Giving employees a choice

`Consumer-driven' health care coverage is gaining in popularity

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When it comes to this fall's open-enrollment period, the watchword is "consumer-driven" health care.

The trend embraces benefit options that allow employees to tailor their insurance coverage: Young, healthy workers may opt for minimal coverage and pay less, for example, while workers with families or chronic conditions may pick another kind of policy and pay more.

In 2006 about a quarter of large employers will offer consumer-driven health plans, said David Stacey, a senior health-care consultant at Lincolnshire, Ill.-based Hewitt Associates. That's up from 5 percent to 15 percent three or four years ago, he said.

"Freedom of choice" among health care providers, "that's what has fueled the market" and its changes in recent years, said Joel Shalowitz, director of the health industry management program at Northwestern University's Kellogg School of Management.

While health maintenance organizations for years have covered employees for less than preferred-provider organizations, which offer broader coverage, HMOs often restrict choices, which has limited their popularity.

`Sea change'

"There's been a complete sea change," said John Goodman, president and founder of the National Center for Policy Analysis, which advocates private alternatives to government regulation and control. It has offices in Dallas and Washington.

Goodman has been an advocate of the now-growing health savings accounts, which are employee-owned. The savings are allowed to accumulate on a tax-free basis to pay for medical expenses and are frequently used with cheaper, high-deductible insurance plans.

He said that 15 years ago companies were uninterested in health savings accounts. "All they wanted to talk about was managed care," he said.

But while managed care generally was cheaper, many employees rejected it, Goodman said, because HMOs restricted choice of doctors and locations.

"They [patients] want to go where they want to go when they want to go," said Shalowitz of Northwestern.

The shift to "consumerism" is a boon for employers anxious to shave benefit costs. Hewitt expects that the cost for employers to cover their workers will increase an average of 9.9 percent in 2006, Stacey said. For consumer-driven plans it will be about 5 percent, he said.

Several options

High-deductible health plans and personal account plans, including health savings accounts and the similar health reimbursement accounts, called HRAs, are a big part of the shift.

Unlike health savings accounts, which can move with an employee if he or she changes jobs, HRAs generally are not portable.

But HRAs can be rolled over from year to year, giving them an advantage over the older flexible savings accounts. Employees also can save on a tax-preferred basis in flexible savings accounts, but those funds typically are lost if not used for medical expenses in a given year.

"Larger employers are generally offering these accounts as an option to a traditional health benefits plan. Smaller employers who are implementing personal accounts are generally offering them as the only option," according to a report from consultants Watson Wyatt Worldwide.

For the estimated 160 million employees and their dependents who receive company-sponsored insurance coverage, weighing these choices during the annual open enrollment period - which also lumps in other benefits like life, dental and disability insurance, as well as 401(k) accounts - can leave them with a king-size headache.

The options can be intimidating: Choices usually are locked in place for the year and even the most careful consumer can get dizzy trying to determine the merits of an HMO versus a PPO, an HSA or an HRA.

"With many employers once again passing rising health care costs to their workers, open enrollment season has become more than simply a process of checking off which benefits employees would like for the following year," said Tom Billet, a senior consultant with Watson Wyatt.

`Uninsured employed'

Some small firms have dispensed with insurance benefits entirely. "Many in the ranks of the uninsured are employed," Shalowitz said.

But that change has not been sudden. Some small businesses continued to offer insurance, but "they were shifting a lot of the cost to employees," he said. As prices continued to rise, they decided they couldn't afford to offer it at all.

According to a report by the Kaiser Family Foundation and Health Research and Educational Trust released last month, just 60 percent of employers offered insurance coverage to their employees in 2005, down from 66 percent in 2003, with small businesses contributing to the bulk of the decline. Most firms with 200 or more workers offered health benefits.

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