Malpractice and Best Practice

The defined-contribution approach makes its way to health-care plans. But will it put employees at risk?

For Jim Hauseman, it was one premium hike too many.

In April, InSport International, a privately held distributor of athletic clothing, received a renewal offer for the company’s health-maintenance-organization (HMO) coverage. Hauseman, CFO at InSport, says that the provider, Regence BlueCross BlueShield of Oregon, informed the company that it was seeking a 13 percent increase in plan premiums.

Since double-digit increases in health-benefit plans had been widely predicted, the 13 percent markup didn’t come as much of a shock, recalls Hauseman. Certainly, Regence’s offer looked pretty good next to the 80 percent hike that at least one other insurer requested.

But the Blues rate hike was the third increase in four years, with each one prompting InSport to change its employee health plan. In 1997, a 30 percent rise in premiums for its indemnity policy forced the company to switch to a cheaper, preferred-provider-organization (PPO) plan. But in 2000, Regence felt the PPO coverage merited a 30 percent price bump-up in rates. So, InSport migrated to HMO coverage, and a gentler 8 percent bump-up.

But while InSport’s health-benefit premiums were skyrocketing, the company’s sales remained flat. (See “Benchmarking Your Doctor Bills.)” Meanwhile, employees began grumbling about the ever-narrowing choice of doctors and hospitals that came with each change in medical plans.

Faced with shrinking provider lists — and mushrooming premiums — managers at the Beaverton, Oregon-based company began to seek out alternatives. After several months of searching, the company finally settled on a defined-contribution (DC) health plan put together by MyHealthBank, a Portland-based benefits-services company. (Regence remains the insurer.)

Also known as “consumer-driven” or “self-directed” approaches, DC medical plans represent the latest attempt by companies to get workers to spend less on health care, and hence, help employers hold the line on costs. In contrast to traditional plans, in which employers dole out a percentage of the premium regardless of increases, DC plans typically require sponsors to contribute fixed dollar amounts each month into employee health-benefit accounts. Workers can then choose how the money is spent, with unused dollars often staying in their accounts from year to year. In that way, DC medical plans are similar to medical savings accounts for individuals. (While InSport’s plan doesn’t yet have a provision enabling employees to retain plain dollars from year to year, it will probably will have one eventually, says Hauseman.)

Under InSport’s new plan, the company pays $237 a month for medical and dental coverage for each of its 36 employees. Workers can choose among three plans: an HMO, which costs the full amount and carries a $10 copayment provision but no deductible; a PPO, costing $230 a month but carrying a deductible; or indemnity coverage, for $250, with the employee paying the extra $13. Family coverage is available for roughly double those amounts, with workers picking up the difference.

Hauseman says he’s relieved not to be getting an earful from workers about the lack of providers in the plans. Employees now grasp that “they have to deal with the choice of plans,” he says. The CFO admits that the financial gains of the new plan have so far been hypothetical. After all, the HMO coverage offered under the DC plan costs the same as it would have if it were offered alone.

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