Managed care companies are adding a potentially powerful new ingredient to their formula for success.
They are rolling out "consumer-driven" health savings accounts that, some believe, will help reshape health care coverage in this country. The high-deductible plans, known as HSAs, offer significant tax breaks designed to reward Americans who save for their own health care needs. They also feature low premiums that could prove affordable for millions of Americans now without health insurance.
And they boast President Bush -- who has pledged to revamp the current health care system -- as a major promoter.
"President Bush will continue to push HSAs and believes it will help curb health care spending and provide more health insurance products to stem the rising tide of uninsured," PricewaterhouseCoopers wrote in a recent report. Moreover, "if Congress enacts tax credits for lower-income individuals for purchasing HSAs, proponents say it could cut in half the number of the uninsured."
This year, some health insurers have struggled to grow their traditional business as employers dropped generous health care benefits they can no longer afford. Insurers have also seen price acceleration,which exploded in recent years, come under pressure. Just this week, Mercer revealed that health insurance prices rose by a relatively calm 7.5% in 2004, down from double-digit gains in previous years. It alsopredicted that hikes would again shrink in 2005.
Thus, insurers are welcoming HSAs -- now serving a tiny minority of the population -- as a fresh way to expand. Even companies like
,which already boasts outstanding growth, are celebrating the new opportunity. Insurance giant
has also joined the party.
Recent studies, conducted by Mercer and Hewitt, help explain that enthusiasm. Mercer predicted this spring that HSAs, introduced just a few months earlier through new Medicare reform legislation, "seemed poised to take root quickly," on the basis of feedback from major employers.
*Figures reflect annual change in employer costs for active workers only.
"We're looking at a major market change unlike anything we've seen before," says Linda Havlin, leader of Mercer's health care and group benefits consulting practice for the Midwest.
Mercer's findings indeed reveal plenty.
For starters, employees have already begun asking about HSA plans. More than 20% of employers surveyed said they have fielded inquiries about HSAs from their workers. More than 40% of very large employers said the same.
To be sure, the new HSAs do have their attractions. They allow customers to set aside untaxed income -- and any employer matches -- for future health care needs. That money can be invested to generate tax-free returns and later withdrawn, again with no tax penalties, to cover health care costs. In addition, unlike flexible spending accounts -- which are similar in some respects -- HSAs allow unspent funds to roll over and grow year after year.
Customers use their HSAs to cover out-of-pocket expenses, such as deductibles and copayments, that can total no more than $10,000 annually -- and often less -- per family. They are then covered under more traditional insurance for much of the remaining amount, according to PricewaterhouseCoopers.
HSAs could prove especially appealing to the crowd of Americans who spend a bundle on health care premiums for coverage they rarely even use.
Companies seem increasingly interested in the plans. Already, PricewaterhouseCoopers estimates that the percentage of small employers offering HSAs doubled between 2003 and 2004.
Employers surveyed by Mercer pointed to two major reasons for adopting the plans. They believe that HSAs will "promote employee involvement and accountability in purchasing health care services." And they expect HSAs to help reduce, or at least control, their own health care costs.
Thus, 73% of the nearly 1,000 employers surveyed said they were either somewhat or very likely to begin offering HSAs by 2006. Havlin found it telling that "so many employers -- normally a cautious bunch -- are ready to adopt a new form of health plan so quickly."
Still, those employers may need to find time to educate their workers. Through its own survey, Hewitt determined that 93% of employees would in fact feel comfortable making more health care decisions on their own. However, 79% of the respondents doubt that they can help control their health care costs in the process.
"The good news here is that people are more willing than many of us thought to take a more active, consumer-oriented role in their health care choices," says Jennifer Murphy, health care communication leader for Hewitt. "However, there's a big difference between believing you can be a good consumer and actually being one."
Some believe that consumer-driven plans could actually trigger painful side effects.
For starters, they fear that HSAs will wind up catering primarily to the healthy and wealthy, leaving traditional plans unable to feasibly cover the poor and sick who are left behind. They also worry about HSA customers themselves. They believe that some, faced with spending their own money, will forgo early medical treatments and then face more expensive health problems down the road.
For now, however, HSAs look increasingly popular. This fall, UnitedHealth announced that its new Golden Rule division -- a pioneer in consumer-driven plans -- had seen its sales volume nearly triple in a year. The company said applications for Golden Rule's new HSA alone surged 133% between January and the end of September.
Golden Rule Vice President Andy Grim offered a simple explanation.
"On average, we find Golden Rule's customers saving 45% to 55% on annual insurance premiums alone," Grim said. "Our customers are getting the coverage they need without paying for coverage they don't."
UnitedHealth already boasts 1.3 million users of its first-generation consumer-driven plans. But in August, the company reported a "marked increase" in sales of a new HSA that generates 4% interest. It said the plan would probably attract more than 150,000 new participants by January, and that "interest is still growing."
It also attempted to distinguish itself from other players in the group.
"No other company can offer the full compliment of integrated consumer solutions like what we have developed," said Andy Slavitt, CEO of Consumer Solutions for UnitedHealth. "Our deep experience in this field has given us the ability to combine leading investment options with specially designed health advocacy services, effectively expanding affordable health care solutions to a wider range of consumers."
UnitedHealth describes itself as "one of the largest providers of consumer-driven health plans in the country." The company's stock, long an industry standout, rose 26 cents to $81.98 on Monday.
Two other health insurers -- perhaps best known for their Medicare coverage -- have HSA plans of their own.
recently extended a generous offer to purchase HSA provider American Medical Security Group. When announcing the $502 million deal, Pacificare singled out American Medical's HSA business as particularly attractive.
"The acquisition will add new proprietary products to our arsenal, including health savings accounts," said Pacificare CEO Howard Phanstiel. "And it will help us continue to diversify the company by creating a better balance between our commercial and Medicare business."
Pacificare's stock, which jumped on news of the deal, climbed 13 cents to $46.32 on Monday.
Meanwhile, Humana -- another big Medicare player -- rose 7 cents to $23.34 after the company unveiled its new HSA for individual consumers. The company compared its new HumanaOne plan to its current "smart insurance products" for employers and predicted that it would prove especially attractive to the uninsured. The company intends to follow up by offering a full-fledged HSA for employer groups in 2005.
"We're offering people the opportunity to make wise decisions and ultimately use their healthcare dollars to their best advantage," said Tod Zacharias, vice president of Humana's small-group and individual products segment. "Humana believes that engaging consumers in both the selection and use of their health plan is the best -- and perhaps the only -- way to address the challenge of rising health care costs."