A new card deal: health-care discount plans are tapping into the huge uninsured market. Should health insurers take notice? (Health-Care Discounters: Life/Health).

They could be the next rage after prepaid telephone cards, with results that are more profound than easy long-distance calling. Across the nation, consumers who have no health insurance are plunking down $39.95 to $250 a month for cards that offer discounted rates on doctors' visits and, in more sophisticated plans, reduced prices on hospital procedures.

Marketed along with phone cards or at the work site, health-care savings cards are either dismissed as the equivalent of coupons or viewed as the answer to the problem of America's uninsured. Health-care savings providers tell of patients who realized tremendous savings, such as an uninsured single mother in Virginia who became a member of a plan after she was diagnosed with upper-body tumors. Using the organization's discount card, she was charged $4,000 for an operation, instead of $34,000. In New York City, a woman employed by a modeling agency presented her health-care discount card to her dentist and paid $800 for a root canal procedure, instead of $1,200.

New health-care savings card companies are popping up around the United States, trying to be part of what industry insiders say is a billion-dollar business annually One entrant in the market, Texas-based Care Entree, tripled its revenue and number of members over the last three years and has been profitable three out of five years, said Michael Collins, the company's vice president of marketing.

In programs such as Care Entree or AllianceMD, consumers can select from basic plans that offer discounted physicians' visits and prescription costs to super plans, augmented with high-deductible insurance policies, that pay for hospital stays and physicians' visits and even include pet insurance rolled into one discount plan. The member presents the card to the physician, dentist or pharmacy that is part of the plan's network, and pays a predetermined discounted amount.

Although these programs may be a useful way to cut costs, no consumer should be lulled into thinking they offer the same financial protections that insurance provides, according to the Health Insurance Association of America, which represents hundreds of health insurers. "If you've decided not to insure some expenses, or if you have a fairly high deductible, it's a nice way to negotiate a good price--end of story. Just like having a brother-in-law who's a mechanic is no substitute for auto insurance or a friend who runs a lumberyard is no substitute for having homeowners insurance, this is not going to take care of you if you get seriously ill," said Randolph Clerihue, an HIAA spokesman.

Care Entree is the leader in this nascent industry, with about 66% of the health-care savings program market, said Ashley Smith, an analyst with Stonegate Securities. Smith pins Care Entree's success on the plan's high-level customer-service infrastructure, its ability to negotiate both preferred-provider organization and hospital rates and its ability to tap into the burgeoning uninsured market, which offers huge potential sales. "If you take 42 million uninsured Americans, about 20 million are families. Care Entree has 80,000 members, so they have a long way to go," Smith said.

Care Entree's customer-service call center, which allows physicians to verify eligibility and rates and helps cardholders locate health care at the lowest fee, sets the company apart from a lot of its competitors, which don't have the service infrastructure and are selling the equivalent of discount coupons for dental or medical visits, Smith said.

Physicians are big supporters of these health plans, because they are assured cash flow in return for a discount. "That's a huge benefit for physicians whose biggest complaint is how long it takes to get paid by insurance companies," said John Van Wie, an employee benefits consultant with Travers O'Keefe, an employee benefits and property/casualty consulting firm.

But Van Wie said the healthcare savings card companies are not big players in employee benefits. Travers O'Keefe clients greet these health plans with "lukewarm acceptance" and the initial impression that they have a long way to go. "My conclusion is there is a lot of weird stuff out there packaged poorly out of a garage. They are on the fringes and always will be. If you're uninsured and have a family, you could save money--it's better than nothing," Van Wie said.

Health-care savings providers are quick to explain they are not providing insurance coverage. "It's my biggest fear that people will misunderstand what they are buying," said Dr. Albert Waicman, president and chief executive officer of AllianceMD. The providers also meticulously refer to their product as a service, not as coverage.

Although they see themselves as a gnat in comparison with the business conducted by health insurance companies, health-care savings providers see their slice of the market--the more than 40 million uninsured--as big enough for them. Currently, the health-care savings card business has about six serious players, Collins said. "It's an ignored marketplace. Up until this product came along, no one was servicing this market," he said.

Why Now?

The number of uninsured Americans keeps increasing, because rising health-care costs mean employers cannot afford to offer the coverage. Even if an employer offers insurance, the employee may have to forgo the coverage, because the monthly premium is too expensive.

In 2001, about 2 million Americans lost health insurance coverage, according to Covering the Uninsured, a partnership of national organizations, including the U.S. Chamber of Commerce and the AFL-CIO. "This is the most dramatic one-year increase in the number of uninsured Americans in nearly a decade," said Dr. Steven A. Schroeder, president and CEO of the Robert Wood Johnson Foundation, a co-sponsor of the organization.

Health insurance costs will continue to rise. Willis Group Holdings Ltd. recently assessed the employee benefits market and reported that it expects average price increases for health insurance to be 14% through 2002. Mercer Human Resource Consulting testified before Congress this spring that health insurance would rise 12.8% for employees this year, a figure it said is the largest increase in more than a decade. Mercer also predicts double-digit cost increases for another three to five years.

Both state and federal governments are trying to offer some type of coverage for the uninsured. Some states, like Pennsylvania and New York, are using their national tobacco settlement funds to subsidize low-cost basic health insurance plans. However, these plans are targeted to the lower end of the economic spectrum. To be eligible in Pennsylvania, consumers must have an income below 200% of the federal poverty line, a total of about $17,000 for a single adult. On the federal side, President Bush is in favor of allowing citizens to use tax credits to buy health-care coverage.

Two Market Leaders

With the majority of the market share in the health-care savings plan business, Care Entree is positioning itself as a tandem provider of discounted medical services and high-deductible health insurance.

Care Entree is the core product of Precis Inc., a developer and marketer of membership-based programs. In February, Precis founded the Smart-Care Insurance Agency; which is selling high-deductible health insurance policies designed to complement the Care Entree medical discount card. For a combined monthly fee, a family receives a major-medical high-deductible insurance policy and a card that offers discounts on a network of physicians, dentists, prescription drugs, vision-care providers, hearing aids, alternative-medicine practitioners and long-term-care providers. "We're trying to keep the total somewhere around $250 a month for a family. That's $210 for insurance and $40 for the Care Entree card," Collins said. That's $3,000 a year for the Care Entree total package coverage vs. about $6,300, which the National Academy of Sciences reports is the cost of an average unsubsidized health plan for a family.

In addition to its call center, Care Entree has the advantage of being connected with large PPO providers, such as Private Healthcare Systems, that offer the same rates as insurance companies. "Care Entree has access to good rates on hospital stays. Where an average hospital stay can run up to $35,000 a day, Care Entree can locate $1,000-a-day rates," Smith said.

Care Entree also assists members who don't opt for the high-deductible major-medical coverage in locating the lowest rates for hospital procedures. Members notify the plan for precertification, and an appropriate hospital is located. The member is asked to place $1,000 into an escrow account or on a major credit card. "We don't want the message to be you can't afford it--too bad.' We do our best to uncover financial issues up front and resolve them before the procedure," Collins said.

Care Entree is sold through an army of about 18,000 representatives, with about 4,000 also licensed as insurance agents. The group recruits new representatives from the plan's membership.

Collins said the plan is tapping two key markets for membership--employers who don't offer insurance coverage and private-label business. Currently, Care Entree is testing a private-label medical savings card that is being sold through Costco, a national chain of warehouse clubs. If successful, the Costco-branded card will be sold at the 237 warehouses throughout the country, and Care Entree will handle the customer service.

Waicman founded New York-based AllianceMD, the market's second leader, with the dream of helping the uninsured get some type of coverage. "The number of people without health insurance is growing. Because of the cost, insurance is being dropped. Many don't fall into the Medicaid category and can't afford the $7,000 for health insurance. There is a need for someone to help them get coverage for lower prices," Waicman said.

AllianceMD offers programs ranging from a total package that includes physician, dental, prescription and vision service for a $300 annual fee to a $180 physician-only card. Members save about 33% of a doctor's usual and customary fee. Although AllianceMD used to offer payment for hospital stays, it has discontinued that program. "The discount wasn't significant enough," Waicman said.

Waicman is especially proud of AllianceMD's customer-service center, which not only answers providers' and members' questions, but also verifies members' bills to make sure they are being charged the correct amount. Upon visiting a doctor, an AllianceMD member pays a partial payment, the bill is sent to the AllianceMD customer center and verified and the remaining amount is billed to the member.

Lessons for Insurers

Standing as a David to insurers' Goliath, health-care savings plans say their competition can learn valuable lessons from them. Waicman advises insurers to look into offering partial insurance programs. "A partial program is better than nothing. Why not offer coverage at a lower cost?" he said. Collins is more wary. "I'm afraid they will learn about a good business and get into it. Forty-two million people is too big a market to ignore," he said.

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Factors Driving Rising Costs in Health Care (2001-2002)

Rising costs in health care are pushing up health insurance premiums and
forcing more Americans into the ranks of the uninsured.

Litigation & Risk Management       7%
Increased Consumer Demand         15%
Government Mandates & Regulation  15%
Rising Provider Expenses          18%
Drugs, Medical Devices & Other    22%
 Medical Advances
General Inflation                 18%
Other                              5%

Source: PricewaterhouseCoopers, April 2002

Note: Table made from pie chart
Uninsured Americans by Family Employment Status

The total number of uninsured Americans is estimated to be 42.1 million.

Families With at Least 2 Full-Time Workers  15.7%
Families With No Workers                    17.6%
Families With 1 or More Part-Time Workers   11.8%
Families With 1 Full-Time Worker            55.1%

Source: National Academy of Sciences

Note: Table made from pie chart

RELATED ARTICLE: Snapshot of the Uninsured

More than 80% of Americans without health insurance live in a family where at least one person is employed. New immigrants account for fewer than 20% of the uninsured.

People lose coverage usually for one of the following reasons:

* they lose a job where insurance is offered;

* they lose Medicaid eligibility once income increases;

* they lose a spouse due to divorce or death;

* the insurer cancels the policy or goes out of business; or

* the premium becomes too high.

The average time spent without coverage is five to six months.

Residents of the South and West are more likely to be uninsured.

The ratio of uninsured Americans has reached almost one in seven. Since the 1970s, the growth in the cost of health insurance has outpaced the rise in real income, adding about 1 million people to the ranks of the uninsured annually.

Source: National Academy of Sciences