November 30, 2004

UnitedHealth Shifts Its Workers to High-Deductible Plans

The aim is to prevent overuse of health services, but one analyst says it could increase the burden on the sick and the poor.

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UnitedHealth Group, the nation's largest insurer, is replacing traditional health insurance for its 38,000 eligible employees next year with "high deductible" plans that generally require people who use more health services to pay more.

The changeover, effective Jan. 1, is an aggressive move by the parent of UnitedHealthcare of New England to force change among its own ranks, and one that industry experts say could embolden other big employers to do the same.

The new health plans for United's 38,000 covered employees - including about 200 in Rhode Island -- aim to reduce unnecessary use of health services by making consumers responsible for paying more of the up-front costs, said UnitedHealthcare spokeswoman Deborah Spano.

United employees will be allowed to choose between one of three high-deductible plans, Spano said. Each plan will come with either a Health Reimbursement Account or a Health Savings Account, tax- advantaged accounts employees can use to help pay their medical expenses. (Health Reimbursement Accounts are financed entirely by the employer; Health Savings Accounts can be financed by the employee as well as the employer.)

"It's all about engaging the consumer to take a look at what their services are and figure out what they need," Spano said. "We all can't have everything. Do they need chiropractic visits? Or do they need a visit to the eye doctor? Those are decisions people have to make for their own care."

United has declined to disclose how much money the company will contribute to the accounts or the size of the deductibles.

The push for "consumer-directed" health plans represents a small but significant shift in the industry's approach to health coverage. Traditional health insurance is designed, in part, to reduce the expense of covering the sickest people by spreading the cost among a larger, healthier population. The high-deductible plans, by contrast, aim to discourage overuse of health services by shifting more of the costs to the biggest users -- including those who are the sickest.

"There's nothing in the world wrong" with creating financial incentives to encourage more "judicious" use of health services, said Alwyn Cassil, a spokeswoman for the Washington-based Center for Studying Health System Change, an organization financed by the Robert Wood Johnson Foundation. "But the way it's done, it's a pretty crude tool."

The problem, Cassil said, is that the approach penalizes both people who overuse health services and those who are sicker and need more care.

"If you're young and healthy . . . it's a good investment for you," Cassil said. "The downside is that low-income people and people who are sick will be at greater risk for higher costs."

A national study of medical spending data shows that 10 percent of the population accounts for roughly 70 percent of all health- care spending, Cassil said.

Employers nationally have been slow to embrace the high- deductible plans. Less than 1 percent of people who get their insurance through an employer are enrolled in these consumer- directed plans, Cassil said. Yet several major insurance companies, including Aetna, now offer them as an option.

"I think it'll be a hard sell to employees," said Shellie Stoddard, a credit analyst who covers United for Standard & Poor's Ratings Group in New York. "Is it going to save [United] a ton of money? It depends on how much they contribute to the health savings account or health reimbursement account to offset the savings in medical costs."

United also has been pushing the plans with its customers. A study United conducted of its customers in the high-deductible plans showed their costs rose just 2 percent, Spano said, compared with double-digit increases in the traditional plans.

As of Jan. 1, United will have 145 customers -- most of them companies with 5,000 or more employees -- enrolled in high- deductible plans, either in place of traditional coverage or as an option, Spano said.

Lynn Arditi can be reached at 277-7335 or by e-mail at [email protected]