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 of Minnesota.

"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 field.

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 market."

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 bypass surgery.

"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 who's not."

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 probably no.

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 go away.

"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