Health Insurance Poised For Radical Shift

Kimber Dills has suddenly found herself on the front lines of one of the biggest changes in health insurance in years, but that's not where the Nashville human resources director intended to be.

Dills simply was looking for health insurance that her employer and her 160 co-workers could afford when she became the first executive in Tennessee to go with a Health Savings Account insurance plan from BlueCross BlueShield of Tennessee.

It reduced premiums by about 30% in a year when the average U.S. health insurance premium increased more than 11%.

It also has changed the way Dills and her fellow employees at Mental Health Cooperative think about health insurance.

No more co-payments for drugs or doctor visits. A person pays the entire doctor bill and full cost of their prescriptions until they've spent a certain amount, and then insurance coverage kicks in.

How they work

Health savings accounts have two parts. The first part is a high-deductible health insurance policy. The second part is a type of savings or investment account into which a person can deposit pre-tax money and withdraw it tax-free to pay for health care.

While there are many variations, a typical HSA plan might have an insurance policy with a $2,500 deductible for a family. After the deductible is met, the insurance pays 100% of all costs.

The participant also opens a health savings account into which he makes pre-tax contributions, similar to Individual Retirement Accounts.

The participant can withdraw that money to pay for medical needs until the annual deductible has been met.

If the money in the health savings account is not used, it continues to grow year after year tax-free.

And after age 65, the money can be withdrawn for any purpose without penalty, although taxes apply if it is used for non-medical purposes.

Most health savings accounts are set up as money market accounts, earning small interest rates, but as the market develops, other types of investments are possible.

Interest grows

Jim McAlister, regional manager for Rogers Benefit Group, a wholesaler of health insurance, said his office has sold four plans in the Nashville area, but the program is still very new.

''We do have a lot of interest. I've been out on probably 50-plus appointments with agents. The interest is there,'' he said.

The savings in premiums are substantial, running between 25% and 35%, he said. In a typical situation, that can amount to about $60 to $90 in savings per month in premiums for an individual, and anywhere from $200 to $250 a month in savings on a family premium.

McAlister said that when he has sat down with employees and ''penciled'' scenarios, many find that they would save money with less risk exposure through the HSAs

''But it's a huge paradigm shift,'' he said. ''It's going to take a bit of time.''

Comparison shop

The idea is to put people on the front lines of managing their own health-care costs.

Because the money they are spending up front on drugs and on the doctor is their own, the logic is that they will become smarter consumers and shop around for the best prices, said Jason Corley, the agent who sold Dills the BlueCross HSA.

''You turn them into consumers,'' said Corley, managing general agent of The McAlister Group in Franklin.

Some plans are set up using the common preferred provider organization — which means a participant gets a negotiated discount rate at a doctor who is in the PPO network; but outside of the network, participants would be on their own in negotiating a price with the doctor.

Seeing the savings

Switching to an HSA plan at Mental Health Cooperative was almost overwhelming, Dills said.

''It's very scary. I didn't sleep. It was a huge decision. But this was the best thing,'' the human resource manager said.

The cooperative's premiums went down so much that it can afford to make deposits into the health savings accounts set up by its employees. The employees also make deposits into their own accounts, many of them using a payroll deduction as with their 401(k).

Krystina Babb, an employee of the Mental Health Cooperative, expects to come out ahead even though she now has a $1,200 deductible.

Under the old policy she spent more than $1,500 a year on co-payments for prescription drugs alone.

Now she will have to pay the full amount for her medicines, but only until she spends the $1,200 deductible. Then 80% of all costs will be covered by the insurance policy.

In addition to that, Babb said, the amount she pays toward her insurance premium went down by $1,200.

She expects to save hundreds of dollars each year.

''I wasn't the happiest when it was first presented,'' she said, ''but after six months I will have met my deductible,'' and most of her expenses will be covered.

When Babb shopped around for her prescription drugs, she was shocked to find that she had been paying a $10 co-payment for generic medications that really cost just $3 or $4.

Good health pays

Sherrie Jenkins immediately knew an HSA was right for her small company. Her policy has a deductible of $3,800 for single employees and $4,800 for families.

Jenkins, who owns the Supply Room, an office-products supply company that has four employees, was especially attracted by the tax-free savings account.

''If you're healthy and eat right and exercise, you get to keep your money. If you smoke or don't exercise, you'll use that money,'' she said.

Jenkins is the kind of health-care consumer that Brian Shipp is counting on.

Shipp, who is president and chief executive officer of United Healthcare's Tennessee and Arkansas division, thinks HSAs could change the way many Americans purchase health care, since the money they spend, or save, will be their own.

''More consumers will be asking about quality information, outcome information and cost information,'' he said.

Education is key

When consumers buy an HSA from Aetna, they can do their comparison shopping on the company's Web site, said Odie Pansius, the company's top official in Nashville.

The Web site will show what different pharmacies charge for the same drug and how much health-care providers charge for a procedure. Prices will vary depending on the policy the consumer buys. Aetna insures 180,000 people in Tennessee.

''Everyone is asking for as much information as they can get,'' Pansius said. ''It puts more power in the consumer's hand, and that's good for everybody.''

Market acceptance may hinge on the ability of people to understand a very different type of health plan in an era where people have grown up with cheap co-payments for day-to-day care — office visits and drugs.

''The biggest impediment we've seen has been the thinking through of how do I communicate this?'' said McAlister.

As insurance companies develop the product, however, McAlister said he expects videos and other material that will help people understand how it works. And with co-payments rising for doctor visits and drugs, some might find the system refreshingly simple.

''The bottom line for most people is, what is the bottom line? What are the premium savings? And then when I look at those premium savings compared with the plan benefits, does it seem worth it?''

''The whole idea behind HSAs is if you give people an incentive, then they may spend their money more wisely, then everyone saves money,'' he said.