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The Big Health Story in 05: 'Consumer-Driven' Plans

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The Big Health Story in 05:Consumer-Driven Plans


Right now, brokers, insurers and policy experts agree that the big health insurance story in 2005 will be the performance of “consumer-driven” health insurance programs that combine health savings accounts, health reimbursement arrangements or other personal health accounts.

“HSAs may be to 2005 what HMOs were to 1995,” says Thomas Harte, president of Landmark Benefits Inc., Hampstead, N.H.

Congress has enacted a law, the Medicare Prescription Drug, Improvement and Modernization Act of 2003, that will let consumers and employers deduct qualified contributions to and qualified distributions from HSAs.

The Internal Revenue Service has obliged with a series of rulings, regulations and guidances designed to encourage employers and their benefits advisors to jump on in.

Benefits brokers who have tried the concept on clients and at their own firms say they like it.

The account-based plans “are really not that complex,” says Carl Cease, marketing director at The Cason Group, Columbia, S.C., a benefits broker that has established an account-based plan for its employees. “And they do work. Everybodys talking about how much things cost.”

Even when employers end up sticking with conventional plans rather than shifting to account-based plans, “they know they want to hear about them,” Cease says.

Samuel Fleet, president of National Employee Benefit Companies Inc., Warwick, R.I., thinks the announcement that UnitedHealth Group Inc., Minnetonka, Minn., has agreed to pay $300 million for Definity Health Corp., Minneapolis, a pioneer in the account-based health plan market, has given the account-based approach a big boost.

“Its going to become more mainstream,” he says.

For now, growth in account-based plan enrollment seems to be patchy. In Rhode Island, for example, growth is about as strong as Fleet had expected but slower than some HSA and HRA advocates had hoped.

In South Carolina, Cason is seeing “well over half” of its clients choose HSAs, and about 75% of the employers that adopt HSAs are making some contributions to the HSAs, Cease says.

Aetna Inc., Hartford, reported that 1.6% of its 13 million health plan members were enrolled in account-based plans at the end of the third quarter of 2003. The percentage could increase dramatically this year as new coverage contracts take effect.

The Definity deal is giving UnitedHealth a total of about 1.4 million account-based plan members, meaning that about 6% of UnitedHealths health plan members will be account-based.

If the account-based plans do take off, brokers may be in an even better position than before, because most employers need experienced benefits advisors to help them set up the account programs, Harte says.

Servicing established account-based programs takes about as much time as servicing conventional managed care plans, he adds.

One of the open questions is how the plans will handle patients with chronic health problems, such as diabetes. Many of the HSA-based plans are trying to take advantage of IRS guidance that lets HSA-compatible high-deductible plans provide preventive care, such as regular eye exams for diabetics, with no deductible or a low deductible.

Financial services companies have rushed to put together the bank account programs, mutual fund programs and debit card systems necessary to administer the account-based plans.

Some of the companies looking for health account business include the HSA Bank, Howards Grove, Wis.; J.P. Morgan Chase & Company, New York; Mellon Financial Corp., Pittsburgh; Charles Schwab Corp., San Francisco; UMB Financial Corp., Kansas City, Mo.; and Wells Fargo & Company, San Francisco.

One player in the market, Health Savings Administrators L.L.C., Richmond, Va., is offering 15 no-load funds from Vanguard Group Inc., Valley Forge, Pa.

Here are some other health insurance stories that made the news in 2004 and trends that could affect the market this year.

Soaring costs. Many benefits groups and actuarial firms predicted customers would face another year of double-digit price increases, and they were right: The price of commercial coverage was about 10.5% higher in 2004 than it was in 2003, according to the Hay Group Inc., Philadelphia.

Mergers and acquisitions. Anthem Inc., Indianapolis, completed a $16 billion acquisition of WellPoint Health Networks Inc., Thousand Oaks, Calif., that was first announced in 2003.

In addition to announcing the Definity deal, UnitedHealth Group completed a $5 billion acquisition of Oxford Health Plans Inc., Trumbull, Conn.

At press time, PacifiCare Health Systems Inc., Cypress, Calif., was close to completing its $502 million acquisition of American Medical Security Group Inc., Green Bay, Wis., and had just announced plans to acquire the group health operations of Pacific Life Insurance Company, Newport Beach, Calif., for an undisclosed price.

Planned membership shrinkage. Health carriers were more likely to expand membership in 2004 than to cut membership in an effort to focus on more profitable customers. But a few carriers, such as Humana Inc., Louisville, Ky., said they were accepting some losses in enrollment in an effort to increase margins.

Reproduced from National Underwriter Edition, December 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.