Hard dose of reality
Paula Bustinger had been happy with her family health care plan, a PPO or Preferred Provider Organization, offered through her employer, Alcoa.
Despite the PPO plan's zero deductible -- which means it pays for all medical expenses -- she jumped when Alcoa offered something different among its numerous employee health care plans for 2004.
Her new plan carried a $3,000 deductible, which means the first $3,000 in expenses aren't covered. But the plan had other features, mainly a Health Reimbursement Arrangement -- or HRA -- that was funded by Alcoa with $1,250 in tax-free dollars for use in covering some of those out-of-pocket medical expenses. Bustinger also elected to add a Flexible Spending Account, funded with a tax-free percentage of her wages. That account gave the wife and mother of two nearly enough to meet the deductible, which required dipping into the HRA from Alcoa only "a bit."
The advantage was the difference in premiums Bustinger paid for the two plans. With the new plan, her premium payment actually dropped a whopping $180 per month.
After years of trying -- and failing -- to check runaway health care costs by controlling treatment providers, employers are beginning to eye consumers as the vehicle to slow down yearly, double-digit increases.
Rather than mandating the use of primary care physician-gatekeepers, referrals to specialists and specific provider "networks" to curb medical visits, the hottest concept in health care today is getting the consumer more involved in the process.
Employers reason that if employees are made more aware of just what health care costs -- and are forced to pay more of that cost -- they will take a more active role in where they seek care, what direction treatment takes and what procedures are warranted.
This attempt to control the demand side of health care is known by many names: consumer-driven health care, employee-driven health care, consumerism. However, critics call it defined contribution health care, "rip-off" and "cost-shifting."
"The potential is there with defined contribution health care to fragment our health care system," said Gail Shearer, director of health policy analysis in the Washington, D.C., office of Consumers Union.
Proponents say because nothing has worked to hold down health care price increases for longer than a few years, the only avenue left is to get the final user more involved by prescribing a strong dose of reality.
"When the employee knows the true cost of health care, they will be more cost-conscious," said Dan O'Malley, a principle in the Pittsburgh office of the consulting firm Towers Perrin. "Cost-sharing can involve higher premiums, deductibles and co-pays."
Even proponents of the new plans admit employees could suffer a bad case of sticker shock when confronted with high deductibles.
"The overriding disadvantage to these plans is you're giving more choice but making the person pay more," said Thomas Rice, professor of health services at the UCLA School of Public Health. "Some people feel these plans are more employer- and insurance company-driven than employee-driven, and a number of employee surveys find they don't like it."
While employees may not be totally in control of how their health care is delivered, there is little doubt they will be on the hook for more of the cost. Consumer-driven health care plans are complicated and can involve a myriad of different components, but the basic model includes some form of a savings account tied to a high-deductible health plan.
Bustinger is given $1,250 per year by Alcoa in a HRA, and her annual deductible is $3,000. The $1,750 difference, known as the "gap," comes out of her pocket, via the flexible spending account. The gap is the reason why employee-driven health care proponents believe these plans have a chance of slowing overall health care costs to a fast crawl.
"Look at the studies. Fifty percent of health care status is determined by a person's behavior," said Tom Tomczyk, a health care consultant in the Pittsburgh office of Mercer. "You're getting people to change the way they use health care while giving them the opportunity to find the highest quality health care."
One of employee-driven health care's strong points is that it can be designed in a number of ways. Preventive care can be covered 100 percent by the employer and not count toward the savings account. Coverage of chronic illnesses, likewise, can be factored out and covered separately, without draining the savings account.
Alcoa spent $800 million on employee and retiree health care in 2004. Getting employees to share the pain of what has been double-digit cost increases since the turn of the century has worked well, Alcoa representatives said.
"One of the reasons we started our Select Benefits program was to give a quality bone to employees and balance that with the unbelievable skyrocketing costs of health care," said Alcoa spokesman Kevin Lowery. "We wanted our employees more involved, to make a more informed decision about health care. I think everybody recognizes that health care cost is out of hand."
Small businesses are expected to embrace employee-driven health care, particularly because the region's dominant insurer, Highmark, now offers such plans. And last year, Congress authorized so-called Health Savings Accounts, or HSAs, that accumulate funds contributed by employers, employees or both on a tax-free basis to pay for certain medical expenses. Called an IRA for medical expenses, funds within the HSA can be invested in a myriad of products, with the account accessible by debit card.
"We see a great amount of local interest (in employee-driven plans) with small business," said Cliff Shannon, president of SMC Business Councils, which represents 5,000 small and medium sized businesses in the state. "We're even getting some interest from companies with one, two, three or four employees."
"We've had pretty good response from companies with our employee-driven products," said Kim Bellard, Highmark's vice president of eMarketing. "We have a couple hundred accounts offering the plans. The vast majority are small employees with under 50 employees."
While employee-driven accounts offer a lot of potential, no one expects them to be the "silver bullet" to end rampant health care cost increases.
"I am reserving my judgment on employee-driven plans," said Jere Cowden, president of Pittsburgh-based consulting firm Cowden Associates Inc. "If it is done right, it has a chance of succeeding in holding down costs. If it is done wrong, inadvertently designed in the short- and medium-term to cost more that what is now offered, it will blow-up."