Here Comes Your New Health Plan

THAT CREAKING you hear is the sound of your health-insurance plan getting tighter.

With medical costs rising rapidly again, insurance companies have raised premiums as much as 11% to 15% for 2002. And at least 40% of employers will ask their employees to pick up all or part of that increase, according to a study by consulting firm William M. Mercer.

For now, most of the added costs workers and their families may have to shoulder will come in familiar forms: higher payroll deductions for insurance premiums, increases in deductibles and steeper copayments for doctor visits and prescriptions.

But as burdensome as those increases may be, they could be just the beginning. With annual medical-cost inflation expected to remain in the double digits for at least the next three to five years, insurers and their corporate clients are beginning to consider more aggressive changes in health insurance. The innovation that's generating the most interest in the industry: a new form of coverage called the consumer-driven plan.

To its proponents, these plans represent the Holy Grail of health-care cost containment: Because they give consumers a direct economic interest in keeping their medical expenditures down, advocates say, consumer-driven plans could slash health-care inflation in half. Critics say they're just a disguised way to cut benefits and increase out-of-pocket costs.

Whichever side is right, the debate will only grow louder. Consumer-driven plans, introduced last year, are now being offered to employees at companies like financial-services firm Aon (AOC) and drug maker Pharmacia (PHA). For the time being, they're being provided primarily by niche insurers like Virginia-based Lumenos and Minnesota-based Definity Health. But major insurers such as Aetna (AET) and Humana (HUM) plan to roll out these plans slowly over the next year, and experts predict that most companies will offer such plans to their employees by 2005. On the principle that forewarned is forearmed, here's a guide to these newfangled plans that are coming your way.

The Basics
Under a consumer-driven plan, an employer provides employees with a health-care spending account ranging from $500 to $1,000 for a single person and around $2,000 for a family. Participants are free to use this money at their discretion for all of their medical needs, ranging from an annual physical to an emergency-room visit. Unlike in a health maintenance organization (HMO) or preferred provider organization (PPO), participants are free to see any doctor they choose, including specialists, whenever they like. Any money that isn't spent is rolled over into next year's health-care spending account.

Sounds pretty good. But what happens if you spend all the money in your account? In that case, you're responsible for paying what's called the "bridge" amount. This deductible or out-of-pocket expense can range from $500 all the way up to $3,500 depending on how much an employer wants to spend on premiums, explains Russ Fischer, head of accounts for Aetna's consumer-driven plan HealthFund.

Once the deductible is met, participants revert to more traditional PPO insurance coverage. While plans vary, under Aetna's HealthFund costs are reimbursed at 90% for in-network doctors and 70% out of network.

Proponents claim these plans offer consumers more freedom and less interference by insurers. And more broadly, they say, consumer-driven plans give consumers an incentive to keep costs down, perhaps by negotiating lower fees with their physicians or by insisting on generic prescriptions.

Tom Lerche, a benefits consultant at Aon, jumped at the chance when his employer began offering a consumer-driven plan in 2001. The company provides him with a spending account of $2,500 for his entire family — Tom, his wife and two children ages seven and 16. He admits that in the first year he was more curious than anything else. But he was so pleased with the plan and the freedom it affords his family that he gladly signed up again for 2002. "I figured if I got sick I can go to the Mayo Clinic," he says. "We also had problems with our previous HMO because they didn't pay claims very well. We were ready and willing to try something new."

But some experts say that these policies really amount to traditional high-deductible coverage against medical catastrophe. The employer-provided spending account represents the first chunk of the deductible, and the employee's bridge amount the next chunk. So insurers are providing coverage only after several thousand dollars' worth of expenses. "Are they just sugar-coating a decrease in benefits?" asks Paul Ginsburg, president of the Center for Studying Health System Change, a nonpartisan think tank.

While a $2,500 health-care spending account might sound generous, it wouldn't take much for the Lerche family to deplete that amount and find itself on the hook for the bridge amount of $2,500 in out-of-pocket expenses. Even a relatively mild but persistent illness like asthma or allergies, for example, or the birth of a child (which can easily cost more than $4,500) would do it.

Since very few companies have yet adopted these plans, there are no statistics comparing out-of-pocket expenses for HMOs and PPOs vs. the consumer-driven alternative. Jill Griffiths, a spokesperson for Aetna, concedes that these plans aren't necessarily right for everyone. She says they're designed to complement the other health plans an employer offers its work force.

Taking the Plunge
So how do you know if such a plan is right for you? First, figure out what you spent on health care last year. This includes the premiums deducted from your paycheck each month — which will most likely be higher than the premium under a consumer-driven plan — as well as how much you spent out of pocket. If you're in an HMO or PPO plan under which you paid little or nothing for office visits and other services, you'll need to calculate real dollar equivalents for those services. That probably means calling your physician for fee information.

If it all adds up to less than what your company is offering in its health-care spending account, you may want to consider the plan. Remember, though, to ask yourself if you face any additional medical expenses this year. Illnesses or accidents are usually unforeseeable, of course. But are you expecting a child? Do you anticipate having elective surgery? You must also decide if you can afford to pay the bridge amount in your plan if you end up depleting your spending account.

If you do decide to try out a consumer-driven plan, make sure you get the most out of it. In essence, that means behaving exactly like the cost-averse consumer the insurance industry wants you to be. Each health-care decision now becomes, in part, an economic one: Is it really necessary to visit your doctor for that head cold? Remember, any remaining funds in your spending account can be rolled over to the next year, so if you can put off a few appointments, you'll have that much more to spend in the future. Obviously, any decision to defer treatment should be made carefully. Some plans, such as the one administered by Lumenos, offer a service participants can call for health advice. A nurse on call can evaluate symptoms and help patients determine whether to rush to the doctor or wait a few more days.

One thing to bear in mind: These plans probably aren't for you if you're in awe of your doctor or repelled by the idea of haggling over prices. "Now you have to ask 'How much will this appointment cost?'" says Larry Levitt, a vice president at the Kaiser Family Foundation, a nonprofit health-care philanthropy. If you feel the fee is too high (try asking your insurance company what other physicians in your region charge for the same service) be ready to negotiate. Some physicians may be willing to budge on price if you pay upfront, since they won't have to wait for payment from an insurance company.

Prescription drugs are also an expense you'll have to watch and manage. Ask your doctor if there's a generic version of the same medicine or even an older brand-name drug that's as effective but cheaper. And make sure to use your plan's mail-order drug-benefit program, if it has one, for any medicine you take regularly. Under Lumenos's plan, for example, participants pay $20 for a 90-day supply of any medication. But if they go to their local drugstore they're responsible for 20% of the total cost. Depending on the drug, that could take quite a bite out of your spending account.

For young, healthy employees who find traditional plans too restrictive and bureaucratic, consumer-driven plans may be appealing. But families that face significant medical bills and don't have a lot of financial cushion may want to steer clear. In health care as in everything else, freedom comes with a price