Discount Plans Debunked...

An InsureBlog reader writes:
“If a person walks into a doctor's office without health insurance, they will pay more for their care than someone with insurance. That's because the insurance companies are big and powerful and can negotiate lower rates. If I ask for that rate for myself, I'd get laughed out of there.

So why don't all of the uninsured people band together into some sort of membership organization? Kind of like how AAA or AARP can negotiate lower rates for hotels. Neither is in the hotel business, but they have enough clout to get discounts.

Would this organization, which is not in the insurance business, be able to negotiate rates for its members? (The members could, of course, go somewhere else if an office refuses to negotiate. You would end up with "in club" and "out of club" providers.) Would this violate the contract doctors sign with insurer networks?

Of course, this would be a ridiculously huge undertaking. But is it theoretically possible?”

Here was my reply:

“Thanx for writing; I always appreciate fan-mail ;-)

Actually, what (I believe) you've proposed is neither random nor new. There are many "provider discount plans" on the market (e.g. CareEntree, etc) which purport to accomplish just what you've suggested.

For folks who are truly uninsurable (and they represent a very small fraction of those who are uninsured), such plans can be a big help, but they are not without drawbacks.

For example, every plan I've seen requires the member to pay the entire cost either upfront, or within a very short timeframe (10-30 days, max). For a relatively inexpensive procedure (setting a broken finger, for example) this would be no problem. But for a substantial claim (surgery, MRI, etc) how many folks have thousands of $$ in ready cash?

Another problem with such plans is that they are often sold by unscrupulous folks who gloss over the fact that it is NOT insurance, and so the consumer unwittingly believes that he is insured when, in fact, he is not.

Finally, in looking at such plans myself (in the event that I wanted to market one), I've noticed a large discrepancy in prices; some plans cost hundreds of $$ a year for what is, essentially, a modest service.

Have a great week, and feel free to drop me a line any time.”

The ostensible point of these plans is to encourage folks to seek medical attention, and in some way soften the financial hardship of doing so. Theoretically, this is admirable, but like so many such endeavors, this one is fraught with peril.

As I mentioned in my reply, such plans are often wrongly sold as alternatives to insurance, or even as insurance products (which they are not). This is dangerous because, as I told my correspondent, it may give the purchaser a false sense of security.

But there’s another, more insidious reason: because of HIPAA, folks going onto a group plan may qualify for a reduction in, or complete waiver of, the 12 month exclusion for pre-existing conditions. Individual major medical plans count as such creditable coverage, and in some states even short term medical plans do, as well. There is even (at least) one guaranteed issue medical plan which counts as creditable.

But these “discount” plans do not, and thus may leave the purchaser even worse off than before, out many hundreds of dollars in premiums, without creditable coverage.

There are better solutions.