For years, they were the kinds of health-insurance plans one found at small businesses or among the self-employed: They had huge deductibles...
WASHINGTON — For years, they were the kinds of health-insurance plans one found at small businesses or among the self-employed: They had huge deductibles and required workers to pay a lot of medical bills themselves — everything from allergy shots and chest X-rays to the cost of a new baby.
They weren’t the policies most people preferred, but they were the best some people could afford, better than no insurance at all.
Now, as medical costs keep climbing, those high-deductible plans are spreading to the giant corporations that have long been the backbone of job-related, low-deductible health insurance.
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If the trend continues, it could reshape the medical-insurance landscape and sharply redistribute costs, risks and responsibilities for many of the 160 million Americans with private coverage.
From defense contractor Northrop Grumman to the Wendy’s hamburger chain, from high-tech conglomerate Fujitsu to Staples office supplies, large employers are adding what they call consumer-directed health plans to their menus of insurance options.
In a recent survey, 26 percent of large employers said they would offer such plans in 2006, up from 14 percent this year. Another survey found that about half of large companies were considering adding them.
A few companies are pursuing a “full replacement” strategy that leaves workers with no other choice. But even where such plans are optional, they are proving popular with workers who might once have scorned a plan that could leave them with several thousand dollars in medical bills each year.
At Fujitsu, about half of 5,000 eligible U.S. employees have signed up for the option.
Deductions outpace raises
What suddenly makes such plans attractive to workers is that many are caught in a painful bind:
In recent years, pay increases have been small at best. At the same time, employers are making workers pay a larger and larger share of their insurance premiums. It’s not uncommon for higher payroll deductions for health care to more than offset any pay raises.
With the high-deductible plan, workers pay lower monthly premiums, and their employers commonly help them build up a special savings account to cushion the impact of a larger annual deductible. The accounts are controlled by the employees.
Even if high-deductible plans offer immediate relief for many workers, and big cost savings to employers, the allure may not last. And the plans may do little or nothing to solve the basic problem of soaring health costs.
“You’re beginning to see a lot of growth in these plans, not because they’re going to solve America’s health-care challenge, but because it’s a way for employers to cut their out-of-control benefit costs,” said Robert Laszewski, a consultant to health-insurance companies.
“Any time an employer can raise deductibles from $200 to $1,000, it is going to reduce their costs. But will it reduce U.S. health costs generally? The jury is still really out on that,” he said.
The reason, he said, is that 10 percent of the people — the sickest Americans — account for 70 percent of total health-care costs. “Once the sick people have gone through their deductible, they’re back to a regular health plan; the incentives for them don’t really change,” Laszewski said.
For big companies, the new plans represent an upfront savings of about 10 percent and the expectation of more-gradual cost increases over time.
Last year, large employers spent an average of $5,584 per worker for coverage through a high-deductible plan, compared with $6,181 for a worker in the typical preferred-provider network, according to a Mercer Human Resource Consulting survey.
Employers say the new plans are not designed primarily to shift costs to workers. The ultimate goal, they say, is to cut health-care costs by changing consumer behavior — teaching workers to be more cost-conscious about things such as generic drugs.
“In three to five years, every company is going to offer them,” predicted Alexander Domaszewicz, a Mercer senior consultant based in Newport Beach, Calif.
“Back to the future”
When the city of Las Vegas began offering a consumer-directed plan to 2,200 eligible employees last year, 60 percent signed up.
“When I was growing up in the 1950s, no one had insurance for day-to-day going to the doctor,” said Victoria Robinson, the city’s insurance manager. “You covered those expenses yourself and had major medical if you had to have your appendix out or something like that.
“It’s almost like going back to the future,” she said.
Although workers may think they will face the high deductible only if serious illness strikes, those receiving routine medical care can also face fairly hefty medical bills.
Many of the new plans “confront people with a lot more cost-sharing than they are currently experiencing,” said Sherry Glied, a health-policy professor at Columbia University. “If you are the kind of person who can’t keep $2,000 in an account, it could be a really bad idea for you.”
In Washington, D.C., Republican policy makers have encouraged the trend toward high-deductible insurance plans.
Congress expanded tax-sheltered medical accounts, and renamed them health savings accounts, or HSAs, in the 2003 Medicare prescription-drug bill. A year earlier, the Treasury Department had quietly issued a ruling that enabled employers to offer a plan known as a “health reimbursement arrangement.”
The savings accounts are available to people who buy health coverage with deductibles of at least $1,000 for individuals and $2,000 for families. Employees and employers can make pretax contributions to cover the deductible. The accounts belong to employees, who can take them along when they switch jobs.
With reimbursement accounts, employees don’t own the health-care accounts. They can roll over unused balances at the end of the year, but they cannot take their accounts with them if they switch jobs.
In a typical reimbursement account, an employer would create an account for an employee and family, and commit to cover the first $2,000 of their health-care costs. The employee would then be responsible for the next $1,000.
After that, traditional health coverage would kick in, with the policy paying 90 percent of the costs and the employee 10 percent.
Both the reimbursement and savings accounts have caps on how much an individual can be required to pay in a year. Still, financial incentives can change, especially as individuals realize they need more health care.
“The real concern is that people will want to switch out of these plans when they get sick,” said Glied, the Columbia professor. “Then it will be very expensive for employers.”