Dawn of the Jumbo Deductible

New health-care plans for workers feature more choices, more self-insuring.

It’s payback time for employees. Or at least, that’s what executives at managed-care companies appear to be thinking.

Caught between double-digit increases in the cost of medical care — and employer carping over premium hikes — commercial health insurers have started to push some of the costs back onto workers. The switch in strategy can be seen in the growing number of “consumer-driven” health-benefit products now being brought to market by insurers. Such plans offer employees more choices — but also expose them to more risk.

Initially, the consumer-driven products were the province of lesser-known benefits services providers such as Definity Health, MyHealthBank, and Lumenos. But consumer-driven health-care plans are now being trotted out by industry giants like Humana and WellPoint.

The entrance of the big players is not overly surprising. During the economic expansion of the late ’90s, managed-care providers began losing the ability to to keep medical costs in check. The reason? Employers, seeking to retain talented workers, pressed insurers to enrich their offerings by opening up their networks to more doctors. That, in turn, diluted the negotiating power of the insurers.

To maintain their margins, insurers recently began hiking premiums — sometimes as much as 15 percent. And at the moment, managed-care companies are feasting on those premium hikes. Humana’s medical costs on its commercial business have risen between 9 percent and 10 percent for the first three quarters of 2001. But James Bloem, the company’s CFO, has been boosting pricing on the company’s benefit products based on the assumption that costs will rise 10 percent to 12 percent.

That formula helped produce a 30 percent jump in Humana’s third-quarter net income. Similarly, other managed-care providers, including WellPoint Health Networks and PacificCare Health Systems, recorded boosts of more than 20 percent in their operating profits through Q3.

But a day of reckoning my soon be at hand. Layoffs are diminishing the numbers of health-care plan enrollees. Meanwhile, employers hit hard by the downturn are screaming bloody murder about their benefit outlays (see our special report “Controlling Health-Care Costs“). Maintaining profits under such conditions is “a big challenge to anybody in my position,” concedes Bloem.

A Plug for Oatmeal

Enter the new consumerism. Humana, for one, is experimenting with plan designs that push employees to choose higher deductibles, providing them with plenty of online information to aid their choice.

Asking employees to assume more cost risk helps carriers deal with their own expense pressures. At the same time, by supplying a broader menu of coverage options, the new plans provide the element of choice insurers say employees crave. And since the choices tend to vary in their cost to employees, the plans provide an incentive to workers to be alert to what they spend on doctors and drugs.

Indeed, the Humana CFO believes the absence of true consumerism is the fatal flaw in the health-care payment system. He thinks employees are too insulated from the effects of their medical buying habits. “There’s not enough tension in the line,” Bloem insists.


Your email address will not be published. Required fields are marked *