Discount health plans in the California insurance market

It can be tempting.  You've seen years of rate increases for your California health insurance plan even though you might not have used it much and you catch a commercial for what looks like insurance for 1/10 of what you're paying now...even 1/2 looks good.  It's important to understand that these are discounts plans and not true health insurance.  There's a big distinction which gets to the heart of why even have health insurance to begin with.  Let's take a closer look.

We took a detour with California health insurance which really detracted from the original purpose.  If you go back fifteen years (yes, we were doing this same thing back then albeit not online), health plans were pretty straight forward.  You had deductibles then a percentage up to an annual max.  Clean and simple.  You paid for most of the smaller bills yourself.  When the managed care plans came on the scene (HMO and PPO), the carriers were able to add in additional benefits...copays for office visits and RX coverage.  We even have a time when there were no deductible plans even on the Individual Family market (which is not as rich as the Group market).  We remember those days...while they lasted.  Low priced, no deductible plans were all the rage and people were happy till they got the bill a few years later.  Rates spiraled out of control and have continue onward and upward ever since.  Deductibles came back in and then kept going up.  Rates also went up at double digit increments for years now.  California health insurance shoppers were outraged at first, then they were numb to the increase, and finally, they capitulated.  Enter the discount plan.

You started to see aggressive advertising for these discount plans although they're not called that in the spots.  The costs were unbelievably less expensive than what most people were on.  Many people jumped in a moment of frustration after receiving yet another rate increase.  So what are these plans and how can they be so cheap? 

Discount plans generally combine access to a PPO style network with some limited first-dollar benefits.  A PPO by definition is just a big group discount.  The carriers promise the providers that many people will come to them and in return, they ask the providers to discount the rates by 30-60% on average.  That's the "discount" part.  To make the plans look more like health insurance, the discount health plans might throw in some office visits or generic copays.  Okay...so where's the catch?  There's a big one.  Remember back to what health insurance used to be...big deductibles and cover the major bill?  That's the component that discount plans lack but an example will help clear this up.

Let's say you have a surgery or accident that results in $80K of medical services which is not that difficult to do these days.  With a real California health plan, you will generally pay a deductible and then a percentage up to a annual max.  The annual max might be the most important part of your plan.  This determines when you stop paying altogether for covered benefits, in-network for a calendar year.   In our $80K example, the negotiated PPO rate might be brought down to $40K.  If your deductible+max is $6K, the carrier will pick up the other $36K ($40K - $6K) of covered benefits.  What about the discount plan?  Well, they will discount the $80K down to the $40K same as the PPO health plan.  Then what?  You pay the $40K.  That's right, there's no cap...no back-end protection for the really big bill.  That's how they can do this.  Maybe, they structure it so that they pay a certain amount daily for hospitals (say $600), etc but the net effect is the same...you have significant exposure for the really big bill which is increasingly the only reason to have health insurance anyway. 

So how do you tell if you're looking at a discount plan?  For one thing, you won't find them on calhealth.net in our quoting engine as we've seen the effects of these plans on people who call in with serious health issues.  Another sign is that they are really inexpensive.  This was such a give-away that some discount plans started having higher prices (though much lower than real health insurance) so as not to stand out.  You would like to save 20%, wouldn't you?  Be careful.  Having a plan that doesn't cover the big bill is akin to having no health insurance but much costlier.  It's better to go with a catastrophic health plans and just cover the big bills but have an annual out of pocket max to protect you from the big "What If".

For real cheap California health plans