Premium deal, with complications

Like most people, Mary and Paul Blood are always looking for ways to

save money, so when Paul heard a radio ad promising small businesses health insurance at an affordable price, he called to inquire about it.

The inquiry led to a visit by James M. Brown, an insurance agent and a representative of a Texas nonprofit called the National Association for the Self-Employed. Brown said the association's national membership gave it the clout to negotiate low health insurance rates for such people as Paul, who runs his own monument company in Western Massachusetts.

After being repeatedly assured by Brown that they could continue to use their current primary care physicians and be covered for emergency room visits and prescriptions, the Bloods decided to join the association and buy the health insurance it endorsed. Their new premium of $431, even with the cost of the association membership included, was about half as much as the Bloods had been paying. It was so low that Paul told a friend to sign up.

But less than six months later, when Mary Blood was hospitalized with severe gastrointestinal pain, the couple discovered their health insurance was full of holes. Outpatient visits and tests weren't covered; Walgreens wouldn't accept their prescription card; and hospital stays carried a deductible of $1,000 and a paltry $200 cap on daily hospital expenses.

In no time at all, the Bloods ran up nearly $15,000 in uncovered medical expenses. They were fearful their debts would wipe out their savings. Mary Blood's doctor diagnosed her with diverticulitis and recommended bowel surgery, but the association's insurer refused to pay for it, so Mary, at risk to her own health, put off the operation until she had a new health insurance provider.

"The bills just kept coming and coming, and nothing was paid," Mary said. "We were just scared. It kept us awake at night wondering what was going to happen."

The Bloods are not alone. Lured by radio and direct mail ads and signs tacked onto telephone poles, more Americans who work for themselves or don't receive health insurance at work are turning to nonprofit associations for help in purchasing coverage. The associations say they have the expertise to select quality health plans and the membership numbers to negotiate the lowest possible rates.

But many of these associations have turned out to be little more than fronts for the insurance companies with whom they do business. Insurance regulators in many states have received complaints about association health insurance plans that don't deliver what they promise or increase the rates of people who get sick. (The latter is prohibited in Massachusetts. A 1996 law restricts charges and prohibits underwriting based on a customer's medical condition.)

The National Association for the Self-Employed bills itself as "the nation's leading resource for micro-businesses," with its own board of directors, its own agenda, and numerous services catering to small- business owners. One of the more heavily plugged services on its website is an "affordable health insurance" package.

Yet the association has close financial ties and may even be owned or controlled by UICI, a Dallas-based insurance company that operates a number of subsidiaries, including Mega Life and Health Insurance Co., which sold the Bloods their insurance.

UICI's financial statements indicate the publicly held insurance company and the association are financially and administratively intertwined, with the insurance firm's marketing divisions responsible for enrolling new association members. The financial statements say several lawsuits have been filed against UICI alleging that its Mega Life subsidiary and the National Association for the Self-Employed are "under common ownership and control" and that the benefits of a NASE membership are negligible.

Officials at UICI and the National Association for the Self-Employed did not return phone calls. Brown, the agent who contacted the Bloods, has an unlisted number and could not be reached to comment.

Concerned that health insurance policies issued through associations are operating under the regulatory radar, several states have launched investigations and the National Association of Insurance Commissioners is conducting a formal inquiry. Legislation is pending in Congress, however, that would shield association health plans from most state regulations and subject the plans to limited federal oversight.

The Bloods weren't aware of any of these larger issues, but through a friend of their daughter's who also had a run-in with Mega Life they were referred to Alex Sugerman-Brozan, an attorney with Health Law Advocates, a Boston public interest law firm affiliated with the consumer advocacy group Health Care for All.

Sugerman-Brozan filed suit against Mega Life, the National Association for the Self-Employed, and Brown, alleging they violated consumer protection laws by misleading the Bloods about the coverage they were buying.

According to Mary Blood, Mega Life initially denied the charges, saying the Bloods were at fault for not fully reading the coverage book they received after signing up. Blood admits she only scanned the thick book but said she and her husband relied on what Brown had told them.

But more recently Mega Life and the Bloods decided to settle the case, with Mega Life agreeing to pay the Bloods $20,000 to cover their unpaid medical bills and to compensate Mary Blood for her pain and suffering. The company admitted no wrongdoing and refused to alter business methods and other company polices as sought by Sugerman-Brozan.

A spokesman for the Massachusetts Division of Insurance said the agency is investigating six complaints similar to the Bloods' and has launched a formal inquiry of Mega Life and two affiliated companies operating in Massachusetts -- Chesapeake Life and Health and Mid-West National Life of Tennessee. The three companies, all subsidiaries of UICI, have more than 24,000 customers in Massachusetts.

Spokesman Christopher Goetcheus said the insurance division has also revoked the licenses of Brown and Mark M. Kitchell, both of whom represented Mega Life and the National Association for the Self Employed in Massachusetts. Both agents lost their licenses, Brown for failing to disclose a past conviction for Social Security fraud and Kitchell for, among other things, giving incorrect advice to a potential customer.

Mary Blood is glad her ordeal is over, but she is speaking out now so no one else has to go through what she and her husband did.

"I don't want to see some poor family with young children fall into this trap," she said. "I don't want to see anybody else get hurt."

Bruce Mohl can be reached at mohl@globe.com.