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Why Gap Insurance Is Making A Comeback

STEVE INSKEEP, HOST:

This next story explores the money some Americans spend while trying to save. To keep health insurance costs down, many people choose health plans with lower monthly payments but higher out-of-pocket costs, like deductibles, which is prompting them to find some way to fill the gap. Bram Sable-Smith from member station KBIA reports.

BRAM SABLE-SMITH, BYLINE: Susannah Lohr is a freelance illustrator in St. Louis. She's 26, which means, for the first time, she had to shop for health insurance.

SUSANNAH LOHR: I basically just wanted some comparable coverage to what I had had through my parents and through jobs.

SABLE-SMITH: She called a major insurer, who offered her plan with a $250 a month premium and a $6,000 deductible. That's the amount you have to pay out-of-pocket before the insurance kicks in. $6,000 was way too much, but they said not to worry because...

LOHR: For an extra $50 a month, I could have coverage for my deductible, which, after I got off the phone with him, I realized that's actually just insurance for my insurance.

SABLE-SMITH: It's called gap insurance, and it helps cover out-of-pocket expenses, like high deductibles. Ryan Hillenbrand is president of the Missouri Association of Health Underwriters. He says, while there's new interest in these plans, they've been around for a while.

RYAN HILLENBRAND: Gap insurance was primarily used for people maybe that didn't even have regular insurance.

SABLE-SMITH: Gap planes usually pay out just a few thousand dollars for something specific, like an unexpected hospital stay or a major illness, so they're relatively inexpensive. And they were a popular alternative to major medical insurance before Obamacare. Then came the health care law's requirement that everyone get major medical insurance, and some predicted gap plans would disappear. But now, the cost of insurance is going up, Hillenbrand says.

HILLENBRAND: And if you don't qualify for a subsidy, you're bearing the brunt of all that cost. So what people often are doing is just ever increasing that deductible. And here comes the gap policies.

SABLE-SMITH: Coupling a gap plan with high deductible insurance can come out cheaper than other alternatives. That's especially attractive to employers, though it requires some explaining to workers. Here's a marketing video one insurance company put together.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED MAN: With the Affordable Care Act, a lot of insurance plans have actually gone up in price. And many companies are forced to choose whether to pass that extra cost onto their employees. Fortunately, your employer found a better solution.

SABLE-SMITH: St. Louis footwear company Diba Imports signed up for gap insurance for all 30 of its employees. Diane Butrus is Diba's COO. She says they used to just pay for everyone's deductibles, but that got too expensive and unpredictable.

DIANE BUTRUS: Some years it'd be $10,000 and some years it would be $25,000. So we had to figure out a way where the company had a more regular monthly payment, but we were still able to help the employees in a certain way.

SABLE-SMITH: But these plans have their downsides, says Deborah Chollet of Mathematica Policy Research, an independent research firm. She says gap plans are not part of the Affordable Care Act, so...

DEBORAH CHOLLET: They can ask you about your health status. They can deny you coverage - all of the kinds of things that the Affordable Care Act prohibits.

SABLE-SMITH: She says, for individuals, you might be better off getting an Obamacare plan through the state exchanges, where about 8 in 10 people qualify for some form of subsidy. That's what illustrator Susannah Lohr ended up doing. After tax credit, her monthly premium is about $200, and her deductible...

LOHR: Is about $600 now.

SABLE-SMITH: Much better than $6,000. For NPR News, I'm Bram Sable-Smith.

INSKEEP: This story is part of a reporting partnership with NPR News, Side Effects Public Media and Kaiser Health News. Transcript provided by NPR, Copyright NPR.