NU Online News Service, April 26, 4:45 p.m. – HealthMarket Inc. is trying to solve one of the riddles facing the defined-contribution health insurance industry by buying its own fully licensed insurance carrier.

The Norwalk, Conn., company has already received regulatory approval to acquire American Travelers Assurance Company and it hopes to complete the deal May 1.

American Travelers has no operations or book of business, but it does have a license to write insurance in 30 states.

Once HealthMarket owns American Travelers, it will be able to offer high-end consumer health information services, personal employee “care accounts” for everyday medical expenses, and catastrophic health insurance all on its own.

HealthMarket will be one of just a few companies in the defined-contribution health market that’s able to provide the catastrophic coverage.

A traditional insurer has been helping HealthMarket write its coverage up till now, and others definitely seem to be interested in working with defined-contribution health companies, according to Lindsay Resnick, HealthMarket’s chief marketing officer.

But owning an insurance company outright “allows us to control our own destiny,” Resnick says. “It had always been part of the plan.”

In the area of broker compensation, for example, rates and policies might be similar, but HealthMarket should now have more flexibility, Resnick says.

Steve Wiggins, the founder of Oxford Health Plans Inc., Norwalk, Conn., founded HealthMarket in 2000. He intended mainly to set up a company that would provide health care quality and price information through the Web.

The company still prides itself on the extensive provider price information it gives its members, but it began setting up complete defined-contribution health coverage programs in late 2001, Resnick says. The company has tried to set itself apart from many of its competitors by going after small and midsize businesses rather than big businesses.

Today, HealthMarket has about 15,000 defined-contribution plan members and is adding 3,000 per month. Resnick finds that most of the businesses coming to HealthMarket are using its program to replace existing health insurance plans.

HealthMarket, like other defined-contribution health companies, offers a combination of catastrophic health insurance and employer-funded personal care accounts.

Critics worry that the system will punish employees with medical problems and discourage employees from seeking preventive care.

Supporters say the system will give all employees an incentive to be careful health care consumers and allow sick employees the freedom to seek the best possible care, without having to plead for referrals or make their case to medical utilization review services.

Although traditional managed care companies are known for “managing care,” they also help plan members by negotiating prices with the doctors, hospitals and clinics in their networks.

HealthMarket does not use financial incentives or penalties to steer members toward certain providers, but it does offer members discounted network rates negotiated by Private Healthcare Systems, Waltham, Mass., a major network management consortium, Resnick says.

A small health insurer, or a large health insurer with a small presence in a particular market, often has a hard time reminding its providers that they belong to its provider network. But using the PHCS network solves that problem, because the PHCS is so well known, Resnick says.

Another distinguishing feature is the approach HealthMarket uses to run its personal care accounts. For now, the federal tax laws governing employee-controlled care accounts are complicated and unsettled.

To get around those problems, HealthMarket plans keep ownership of the HealthMarket plan personal care accounts, Resnick says.

An employer might contribute $1,000 per account per year, and an employee with no bills can roll the full $1,000 over to the next plan year. But the plan is the true owner of the cash, and employers who leave cannot take the cash with them, Resnick says.