Byline: Bruce Japsen
Rising medical costs are pushing employers to embrace a seeming contradiction: To reduce health insurance costs, let employees decide how much they want to spend on medical care.
The idea is that if employees know they'll personally save money by keeping their medical expenses low, they'll weigh their options more carefully.
It's the latest stage in the evolution of health insurance, which first retreated from fee-for-service health plans in the 1980s and is now inching away from managed-care cost controls that were so popular in the 1990s.
Some employers think that managed-care plans have failed to contain costs because workers have had little reason to shop for better buys as long as their company was picking up the bulk of the tab no matter what the cost. And restricting doctor choices, a feature of HMOs, has only enraged people.
Enter consumer-directed health care, which sets aside a defined amount of money from employers for workers to put toward medical costs. The money is put into a fund to pay for doctor visits and deductibles or co-payments for drugs. Dollars that go unused can be rolled over to the next year.
Although the plans vary widely, they generally work by employers allocating the first $500 to $750 for a single person or first $1,500 for a worker with family coverage. Should the employee exhaust the money in his or her spending account, they would then have to draw out of their own pockets until a deductible is reached. Then, the plans typically have an overlay of traditional health insurance (a PPO or HMO) that would offer discounted rates for services provided in the health plan's network of doctors or hospitals.
Not everyone is a fan of the idea. Some critics fear people will put off going to the doctor if they're inclined to build up their accounts. That could lead to even higher costs.
'Employees are going to be fearful and hoard the money they are given,' said Jim Duffett, executive director of the Illinois consumer group, Campaign for Better Health Care. 'They may not get the preventive services that maybe they did in the past. '
Still, with premiums rising rapidly, some employers are giving the plans a try.
Effective Jan. 1, Logan Aluminum Inc., a Kentucky-based sheet metal manufacturer, is replacing its preferred provider plan with Aetna's Health Fund product. It's making the change after health insurance costs jumped 23.5 percent last year.
'Our costs were a red flag that we needed to do something,' said Howard Leach, manager of human resources for 1,000-employee Logan.
Under Logan's defined benefit plan, a typical employee with a spouse and two children will start with a spending account of $800, which will be given up front effective Jan. 1, 2003. Workers would then have to pay only $1,200 because Logan's plan had 100 percent coverage beyond costs of $2,000.
'We chose this model because we want the employees to think about that first $800 as their own money and to be wise consumers of health care with that first $800 so their out-of-pocket expenses will be minimal,' Leach said.
'The hope is that, when employees go visit the doctor, they are going to be in a position to ask questions about options,' Leach said. 'They will think about: `Where can I get that done at the best possible price?' Maybe that can be done in the doctor's office or maybe the hospital.'
Employers and insurers believe the concept will cause consumers to think twice before running to the doctor's office with a case of common cold.
'If the consumers are engaged more in the purchase of the services, then they will use them more intelligently,' said Bob Brown, vice president of national account sales for Aetna Inc., which began selling its Aetna Health Fund last year. 'Often (health plan) members think the doctors office visit costs only $10, (but) that's just the co-payment. Hopefully, this will have an impact on utilization and consumers will be more educated.'
Among the companies that have signed up to try the new plan next year are Kraft Foods Inc., clothing manufacturer Levi Strauss and benefits firm Hewitt Associates. And with no end in sight to health-care costs rising 13 percent or more annually, employers and benefits analysts say defined contribution plans may be poised to take off in popularity next year.
Insurers hope consumers will be encouraged to shop on price for other medical-care services when they find out a routine checkup will cost them $75 from their personal health fund rather than the $10 co-payment they had been paying.
Among the other insurers selling the consumer-directed plans include Humana, Inc., Destiny Health, First Health Group Corp. and Wellpoint Health Networks Inc.'s Unicare Health Plans of Illinois.
Although it's too early to tell whether these plans will save money, employers believe the new plans will give companies a fighting chance to reduce costs if workers have a financial incentive to at least compare prices from one doctor's office to another.
Insurers say they believe defined contribution plans will become even more popular in the wake of an Internal Revenue Service ruling earlier this year that allows employees to roll over their employer health contributions into future years.
'The IRS ruling should really popularize these plans,' said Kevin Richardson, director of national accounts for Humana. 'What the plans are trying to promote is consumerism. You are going to pay part of the bill, and if you have a catastrophic situation it will be covered.'
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