Betting On A Pretty Clean Bill Of Health

With the ever-increasing cost of health insurance, more families are switching to an option that might have seemed unthinkable several years ago: catastrophic coverage. These increasingly popular plans trade gff higher deductibles--from $2,500 to $10,000 and above--for premiums that can be dramatically lower than what you would pay for all-inclusive insurance covering every doctor visit. The insured picks up all medical costs up to the deductible amount.

The advantages are not just in substantial premium savings. "It's a life simplifier," says Robert Hunter, president of the National Insurance Consumer Organization, an Alexandria (Va.) watchdog group. You rid your life of paperwork for routine checkups, nettlesome personal intrusions by the insurance company, and the fear, ever-present in those insured to the hilt, of willy-nilly cancellation.

The gamble, of course, is that by healthy living and good luck you'll come out dollars ahead after subtracting your medical expenses from what you've saved in premiums. For example, say over one year you spend $1,400 for doctor visits, but you save $2,000 in premiums. You're $600 ahead, and that's even before you add in the deductibles you would have swallowed under your old plan.

RETURN TO BASICS. If you take it one step further and set aside the premium savings in an account you can tap for medical bills, you won't get caught short, and you'll earn income on the money. On the downside, you are risking that you and your spouse could each run up $2,500 or more in medical expenses on a $2,500-per-person deductible plan. That would leave you $5,000 down before the insurance company puts out a cent.

In a way, this form of limited self-insurance for individuals is a return to basics. You're protecting your nest egg. "Insurance is a risk-sharing proposition, and what you are insuring for is what can cause you the greatest financial loss," says Ronald Mimick, product manager at Mutual of Omaha Insurance, one of a handful of large insurers offering individual catastrophic plans. "You don't buy it for the doctor visit."

Insurers report brisk demand from healthy middle-aged couples with relatively high incomes whose children have left home. But catastrophic plans also make sense for younger families. Charles Corbiere, a Hackensack (N.J.) restaurateur, figures he has saved some $12,000 over four years by going to a $5,000 deductible, even after averaging $1,500 to $2,000 a year in medical expenses for himself, his wife, and his son. Corbiere spends $1,420 a year in premiums, against the $4,200 he would be paying for a $500-per-person deductible plan. One result of the higher deductible, he says, is that you don't run off to the doctor every time you have a sniffle. You go only when you feel you really need the care.

Picking the right deductible is the toughest part of buying catastrophic insurance. The $2,500 level is popular, but you may want to go much higher if you are relatively liquid and in good health. As a rule, you can expect to halve your premiums by going to $2,500 from $250 or $500. Choose $5,000 and you could pay just 35% of full rate; $10,000 will get you below 30%.

You can also reduce premiums by agreeing to pay half your medical costs for a certain level above the deductible. One plan offered by Principal Mutual Life Insurance has a beginning deductible of $2,500, with the insured assuming 50% of the liability for the second $2,500. This plan saves 65% over the low-deductible policy, vs. a 40% savings with the straight $2,500 plan.

CAUTIONS. Catastrophic policies use the same basic rating criteria--age, health, area of the country--and cover the same major-medical services as do comparable low-deductible plans. The catastrophic plans are generally easier to understand, with fewer loopholes to worry about. But there are some understandable cautions: "Make sure the things you want are covered," such as transplants, warns Rodney Karsten, director of underwriting for Principal. Watch out for small-print zingers, such as one specifying that the deductible is per illness. And look for at least $1 million in coverage. Chances are, only the worst calamity would buck $1 million. But it's just such major misfortunes that insurance is for.

Last, don't expect always to beat the odds. If you run up a huge medical tab one year, don't automatically retreat to a fully loaded low-deductible plan. The savings come over years to smart risk-takers.

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