Discount Card Isn’t Insurance

When Sandra Ray-Baucom discovered a lump in the testicle of her 2-year-old son, Jeramy, doctors recommended immediate surgery. The lump was caused by a fast-growing hernia and could rupture, they said, causing serious internal damage, even death.

For the Record

An earlier version of this article was posted without its original publication date: September 16, 2002.

But the family was uninsured. Childrens Hospital Los Angeles, where she was referred, asked for a $4,000 payment upfront before it would schedule the operation. Without the money, a hospital official told her, she could wait until the hernia ruptured; at that point, the operation would qualify as an emergency and the family could pay later. But waiting seemed to be a gamble with her son’s life.

Then Ray-Baucom saw an Internet ad for a card that provided discounts on medical services--for only $49.95 a month. She took the offer. Childrens Hospital accepted the card, and her son’s surgery was successful. Only then did she learn the ins and outs of health savings cards, a product that is being sold all over California and the rest of the country as a solution for the uninsured.

The various cards, offered by companies such as Family Care, Care Entree and Chamber Health, work essentially the same way. For a typical $600 or $700 annual membership fee, consumers get discounts from a range of health-care providers, including doctors, hospitals, dentists and pharmacies. The companies get discounts by contracting with preferred provider networks, sometimes the same ones that big managed care firms use. Care Entree, for example, contracts with Private Healthcare Systems, the largest PPO network in the country.

To receive the discounts, members simply present cards resembling those offered by insurance companies. The bills then go to the card companies, which re-price the bills and tell members what they must pay.

“The savings vary depending on how high the doctor prices his services to uninsured patients,” says Mike Collins, a former vice president at Care Entree. (Uninsured patients typically pay higher prices than those dictated by managed care firms.)

Clearly, discount cards appeal to people who cannot afford the $2,000 annual premium for individual health coverage or the $6,000 premium for family coverage that many insurance companies charge. And this segment of the population is growing.

A Kaiser Family Foundation survey found earlier this year that 45% of employers with three to nine workers do not offer health insurance benefits, up 3 percentage points from last year. That jump alone means that 150,000 more people are now without medical coverage. Companies marketing health savings cards say their memberships are also growing--reflecting the greater number of people who are uninsured. Family Care is adding 2,000 to 3,000 new members each month compared with 500 to 600 a month last year, according to president Mike Rabie.

“It’s affordable,” says Renee Loterina, a Care Entree representative. “Some people can’t afford Blue Cross or Blue Shield, but they can afford $54.95 a month.” Indeed, some companies market to small employers that can’t afford to buy real health coverage for their workers, such as the one that employs Ray-Baucom’s husband. The idea of a discount also seems fair. If Health Net and Pacificare get discounts for members who join their PPOs, why shouldn’t the uninsured get discounts as well?

But just because a card is affordable--and the idea of discounted services appealing--doesn’t mean the bill disappears. The cards are not insurance policies, and companies that sell them do not make payments or reimbursements. The cost is placed squarely on the shoulders of the person needing care, sometimes in ways that pinch people who are already squeezed financially.

Ray-Baucom discovered that she had to pay her bill in full within 30 days of the time Family Care figured the discount on her bills. Care Entree customers who need hospital services must pay an upfront deposit of $1,000 for each day of the expected stay, according to James Herrington, chief marketing officer for Private Healthcare Systems. Chamber Health tells its members that payment is due at the time of service unless other arrangements have been made. In order to persuade providers to offer discounts, card companies must make sure providers get paid. “We don’t want to cause bad debt,” Herrington says.

But such rules limit the usefulness of the cards, and because health care is so expensive, they may offer little help when the bills are really large. A person who can’t afford health insurance is no more likely to afford the $2,000 discounted price for, say, knee surgery than the full $2,500 it would cost without the discount.

Then there’s the matter of finding doctors and hospitals that will accept the card. UCLA Medical Center doesn’t accept them. Neither do some other hospitals. White Memorial Hospital, which serves East Los Angeles with its large uninsured population, says it has no experience with these cards. The California Medical Assn. notes that some doctors do not even know they are listed on card company provider lists.

And because the cards mimic real insurance, providers may accept them in error. Steve Rutledge, communications director at Childrens Hospital, says the hospital “certainly doesn’t accept them when we know about them.” In Ray-Baucom’s case, he said, the card, which bore the name of the National Assn. of Preferred Providers and Family Care, didn’t raise any warning flags when it was presented. “These cards imitate a normal insurance card, and when you call, they imitate a normal insurance company.”

Ray-Baucom just received a bill for $5,748, the full price of the hospital service, including $2,200 for the physician and anesthesiologist. Other people are getting caught in the terms imposed by health savings cards, and a few states have begun to regulate them. The attorney general of New York recently announced a settlement with two New York-based companies that he said had “exaggerated the savings on medical expenses” and “failed to disclose important information that increased the overall cost of the program to consumers.”

This year in California, Sen. Jackie Speier (D-Hillsborough) introduced a bill that would have required discount companies to disclose that the cards are not insurance policies and that members will be responsible for their medical bills. The proposed legislation would also have alerted consumers that they may be eligible for state programs such as Medi-Cal or Healthy Families--sensible requirements for sure.

Not surprisingly, card companies opposed the bill. So did the influential California Medical Assn., which worried that any attempt to legitimize the cards would give them more of a market and possibly let them take over one of the jobs of physicians--referring patients to other providers.

For now, it’s caveat emptor for both consumers and health-care providers. As for Sandra Ray-Baucom, she is working out payment arrangements.

Although the card became, inadvertently, her son’s admission ticket for medical care, she sums up her experience this way: “They are basically a waste of money unless you have a large reserve of cash to pay in full.”

Most of the uninsured don’t.