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Health Care

Across the country, momentum is building toward consumer-directed accounts as a cost-effective alternative to traditional coverage, but opinions differ.

Open-enrollment Season

October 17, 2004|By M. William Salganik | M. William Salganik,SUN STAFF


The solution to escalating health costs is to turn patients into smart shoppers, some believe.

One of those is President Bush. "Health care costs are on the rise because the consumers are not involved in the decision-making process," Bush said during Wednesday's presidential campaign debate. "It's one of the reasons I'm a strong believer in what they call health savings accounts."

Whatever the result of next month's election, momentum is rolling toward consumer-directed health accounts. In the open-enrollment period that thousands of companies are holding this season, many will begin offering health savings accounts - high-deductible insurance linked to tax-sheltered accounts. Less than one-tenth of employers are expected to offer them this year, but the plans are expected to grow substantially in the next few years.

The new option presents the greatest change in health insurance in more than a decade, since health maintenance organizations and similar managed-care plans rose to counter double-digit inflation in health premiums. The recent rise in costs, in spite of managed care, has fueled a search for a new, cost-effective alternative to traditional health coverage.

With millions of patients weighing costs and benefits more shrewdly, the argument for consumer-directed plans goes, the result will be expanded coverage, better health care decisions and downward pressure on the ballooning cost of medical insurance. By giving consumers price and quality information - and a feeling that they're spending their own money - they'll make more cost-effective choices, such as opting for generic over brand-name drugs, supporters say.

But as with HMOs in the early 1990s, the consumer-directed option is generating sharp differences of opinion. Although the plans have been around in various forms for several years, they've been rare enough to generate scant data on whether they will produce the savings that backers predict - or the damage that critics project.

"The consumer-driven health care industry is based on a single principle - to get the employee engaged in the purchase of services," said Doug Kronenberg, chairman of the trade group Consumer Driven Healthcare Association, which represents companies that offer such plans.

Critics counter that consumer-directed care will shift more costs from employer to worker. They also contend that the benefits will go primarily to the healthy, whose accounts will grow in years they don't need much care, and the wealthy, who can benefit most from the tax breaks.

In essence, consumer-driven plans combine two simple and familiar ideas: low-cost, high-deductible insurance and tax-free investment accounts.

High-deductible policies keep premiums lower by making the patient pay for all coverage up to a certain amount before insurance kicks in. For example, a family with a $2,000 deductible, the lowest permitted with an HSA, would pay $2,000 out of pocket in medical costs a year before insurance begins paying.

It's the same principle as a car owner paying lower premiums for a $500 deductible collision policy rather than a $250 deductible version.

One family's switch

Christopher and Sharon Moline switched to a consumer-directed plan two years ago. The Bowie couple had been paying premiums of more than $800 a month, as Chris started a floor-covering business and picked up the full cost of coverage that had been paid by his employer.

In considering whether to switch, Sharon Moline combed through her check register, and figured that deductibles and co-payments for a series of well-baby examinations and immunizations for their three kids had cost them more than $1,000.

With a high-deductible plan, they saw their health premiums cut about in half, to about $400. The savings come not only from their higher deductible, but because their new plan requires information about medical history and can deny coverage to the sick.

With about $400 a month in premium savings, the Molines decided to put $200 each month into their tax-free account. They use the account to pay the out-of-pocket costs with "no co-payments and no surprises," she said.

"We calculated the worst-case scenario, a catastrophic year, and we would still come out paying less out-of-pocket with this plan," Sharon Moline said.

The huge savings were possible because the Molines were switching from employer-provided coverage, which has to be offered to sick as well as healthy people, to an individual policy which can offer lower prices to those with good health records. For HSA-linked employer plans, the savings aren't nearly as much, but can still be substantial.

One employer switching to a consumer-directed plan this fall, Meridian Health, a Central New Jersey nonprofit hospital chain, projects 18 percent savings for each worker who switches, some of which will go back to the worker to help fund the HSA.

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