have business ties to the insurers.

As the Deverses' experience shows, the risk is that the plans can pay far less than actual costs, said Beth Berendt, a deputy state insurance commissioner. In Washington, fixed-benefit plans are allowed to pay as little as $500 per surgical procedure.

"That may get you a bed pan and a hospital gown," Berendt said.

Hospitals are no fans of the plans, either. At Swedish, a night's room and board costs about $1,800, excluding medications and physicians' fees, said Suzanne Scroggins, director of health-plan services. If MEGA pays only $300 of that, Swedish must either collect the balance from the patient or write it off as charity care.

Perhaps the worst part for policyholders is that the plans usually lack a "stop loss," meaning policyholders are on the hook for every unpaid charge beyond the coverage limit.

Most regular health plans, by contrast, apply at least some cap on out-of-pocket expenses, after which insurance picks up 100 percent of the costs.

Not surprisingly, limited-benefit plans are more lucrative to insurers than comprehensive plans, Berendt notes. In 2006, MEGA paid out 68 cents of each premium dollar in medical claims. In contrast, LifeWiseHealth Plan paid out 73 cents on the dollar and Regence BlueShield paid out 79 cents.

Changes made

Holt, the HealthMarkets spokesman, said the private company has worked to fix many of its problems. He said the company beefed up agent training and won't tolerate deception or other bad marketing. And after policies are sold, the company now follows up with a call to make sure customers understand they don't have comprehensive coverage, Holt said.

Almost all customers stick with their policies after those calls, Holt said, and complaints have fallen by half since 2003.

Holt stresses that the company's plans serve a crucial niche for the self-employed and others who, unlike those with employer insurance, have to pay full freight for their coverage.

"They are price conscious and can't afford the Cadillac plans," Holt said.

Holt adds that there's benefit in just having any kind of insurance: discounts that insurers negotiate with doctors and hospitals. For Preston Devers' knee surgery, for instance, MEGA's discount knocked $8,650 from the billed charges.

Some cost less

But others in the industry note that consumers don't need to settle for such stripped-down plans.

For instance, for $247 a month — about $100 less than they now pay MEGA — the Devers could get a plan through Regence that would cover 100 percent of health costs after each person in the family has incurred $12,500 in deductibles and medical bills.

That's still a huge expense to bear, but at least "it's easier to manage your risk. It's a lot more clear," said Ryan Hart, of Health Insurance Connection, an insurance brokerage in Puyallup.

In contrast, Preston Devers' unpaid bills from his knee surgery alone are at least $25,000. And the charges likely will be far steeper for Cole, who was hospitalized twice for a total of 12 days. He is due to go back again next month for an appendectomy.

The Deverses are looking into qualifying Cole for Medicaid because his father's previous bills have wiped out the family's savings.

Theresa Devers says she was upfront with nurses and doctors about her limited insurance, even though it shamed her to discuss money in the midst of her son's illness.

"Yet I was acutely conscious of what everything was costing," she said. "My objective was to take care of my family. And I failed. I look at this and go, 'Was I stupid?' "

Kyung Song: 206-464-2423 or ksong@seattletimes.com