|New health care options: Here's the money,
there's the doctor
Millions of workers sift through
benefits packages every year trying to decide just which health
care coverage will best fit their needs. As companies cope with
rising insurance costs, more workers are seeing new options.
These plans go by a variety of names; defined contribution
and consumer driven are the two terms heard most often. Whatever
the label, they share an important feature: Workers will pay more
medical costs than before.
Most commonly, consumer-driven plans combine a high
deductible, at least $1,000 and often $2,000 or more, with an employee
reimbursement account from which medical bills are paid. The specific
account type -- health reimbursement arrangement, medical savings
account or medical expense reimbursement plan -- depends upon company
size and how coverage is structured. The concept may sound familiar,
especially if you've ever participated in a flexible
spending account. But where a FSA is an add-on to your company's
health care program, an MSA, HRA or MERP is your basic medical coverage.
Your account is funded either by your employer or
by regular contributions that come out of your paycheck. Again,
the amounts and payment frequency depend on your plan specifics.
If set up carefully, the account is more than enough to pay for
an annual physical and a couple of visits to the doctor for minor
complaints. But if you have a serious illness, unexpected medical
problems or a chronic condition that requires expensive treatment,
you'll quickly exhaust your reimbursement stash. Then you've got
to come up with the deductible amount.
Say, for example, your company's health plan has a
$1,500 deductible and your HRA holds $750. For the last few years,
that more than covered the kids' preschool exams and treatment of
the occasional sinusitis flare-up. But this summer, your husband
and children got food poisoning at the family reunion. Your medical
account was eaten up faster than Aunt Martha's bad casserole, leaving
you paying additional medical expenses out of your own pocket until
you reach the deductible limit. Your total outlay for the year could
be as much as $2,250.
The good news is once you've exhausted your medical
account and met your coverage's deductible, the plans usually pay
100 percent of care costs. But for many workers, the combined reimbursement
account and deductible costs could be a killer, especially if you
have to come up with it every year.
Insurers and employers like these accounts because
they make workers consider the high cost of health care.
"If I really needed something, having to spend
my own money wouldn't keep me from having it done," says Jo
Ann Robinson, an office administrator whose Indiana employer has
been offering a consumer-driven policy for the last couple of years.
"But it does make you think twice."
Despite the potential for big medical payments, some
employees also find the plans appealing. They often offer more freedom
than managed care in deciding which caregiver to use. Under certain
circumstances, the reimbursement account is a tax-free benefit.
And many companies allow employees to either pocket any excess or
roll it over into next year's account. Where Robinson works, she
says "some people see it as a Christmas bonus. I just look
at it as a little cushion."
Consumer-driven coverage arrives
Company insurance became a common benefit right after World
War II, but this is the first time that overall cost is a factor
employees have to consider, says Steven Parente, assistant professor
of health care management at Carlson School of Management, University
"With these kinds of plans, you watch your Claritin
prescription eat away at your income," he says. "It's
your money, so you're likely to watch it a lot more carefully."
Parente is about to embark on a study of how much
consumers will really pay for health care when these consumer-driven
policies are in place. He's looking at plans offered by Definity
Health, Destiny Health, HealthMarket, Lumenos and Vivius, all relatively
small and new health insurers specializing in this burgeoning insurance
But in certain areas, Blue Cross-Blue Shield, the
big dog in health care insurance, also is getting into the consumer-driven
health business. And as Dr. Joseph Heyman, a trustee of the American
Medical Association and a gynecologist with a practice in Amesbury,
Mass., says, "Where goes Blue Cross, so goes the rest of the
The 29,000 employees at Textron Inc. in Providence,
R.I., are insured under a plan offered by Definity. Textron annually
funds a $1,000 tax-free personal savings plan for each employee,
who then must choose a deductible of $600, $1,000 or $1,500. That
amount determines a worker's monthly premium. For a single person
with a $1,000 deductible, it's about $200 a month.
Definity has negotiated rates with physicians and
hospitals. Employees who choose a physician or health center that
is in the plan are covered 100 percent once they use up their personal
savings plan and cough up the deductible. If they choose to go to
a facility or physician outside the plan, they are only covered
at 70 percent. Anything that's left in a personal savings plan at
the end of the year is rolled over for use next year.
Parente estimates that the Definity plan could be
saving the company as much as 10 percent over more-conventional
health insurance. And because Definity in this case pays the doctor
instead of paying the insured, most covered employees don't feel
the difference as much as they might if they had to pay the doctor
directly and then collect from the insurance company.
Comparative medical shopping
At Robinson's Indiana workplace, the plan is much less structured.
She must submit receipts until she uses up both her
$1,000 savings account and hits the $1,000 deductible. This motivates
Robinson to be both frugal and a careful record keeper. While there
is no restriction on which doctors or health care facilities she
can use, there also are no limits on what the health care givers
can charge. Robinson does her own negotiating.
"The doctor knows that it is coming out of my
pocket, so he charges me a lower amount," Robinson says. "I
call around to get the best price for my prescriptions. If I see
a coupon that says 'Transfer your prescription and get $5 off,'
I do it. I transfer my prescriptions every month. I don't care."
It's possible for these plans to be quite cost-effective
for both the employer and the employee. Jay-K Lumber, a family-owned
company in Utica, N.Y., has been offering a consumer-driven plan
with a $1,000 deductible to its employees for more than 15 years.
Retired company president Kevin Kelly explains that
Jay-K is self-insured and buys a wraparound insurance policy that
pays for any claim greater than $60,000. For most medical circumstances,
the premiums of $10 a week per employee plus the unused savings
accumulated over 15 years cover everything, even though last year
an employee had a liver transplant and this year two employees had
"It works for us, and it works especially well
for people who get very sick," Kelly says. "They have
the freedom to go to whatever doctor or hospital they want and the
bills are paid. There's no song and dance over who's approved and
Supported by the AMA
The American Medical Association endorses these plans and
even has a similar plan of its own that it's promoting. AMA trustee
Heyman says that from a physician's point of view, the best thing
about these plans is "the individual has greater freedom of
choice in treatment alternatives, physicians and other health care
providers, which bodes well for the patient-physician relationship."
Will these policies help solve the problem of the
many unemployed or self-employed who are uninsured? The answer is
While some insurers do offer plans for small business,
they work best for large employers where the risk is spread around.
And none of these companies offer plans through affinity organizations
like Chambers of Commerce. Affinity organizations tend to attract
people to their policies who can't get insurance elsewhere and that
often makes them riskier to insure, explains David Cowles, co-founder
and executive vice president of Benemax, a Massachusetts-based insurer
specializing in consumer-driven policies.
But Benemax does write policies for employers with
as few as three or four employees and is doing well. Cowles says
his company's business has been increasing 35 percent each year
for the last three years, and he believes that this trend won't
"The idea that health care is something that
you can do in your sleep changes with these plans, and some people
don't like them because of that. But like it or not, it gives people
a financial incentive to pay attention, and for that reason, it's
a trend that's gathering speed rapidly."
Jennie L. Phipps is a contributing
editor based in Michigan.
-- Updated: July 29, 2003