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New Approach to Health Care: Plans With Higher Deductibles and a Savings Account on Rise

Posted on: Wednesday, 31 May 2006, 21:00 CDT

By Katie Merx, Detroit Free Press

May 30--So you thought those $20 doctor's office co-pays and your $250 deductible threw you off budget fast? That was nothing.

Get ready for the world of consumer-directed health care, where you'll pay $1,050 to $5,450 out of pocket before the insurance company pays anything.

Think you don't need to worry about it? Think it doesn't apply to you? Think again.

In Michigan, General Motors Corp., Chrysler Group, Ford Motor Co. and most of the large auto suppliers are among those companies that now offer high-deductible plans paired with health savings accounts -- HSAs -- as an option to their workers.

"If you don't know about HSAs now, you damn well better," said Dr. Joe Fortuna, cochair of the Health Focus Group for Southfield-based automotive trade organization AIAG. "HSAs are going to be the most prominent employer-offered health plan option in five to 10 years."

Fortuna said he believes it will be the only option for many American employees at some point in the near future.

Why? Because the premiums for traditional health insurance keep going up, and by using HSA-linked plans, employers can more precisely budget what their health tabs will be.

With traditional insurance plans, employers are basically giving employees credit cards and paying the bill for them at the end of the month, said Kate Kohn-Parrott, director of integrated health care and disability for the Chrysler Group.

With HSA-linked plans, workers are responsible for the first several thousand dollars of expenses, which makes monthly premiums much lower than with traditional plans, in which insurance companies pay a share of every doctor's office visit or trip to the emergency room.

The result is that employees will foot more of their own health-care tab and are responsible for saving to be able to do that.

Critics say the plans are just another tax-sheltering tool for the healthy and wealthy and are worried it will result in those who aren't wealthy putting off preventive care and ending up in dire straits when they haven't saved enough to pay for unexpected medical needs.

"Employers want to do the right thing by their employees and provide insurance," Fortuna said. But they can't maintain the health-benefit costs that have been rising at double-digit rates for a decade.

So many employers are considering offering the high-deductible health plans and health savings accounts. The U.S. Department of Treasury projects that between 7 million and 21 million Americans will have HSAs in four years.

The good and the bad

In most cases, the employee is responsible for building up savings in the tax-free HSA. But at Chrysler and some other companies, the employers also are contributing to the accounts. In 2006, Chrysler contributed $500 to each individual's HSA and $1,000 to each family's HSA. Chrysler also offers paid coverage for health screenings and annual physicals.

Employees then can use the HSA to pay for medical expenses they incur while they're paying their out-of-pocket expenses before insurance coverage kicks in.

The idea is to keep health insurance premium prices down by encouraging consumers to take more responsibility for their own health spending.

The concept is growing in popularity as employers from GM to Starbucks report they spend more on health care than they do on their main components, be it steel or coffee beans.

Nationwide, 3.2 million Americans -- from corporate employees to the self-employed -- have enrolled in the high-deductible health plans, up from 1 million just a year ago, reports America's Health Insurance Plans.

Dean Thurman, 38, is a financial planner and senior partner at Financial Independence in Bloomfield Hills. He signed up for an HSA-linked health plan as soon as the federal government signed them into law.

"It cut the premium in half and gave me all the coverage I had before plus a tax deduction," said Thurman, who lives in Clarkston with his wife and two children, ages 10 and 8. "The problem with HSAs is you have to be in decent health to get them, and they have the higher deductible."

If a child gets strep throat or someone ends up in the emergency room, the Thurmans are on the hook for the bill.

But Thurman said his family spends about 70% of what they spent on the traditional health insurance they had before and ends up with tax-free savings at the end of the year.

The health insurance industry says it's seeing a rapid adoption rate and expects more employers and individuals to go in that direction.

Proponents say the high-deductible health plans can keep costs down, turn patients into more practical consumers and make health insurance available to more people.

But critics worry that many low- and middle-income individuals have enrolled in high-deductible plans just to benefit from the lower premiums and aren't taking advantage of the health savings accounts that would help them pay for care when they need it.

The average high-deductible premium is $2,270 for a single person, nearly $1,200 less than the average premium with a traditional health plan, according to the Kaiser Family Foundation, a nonprofit that tracks health data. The difference for family policies is even greater, with the average high-deductible premium ringing in at $6,245, nearly $2,000 less than the average traditional health plan premium.

Fortuna said that's a valid concern.

"Employees don't go to the doctor when they don't have paid coverage," he said. But he thinks there's a way to make the plans work. Chrysler's made a good start, he said, by offering paid coverage for health screenings and providing funds to get employees' HSAs started.

A healthy option for healthy people

Tom Rogala, an independent agent at Custom Benefits Solutions in Northville, said the plans make sense for people who have the means and discipline to save. His family and many of his clients pay less than half the cost of traditional insurance for high-deductible plans plus fully funded HSAs. He estimates that 90% of his high-deductible plan enrollees are funding HSAs.

Nationwide, enrollees have opened 820,000 HSAs, and administrators report that they're opening another 60,000 each month, according to Inside Consumer-Directed Care.

But Jason Furman, senior fellow at the Center on Budget and Policy Priorities in Washington, D.C., said the people most likely to use and benefit from HSAs are affluent people interested in another way to shelter income from taxes.

"It's just not going to help most families pay for their health care," Furman said.

A family with an annual income of $30,000, two children, rent or a mortgage payment and at least one car, for instance, is very unlikely to have an extra $5,450 to put into savings, he said.

But for someone with an income of $100,000, it's another venue for setting aside tax-free income, Furman said.

Rogala said that's what his single, healthy brother is doing.

"My brother is an eye doctor," he said. "He pays his claims out-of-pocket so he can roll over the HSA savings for retirement.

"Who likes this?" Rogala asked. "Anybody healthy. Who doesn't like it? Anybody who's not healthy."

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Copyright (c) 2006, Detroit Free Press

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Source: Detroit Free Press

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