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Insurance Option Has Workers Pay More

May 23, 2005|Ricardo Alonso-Zaldivar | Times Staff Writer

WASHINGTON — For years, they were the kinds of health insurance plans one found at small businesses or among the self-employed, plans that had huge deductibles and required workers to pay a lot of medical bills themselves -- such as allergy shots, chest X-rays and 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 traditional job-related, low-deductible health insurance. And 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.

A number of large employers, including defense contractor Northrop Grumman Corp., the Wendy's hamburger chain, high-tech conglomerate Fujitsu and office supply retailer Staples Inc., are adding what they call consumer-directed health plans to their menus of insurance options.

In a recent survey, 26% of large employers said they would offer such plans in 2006, up from 14% 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.

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 have been requiring workers to pay a larger and larger share of their health insurance premiums. It's not uncommon for higher payroll deductions for healthcare 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, which has led insurers and employers to label the plans "consumer-directed."

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 healthcare 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."

The reason, he said, is that 10% of the people -- the sickest Americans -- account for 70% of total healthcare 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.

"This is a cost shift device, and not a means to fundamentally control healthcare costs."

Moreover, the willingness of workers to sign up for less generous plans may change over time, as workers and their families get older and more likely to encounter serious medical costs.

"To make these plans truly work, they have to work for the sickest population -- it can't be a plan that only works for the healthy," said Joe Walshe, a principal with the consulting firm PricewaterhouseCoopers. "It's very difficult, but that's where the challenge is."

In the meantime, the short-term appeal of high-deductible plans is easy to see. Employees get a bit more take-home pay. Employers get some relief from higher healthcare costs.

For big companies, the new plans represent an upfront savings of about 10% 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 healthcare costs by changing consumers' behavior -- teaching them 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. "People are going to be coming over from companies that have them, and they are going to want them."

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