Firms Hope Worker-Directed Health Plans Will Curb Rising Costs
Sunday, July 28, 2002; Page H01
By Bill Brubaker
Washington Post Staff Writer
The way some American employers see it, the past two decades of managed health care have not been about limiting employees' choice of doctors, promoting cheaper generic drugs over name-brand medications and forcing patients to jump through hoops to see specialists.
Instead, they say, the managed-care system has trained employees to become a bit complacent -- even frivolous -- about their health-care habits.
Insurance broker John Love couldn't agree more.
Emboldened by their alphabet soup of insurance plans (HMOs, PPOs, POSs), patients march into doctors' offices with nary a thought given to cost, says Love, a vice president at Leesburg-based AH&T Technology Brokers Inc., which sells health-insurance plans to more than 500 employers.
Why worry about price, after all, when a comprehensive physical exam can be yours for a $10 co-payment?
"We shop around for a car, for a house, for anything else," Love said. "But when it comes to health care, are we going to shop for the best price for a reconstructive surgery? Probably not."
But, his thinking goes, if consumers had to pay for doctor visits and prescription drugs and hospital procedures with their own money, things might be different.
And, in fact, things are on the verge of becoming very different indeed.
With health-care costs rising steadily, and premiums jumping 15 percent or more a year, employers such as CVS Corp., Novartis Inc. and Budget Rent a Car Corp. have rolled out consumer-directed plans, hoping to rein in their workers' health-care spending.
"This may wind up being the biggest trend since HMOs," Love said.
The new plans revolve around health-spending accounts offered by employers to their workers.
There are variations on these plans but, in general, employers allocate workers an annual "allowance" -- for example, $2,500 for a family -- to spend on medical expenses.
Employees can draw from this account to pay for the usual office visits, diagnostic tests and prescriptions. But they can also use this money to buy services not covered under traditional managed-care plans, such as laser eye surgery. The plans retain the earmark of traditional systems that offer discounted rates for services provided in a network of doctors and hospitals.
Once employees spend the money in their accounts, they typically must dig into their own pockets until they meet an annual deductible, ranging from a few hundred to a few thousand dollars, before a traditional plan kicks in. A premium is deducted from employees' paychecks to help fund the coverage.
Any allowance money left over can be rolled over to the next year, allowing healthy workers to build, in effect, a personal health-care bank account on which they can draw at will. In a way, choosing such a plan is a worker's bet on staying healthy.
Employers, in turn, hope the deductible will discourage employees from using up their allowance by rushing off to the emergency room with every sprained ankle. In the end, employers hope their own health expenses will be cut, although, experts say, it's far too early to say if that will happen.
"The goal is: If employees think it's their own money they are spending, they are not going to spend it as much," said Paul Fronstin, an analyst with the Employee Benefit Research Institute.
For these plans to really take off, employees will have to change the way they think about health-care spending, experts agree.
"Our main goal is getting people to understand that health care costs more than they think," said Jan Cohen, the top benefits executive of Budget Group Inc., the parent company of the car rental firm.
About 625 of Budget's 5,300 U.S. employees signed up last fall for a consumer-directed plan.
"We are already seeing a change in employee behavior," Cohen said. "One employee I know looked at the cost of his prescriptions and said, 'My gosh, I didn't know it cost this! The next time I go to the doctor, I'm going to ask if there are any generics.' Suddenly he has a stake in the cost of his health care."
Russ Dickhart, who heads the mid-Atlantic region sales force for insurance giant Aetna Inc., said these plans encourage employees to evaluate whether they really need the medical care they are seeking. Employees are aided by Internet health tools and telephone advice lines.
"An employee may decide that because this is going to come out of their fund, perhaps they ought to not make that visit" to the doctor's office, Dickhart said. "Maybe the visit takes place at a later time.
"Or they may use other tools that are available first. They may call a nurse health line to discuss the situation first. Or look up information and research it before they actually go in for a visit. Or maybe they try to make a phone call to the physician first, rather than just go in."
Aetna rolled out its consumer-directed product, known as HealthFund, to its own 32,000 employees in January. The company declined to say how many workers chose this option.
So, did sales director Dickhart, who is married with two children, sign up?
"That's a great question," he said. "I would have signed up personally. But my wife needed a little more time" to decide. He predicted his family eventually will be covered by the HealthFund plan.
Doubling the Rolls
Only a handful of large U.S. employers are offering consumer-directed plans this year. But dozens more, including Toys R Us Inc., Levi Strauss & Co. and Allfirst Financial Inc. in Baltimore, will add them to their employee benefit menus in 2003, more than doubling the number of U.S. workers (estimated to be fewer than 100,000) who are covered this year.
The plans are being pitched to employers by Aetna and other mainstream insurers such as Humana and United Healthcare and by start-ups such as Alexandria-based Lumenos, Minneapolis-based Definity Health and Destiny Health, based in Bethesda.
"Whoever holds the money, writes the rules," a Lumenos brochure is titled. "With Lumenos, you hold the money."
Some experts question, however, whether it's a good idea for employees to write the rules and hold the money, at least when it comes to their own health care.
"My real concern is: There are going to be winners and losers," said Gail Shearer, health policy analyst in the Washington office of Consumers Union.
"The winners are people who are healthy and will always be healthy," said Shearer. "The losers are the people who have chronic conditions who spend that $1,000 in their spending account. They can't build up this savings account for the rainy day when illness hits. Their rainy day has already come and they are facing continuous, high health-care bills."
Some experts also worry that employees may forgo needed medical care once the money in their accounts has been spent.
"Let's say someone has exhausted their account and they are thinking about a therapeutic service," said Bruce Kelley, a senior executive for Watson Wyatt Worldwide, a benefits-consulting firm. "The fact that they would have to pay out of pocket might discourage them."
Executives in the health insurance industry, including some who are selling these plans, caution that many employees may not be ready to manage their own medical expenses.
William McGuire, chairman of United Healthcare Group, said many workers are not "armed with enough information" to decide whether these plans are the right choice.
"Employers are shifting more cost to the employees," he said in an interview last week. "We are telling [employers] to be careful, very careful."
Selling the Concept
Claudia Shainman, 45, manages the government relations office in Washington for the Swiss drug manufacturer Novartis. Last year she found herself quite annoyed with the health insurance plan she had chosen.
The plan, one of several offered to Novartis employees and retirees, required her to get approval from her primary doctor each time she wanted to visit a specialist.
"It was very cumbersome," she said.
This year, Shainman switched to a new Novartis offering -- the health savings plan from Lumenos.
"The new plan is very attractive," she said.
Novartis likes the consumer-directed plan, too. "We're saving money," said Bill Flannery, the company's director of compensation and benefits. "And more savings are expected."
Novartis has a stake in making this concept work: It owns a piece of Lumenos, which was founded in Alexandria in 2000.
The pharmaceutical company began offering the Lumenos plan to its 16,000 U.S. employees this year and its 10,000 U.S. retirees last year. All told, about 2,500 have signed up, Flannery said.
Novartis saved $45 a month last year for each retiree who chose this plan over a more traditional one, he said.
"We're at a point now with consumer-driven health plans where 401(k)s once were," Flannery said. "At one time, no one ever heard about 401(k)s. Now everyone is talking about them. They give employees the freedom to move that money around and manage it."
Beginning in the 1980s, many American companies dropped defined-benefit plans, the kind that guarantee a steady pension, in favor of 401(k)s, which rely more on the workers' own contributions and financial savvy.
For some employees, that wasn't a good thing. The declining stock market has affected pension holdings as well as 401(k)s. But retirees with company pensions will find that their former employers still have to make payments, whereas retirees and current workers with 401(k)s are scrambling on their own.
Similarly, employees with large medical bills and high-deductible consumer-directed plans "could be in for a rude awakening down the road," said Shearer, of Consumers Union.
Shainman, the Novartis office manager, is betting against that.
"I consider myself to be pretty healthy," she said.
She chose her consumer-directed plan after hearing a presentation by Lumenos executives last fall.
"I had never heard of Lumenos," she said. "We listened to the pitch and it was fairly easy to understand. There wasn't a lot of complicated insurance mumbo jumbo."
As a single employee, Shainman has been paying a $46-a-month premium this year, and Novartis has deposited $1,125 into her health savings account.
So far this year, Lumenos has deducted $360 from the account for three doctor visits. That means she has $765 left to spend this year before a $375 deductible -- Lumenos calls it a "bridge" -- kicks in.
After the deductible is met, the plan pays 100 percent of the cost of visits to in-network providers and 70 percent of other providers' bills.
"I went from the most cumbersome plan last year to something that's costing me a little bit more per month but has almost no restrictions to it," Shainman said. "Now I have a freedom of choice I didn't have before."
Most large employers will likely keep traditional plans such as health-maintenance organizations (HMOs) and preferred-provider organizations (PPOs) on their health-benefits menus, experts say.
"The Lumenos plan isn't for everybody," Novartis's Flannery said. "Just as the point of service [POS] plan isn't for everybody. Just as the PPO plan isn't for everybody."
But some small employers have begun to offer consumer-directed plans as their only option.
"With only 10 employees, it's a little difficult to have a lot of options," said Susan Tinucci, co-owner of CF Clark & Associates, a manufacturer's representative in suburban Chicago.
For now, most employers will remain on the sidelines as consumer-directed plans take their first steps into the health insurance marketplace.
Miles S. Snowden, who heads Delta Air Lines Inc.'s health-services department, said these plans don't make financial sense to some large employers such as Delta, which insures 200,000 workers and retirees.
The vast majority of the 200,000 "are in a single health plan," he said at a recent insurance industry conference in Washington. "We leveraged that purchasing power to get extremely competitive [rates]. When we begin to add an additional plan option, we began to dilute our purchasing power."
Even so, Snowden and many other benefits executives are keeping their options open.
"Perhaps this has a place; I'm not really sure yet," said Jim Davis,
of the Washington Metropolitan Area Transit Authority. "I'm watching this
with interest. I'm watching to see whether this is an idea whose time has
come or whether this is just another passing fancy."
© 2002 The Washington Post Company