New health care plans shift responsibility to employees

Gordon Kinne is president of Med-Pay Inc. of Springfield.

In an effort to get a handle on the rising costs of providing health insurance benefits to employees, employers this year will be hit with an array of new buzzwords that define the latest and greatest benefit design options available to them.

What are these buzzwords that define the new plan designs? They are such phrases as "defined contribution plans," "personal care accounts" and "personal spending accounts." They all fall under the guides of some sort of health reimbursement arrangement.

In analyzing our own activity, we found in 1992. that for every covered employee life for which we handled benefits, they incurred less than one claim per month. Ten years later, our 2002 data shows that it's slightly more than two claims per month, thus, the utilization of the health care delivery system has become extremely popular.

Drugs, which once represented 5 percent of most plan costs on our book of business, now close in around 15 percent of plan costs.

While this has occurred, plan costs in general over the last decade have increased up to 400 percent. Those involved are desperate to try and to stem the tide of the ever rising costs.

Health maintenance organizations and other managed care plans were suppose to be the saving grace in reducing health care costs, however, they have not done so. As a matter of fact, most of the plans have started to look very similar to the preferred provider organization plans that preceded them.

So, are the new plans with the fancy buzzwords mentioned at the beginning of this article truly going to help stem the cost of health care? The jury is still out. The purpose of most new health plans is to put more of the cost of the health care coverage on the employee. This compels employees to be more actively involved in the decision-making process of how they will use their health care dollars to access care.

While not all plans are alike, a couple of general rules of thumb exist: The employer offers some front-end benefits that are payable through a health reimbursement account. This account will give the employee and his or her dependents some up-front discretionary dollars to spend on health care.

This amount can range from $500 to a $1,000 per year commitment on the part of the employer. Employers can also design the plan where any unused portions can carry over for subsequent years. From that point on, a catastrophic health care design is put in place.

Instead of the copayment type plan or a low-deductible perfered provider orgnization plan, this catastrophic coverage is in the form of a high major medical deductible ($1,000, $2,500, etc).

Most generally, a PPO network is still in place where the reimbursements are higher if you go in network versus out of network, allowing the plan to access discounts from providers.

The goal here is to make the people that heavily utilize the plan participate more in the cost of the care, while giving everyone some up-front dollars for basic medical care such as wellness.

Essentially, this is just a way of redistributing how benefits are paid out to the employees.

The "defined contribution" term comes from the fact that by implementing this, the employer tries to establish a fixed cost. In many of these plans, the employer only pays a portion of the employee's premium for the catastrophic coverage and, of course, is responsible for the amount they have committed to the spending account.

Any cost that the employee may incur for deductible, co-insurance and premium commitment, can still be run through a Section 125 flexible spending plan.

While this topic is too lengthy to do a thorough discussion in this format, it should be noted that the main goal of these plan designs is to prompt the employee to be a more active participant in purchasing health care.

There are some pitfalls of exposure for the employer in funding the account and identifying the break-even point to determine actual savings.

In other words, if up-front money is given to the employee to access care, how high a major medical deductible plan do you have to purchase to reduce the premium cost to realize savings?

While these new programs have yet to prove that they are going to be cost-effective, you will be hearing a lot about them in the marketplace.