The San Diego Union-Tribune

SAN DIEGO — Hearing them talk, one wouldn’t think Mary and Dennis Hutton had health insurance.

Dennis, who landed in the hospital with a kidney stone last year, keeps his leftover pain pills stashed in the medicine cabinet. Though the pills are now expired, the self-employed painting contractor hopes they help him endure the pain if he ever passes another stone. That way, he can avoid paying an additional $2,500 in hospital bills.

Mary, who tripped and fell while walking the dog near their Mission Beach home a few months ago, still hasn’t consulted a doctor about the ankle pain she’s had since.

“For what?” she said. “So I can pay a fortune?”

The Huttons wouldn’t be so worried about the cost if they still had comprehensive health coverage. But like a growing number of individually insured Americans have done, they downgraded to a cheaper plan about three years ago to save money, when the premiums for their comprehensive preferred-provider plan hit the $600-a-month range.

Now they have a bare-bones plan that has them paying for every medical service, except for annual examinations, until their out-of-pocket expenses reach the deductible of $4,800 a year. Not even the lab work for the exams is covered.

For this, they pay $404 a month.

“It is just ridiculous,” said Mary Hutton, 59, who recalls paying just $260 a month for the same coverage two years ago. “You should be able to go anywhere and do anything for that much.”

More than it has for perhaps any other group of consumers, the rising cost of health insurance has become a source of frustration for the individually insured: self-employed entrepreneurs, freelancers, independent contractors, small-business owners, pre-Medicare retirees and others who pay their own way on individual health plans.

Some 6.6 percent of Americans under age 65 – or 16.5 million people – buy their own health insurance, according to the U.S. Census Bureau. Most people 65 and over have Medicare.

Individual policyholders have always had it tougher than their company-employed peers in some ways. They are subject to tight underwriting rules and must pay for age-related increases in premiums, things most employer-covered workers don’t face.

Now, as health premiums spiral upward, there is no buffer for them. With no employer to pick up part of the tab, these individual policyholders have taken a direct financial hit in the past three years; health insurance premiums have grown by more than 10 percent annually. Some have seen their premiums as much as double, even while some of their benefits have shrunk.

Many are voluntarily cutting their own benefits to stay covered. Just as employers have been “buying down,” an insurance industry term for buying cheaper, leaner health plans, so have many individually insured enrollees, often switching to the skimpiest of plans to keep premiums down. They have also had their benefits reduced by insurers cutting back on spending.

Insurance companies are rolling out rock-bottom individual plans with minimal benefits to meet demand. Some consumers, in hopes of merely maintaining the same rates they paid for richer policies until recently, are taking on deductibles as high as $5,000 to stay minimally covered.

Those who want to switch to a cheaper plan but have health problems are most often stuck with their high rates, since insurers can turn away individual applicants because of pre-existing conditions. Some with no alternative have gone to work for employers who can pick up part of the tab. Others are giving up, letting their policies lapse and hoping they don’t get sick.

“It is more pronounced with the self-insured,” said Jerry Flanagan, a consumer advocate specializing in health care issues with the Foundation for Taxpayer and Consumer Rights in Santa Monica. “Families are making the hard decision to limit their coverage or to go to catastrophic care. It’s like nothing we have seen in the past decade.”

‘RATES ARE OUT OF SIGHT’

In her Coronado office, veteran insurance broker Maria Caccamise counsels despairing entrepreneurs and small-business owners who can no longer afford to maintain the quality of insurance they have had until now.

When they see their new rates, they often can’t afford them, said Caccamise, who has sold individual and small-business plans since 1959. As she sees it, “The rates are out of sight.”

Caccamise remembers selling comprehensive health plans for about $12 a month in the early 1960s in Buffalo, N.Y., where she worked before moving to California in 1977. Today, she said, a healthy 38-year-old with a spouse and kids can expect to pay more than $500 a month for one of the cheaper plans.

Not surprisingly, a growing number of her clients ask for catastrophic coverage, a minimal type of plan with a high deductible that covers major medical expenses. Caccamise advises them to look at the annual out-of-pocket maximum, the most a policyholder can be expected to pay in a year. One basic plan she has sold lately comes with an out-of-pocket maximum of $7,500.

“If they had a skiing accident, it could cost them $7,500,” Caccamise said. While it’s better than nothing, she said, “it makes me feel sick.”

Those who manage to switch to cheaper plans are typically healthy.

In a practice commonly referred to as cherry-picking, insurers can legally turn away individual applicants for pre-existing health problems, something they are barred from doing when a sick person joins a group health plan. Insurers do this because, with an individual policyholder, they are unable to spread their risk as they can with groups.

“It is the law of numbers, a risk pool,” said Steven Tough, president of the California Association of Health Plans in Sacramento. “If you have a thousand lives, you look at the general profile of what is going to happen. If you have one person, you don’t have a pool structure.”

Managing risk is a fundamental insurance business practice. But it doesn’t make cash-strapped individual policyholders such as Barry and Sharon Fowler feel any better about being stuck with a costly health plan.

The Fowlers pay $565 a month – half their monthly mortgage payment – for their Kaiser Permanente HMO plan. The $565 is around $250 a month more than they paid when they signed up six years ago.

And while the premium has gone up, their coverage has eroded. This year their plan has added a series of new out-of-pocket expenses, including an annual $250 deductible for brand-name drugs and a hospital inpatient co-payment of $200 per day.

Office visits, ambulance transportation and other services also cost more out of pocket now.

“It adds up,” said Sharon, 56, who sells floral supplies as an independent contractor from their Hillcrest condo. Between doctor visits and prescriptions, she estimates, the couple likely spends at least $700 a month.

But the Fowlers fear they have no option but to stay with Kaiser. Sharon takes medication for migraine headaches, has had surgery and has back problems. She recently had skin cancer removed. Barry, 62, a self-employed real estate agent and developer, has a thyroid condition that requires medication. They would like to shop around, but haven’t bothered to do so.

“We haven’t even tried,” Sharon said. “We probably wouldn’t be accepted.”

Gail Saivar of Point Loma felt the same way when Kaiser raised her premium early this year to $493 a month from $295.

Saivar, 57, a formerly self-employed advertising executive, is on two regular medications and has a medical record that includes a lumpectomy for a breast cyst and surgery for intestinal problems. She figured there was no way anyone was going to insure her for less money.

Her only choice was to go to work for someone else.

“If you are over 50 and if you have been so much as to a doctor once in your life, you can’t get health insurance for less than $500 a month,” said Saivar, who was hired by one of her former clients. “It’s impossible to find anything.”

After she complained, Kaiser eventually lowered her rates somewhat, she said. But she said she still pays less working for someone else.

MINIMAL BENEFITS

Those who can switch to a cheaper plan on their own have an increasing number of barely-there options to choose from. Aware of the desperation of consumers in the individual-plan market, insurance companies have recently unveiled a crop of policies that enable policyholders to save money on premiums but that provide minimal benefits.

In January, for example, Blue Shield introduced an individual preferred-provider plan with a $5,000 deductible, its highest-deductible plan yet. With the exception of an annual checkup and generic prescriptions, the policyholder must pay that amount in expenses each year before the policy begins to cover a percentage of medical costs.

Insurers, who blame rising premiums on high hospital, pharmaceutical and other costs, say plans like these are aimed at keeping people insured – and keeping them as customers.

“We try to make sure that current members are aware of their different options so we don’t lose them to the uninsured pool,” said Gina Stasis, senior director of product and marketing for Blue Shield individual plans. “We’d rather have them buy down than not have insurance at all.”

Other scaled-down plans include a new $1,500-deductible plan from Kaiser and a $3,500-deductible plan from Blue Cross. The latter company also has a $5,000-deductible plan.

Some of these new plans cost about the same or more than richer plans used to.

For example, Blue Cross‘ new $3,500-deductible plan, which covers office visits only after the deductible is met, costs $105 a month for a healthy 40-year-old in San Diego.

In 2001, the same policyholder could have paid only $92 for a plan that covered office visits for a low co-payment, with no need to meet a deductible for routine visits.

Art Letter of University Heights, a retiree who is too young for Medicare, remembers that four years ago he paid half what he pays today but got twice the level of coverage.

In late 2000, Letter switched from a costly Blue Cross preferred-provider plan to save money. He downgraded to a plan with a $2,500 deductible, which cost him $163 a month.

By March 2002, the same plan had gone up to $206 a month. In September it went up to $231. By the following April he was paying $323, roughly twice as much as he had when he signed up 2 years earlier.

On an adequate but fixed retirement income, the former head of the Tijuana Valley County Water District had to buy down once more, raising his deductible to $5,000. Even so, today he pays $250 a month for a plan that makes him shoulder twice the risk.

“I have a lot less insurance than I started with, and I am paying a whole lot more,” said Letter, 62, who except for taking blood pressure medication is in what he describes as perfect health. “It is pretty amazing what is going on, and there is no end in sight.”

FEDERAL RELIEF

As they buy down to higher-deductible plans, some individual policyholders are considering health savings accounts, a product of recent federal legislation. But while these can provide some relief, they can’t entirely shield consumers from increasing rates.

Health savings accounts are tax-exempt accounts similar to IRAs that allow consumers to use tax-free dollars for medical expenses – and only for medical expenses – until age 65, at which point the money may be withdrawn tax-free for any use.

The Mission Beach couple, Mary and Dennis Hutton, plan to open an account soon. They figure they’ll at least get a tax break for their trouble.

“When the deductible is in the bank, it will make it easier to go to the doctor,” said Dennis, 55, who hopes he and his wife won’t have to endure another high-priced setback like they did last year.

Health savings accounts are not for everyone, some brokers say. They can be used only with health plans that have a deductible of more than $1,000 and an out-of-pocket maximum of less than $5,000. This means that people on the barest of plans – those trying to save the most money – don’t qualify.

Others accustomed to more generous plans are deterred when they learn that all medical services, including prescription drugs, are subject to deductibles because of the types of policies that health savings accounts require.

Recent reports have indicated a slowing in private health care spending, which has prompted some health industry experts to speculate that consumers could see a slowdown in the rate at which premiums increase.

But more double-digit increases are expected for this year, which means that for now, individual policyholders can either buy down or keep paying – or simply drop out of the insurance market.

Kathy Kemp dropped out last spring. A year after quitting a corporate job to go into business with her husband, she was fed up and frustrated with the $650 a month they had to pay to cover themselves and their college-age son.

One morning, the fax machine at their family-run Point Loma landscape architecture firm whirred to life with an unsolicited transmission. It advertised a “non-insurance product,” one of a number of health discount plans that have sprung up in the wake of the insurance crisis, promising discounts on medical services in exchange for a monthly fee.

Dropping a real insurance plan was against the Kemps’ better judgment, but the non-insurance plan was cheap – only $250 a month for all three – and they were desperate. They dropped their Kaiser plan and signed up.

By the time they got cold feet about what they had done, their Kaiser coverage had expired. The Kemps spent the next two months searching for something affordable, finally finding a basic plan for $500 a month.

Kemp is relieved to be insured again, but it’s still a sacrifice each month. The whole experience has soured her on being her own boss.

“I had no idea how expensive health insurance was going to be,” she said. “It’s become a bigger problem than it really should be.”