Consumer-driven health care
by Cape Business staffYou really want to give your employees health insurance. You worry that they could leave you for a business that does. But you simply do not have the money to pay for it. And now, you learn that the governor and state Legislature might penalize you in the future if you don’t provide coverage.
The squeeze is on in 2005.
Do not despair, however. There may be a fix within reach. A panacea it’s not, but with few affordable options on the horizon, it just may offer small businesses a partial solution – not only for employees, but for owners as well.
President Bush calls it part of the “ownership” economy. Others use the slogan, “consumer-driven health care.” Politics aside, it is a way to pay for your health insurance much the way that IRAs and 401k plans now finance your retirement. And just as pension plans are disappearing as a retirement option, many policymakers and insurance experts believe traditional insurance plans will give way to health savings accounts, or HSAs, within the next five to 10 years.
HSAs are tax-free accounts offered along with low-cost, high-deductible insurance plans. Either you or your employer, or both, place a certain amount of money into the account annually, and you can spend the money essentially for any health treatment or medication you wish. Whatever you don’t spend each year, you keep. That is much different than Flexible Spending Accounts that require you to use up all your contribution each year, or lose it.
Another option is the Health Reimbursement Account, or HRA. A few years older than HSAs, they also are paired with high deductible insurance, but coverage tends to be more comprehensive, especially for chronic conditions like diabetes. Unlike an HSA, workers do not get to contribute to an HRA and they can’t take the money with them if they quit or get fired.
Despite being around for several years, adoption of both plans has been slow. Until now, said James Brogan, an insurance consultant who recently talked to the Cape Cod Human Resource Association.
A recent survey nationally supports his contention. It indicates that health savings accounts may be about to pick up steam. Roughly 438,000 people nationwide took out these “consumer-directed” plans as of last September, according to a survey by America’s Health Insurance Plans.
The trade group’s chief executive said she expected that number to climb dramatically as more and more insurance companies offer these policies, which are 15 percent to 20 percent cheaper than traditional plans.
Of the 75 insurance companies that offer these policies, nine are in Massachusetts, including Blue Cross/Blue Shield, Harvard Pilgrim and Tufts Health Plan.
Chris Murphy, spokesman for the Blues, said that so far “people here are used to their HMOs.” Yet many state health care experts believe it is only a matter of time before momentum reaches critical mass.
“One way to control cost is to change demand,” said Harvard Business School professor Regina Herzlinger, a nationally recognized health care specialist. “What you really need to do is to make the employee aware of the cost at the point of health care.”
“The most recent saviors, HMOs, have been unable to stem double-digit rate increases after initial success,” said Brogan. “Massachusetts has three of the best ones in the country – Tufts, Harvard Pilgrim and Blue Cross/Blue Shield – but now the system is falling apart as it looks at 10 percent to 15 percent increases over the last four or five years, with no end in sight.” That is because the state’s population, already one of the oldest in the nation, is growing even older; technology is being overused to avoid malpractice suits; and insurance to protect against malpractice has become onerous, said Brogan.
At the heart of these consumer-driven plans is affordability. Employers and employees pay smaller premiums than they do for traditional plans and HMOs because the deductibles are higher.
Here is how a typical HSA works: You take pretax money out of your paycheck and deposit it into the health account, much as you would deduct money for your 401k. To qualify, however, you must have a health insurance policy with a relatively steep deductible – at least $1,000 for an individual and $2,000 for a family.
Over a single year, you – and your employer if he or she wishes – can contribute up to $2,600 as an individual and $5,150 as a family. That money can be withdrawn to pay for future medical expenses, if necessary. Otherwise, it carries over to future years, accruing interest based on your investment choice. You can take the account with you if and when you leave your job, much as you can roll over your 401k account.
The older and slightly more popular HRAs also provide lower premiums for employers because of the higher deductibles. The difference: Employees do not get to put their own money into the account or choose how the money is invested. Nor do they have the freedom to take the account with them if they leave, unless their boss lets them.
There is an irony to the new consumer-driven plans. They shift the cost burden to the employer and employee, yet they promise to cut the overall cost of insurance to the same two parties, in some cases making it affordable for the first time.
“Ask someone how much it costs them to go to the doctor,” said Brogan, “and the answer you will get most often is $10 or $20. That’s funny, but real. We don’t really have any idea because we don’t need to ask. We have no incentive to ask. The doctor probably doesn’t even know.”
The HRA or HSA force both employee and employer to put their money on the table.
Brogan paints this scenario: “You go into the doctor with a pain in the neck. The doctor says, ‘You can do X. It’s your dollar.’ This will lead to a next question: Is there an alternative?
“When you buy a car or refrigerator, you don’t go into the store and buy the first one the salesman shows you. You go to multiple stores or dealerships, or you research prices on the Internet and then bring them to the dealer,” he said. “We are getting to the point where we can go [online] to WebMD to find out more about our treatment options and take greater responsibility.”
Of course, a treatment plan for an enlarged gall bladder is not the same as a microwave oven.
Suppose people die because they didn’t pursue the best care in the cause of savings?
“My first reaction is that this won’t happen,” Brogan said. “If you don’t feel well, you will pursue care. The issue is one of treatment options. Do I have options among A, B, C and D and what does each option cost? The new approaches are designed to get people not to have the 13th test because of a malpractice threat hovering over a prescribing physician.”
As evidence these plans can work, advocates point to the field of cosmetic surgery, where patients tend to spend their own money and shop for the best care at the lowest price. As a result, the average price of a tummy tuck has risen 19 percent in the last six years, slightly faster than inflation. By contrast, per capita spending on health care overall has increased 49 percent.
One reason these consumer-driven plans have been slow to take root is the concern they simply are a way for big companies to shift the cost of insurance toward workers. But Cape Cod is different because the landscape is dominated by small businesses and independent contractors who have not been able to offer traditional or HMO coverage in the first place.
With HSAs or HRAs, a lower premium may be the trigger an employer needs to offer up insurance. And if an employee can also cut his share of the premium while diverting money into a pre-tax savings account, he or she may be less inclined to abuse the benefit – thus keeping future benefits lower.
“An HRA in particular is a very intriguing option for a one-employee firm,” said Brogan. “It becomes the owner’s contribution. Instead of a $1,000 premium every month for an HMO or traditional policy, the payment may come to only $700 or $800. The extra $200 or $300 accumulates at a pace of $2,400 to $3,600 each year. You don’t give it all to the insurance company and you can self-fund your insurance, saving what you don’t spend if you stay healthy.”
Another incentive for small businesses: little, if any, administrative hassle. As the accounts grow in popularity, companies are beginning to offer up debit cards.
The system works like this: An employer sets up a separate account with a debit card company, which distributes cards to each employee. Every month, the debit-card company mails out a statement to the employer instructing how much money to deposit based on medical expenses up to the full deductible.
Companies like Choice Care Card, Value America and Benicard have entered the market, with many banks not far behind. “Now, some companies are even coming up with a rewards card for employees who work to prevent illnesses,” explained Brogan. “You can get rewards for joining a health club or Weight Watchers.
“At first, you say, ‘That’s insane.’ But they are in the HSA business trying to change behavior and making it fun at the same time,” he said. Choice Cards has been doing just than in South Africa for a decade. By offering rewards, the company hopes to get the attention of employees and employers maybe reluctant to enter a brave new world.
