Oh, what a relief!
Sunday, June 20, 2004
By Kathleen Longcore and Matt Vandebunte
The Grand Rapids Press
Lots of employers complain about the spiraling cost of health insurance for their employees. Ken Wierenga, owner of West Michigan Piano, did something about it.
Wierenga ditched his company's old health insurance plan and switched his employees to health savings accounts, part of a wave of consumer-driven models that are changing the face of health coverage.
Under the old model, 10 or 15 percent of the people in a health plan spend 90 percent of the dollars. That means everyone paying into a plan is subsidizing those few. And there is no discount for healthy behavior.
Under the new model, his company will save money, and employees will have more control over their health care.
They also will be more conscious of what medical tests and treatments cost because they will be paying for them with money from their own health savings accounts.
The HSA is a tax-deductible savings account earmarked for medical expenses.
It became available Jan. 1 and already is attracting interest from businesses, said Colin Saxton, president of West Michigan Business Group, Inc., a local health insurance agency.
HSAs combine an employee savings account for medical expenses and a comprehensive major-medical plan -- one that pays for the big expenses such as hospitalizations and surgeries.
It is a high deductible plan, which means full coverage doesn't kick in until an individual or a family pays for a set amount of medical costs each year.
The employee, in partnership with an employer, puts money into the account to cover the deductible. There are caps on how much can be deposited per year: $2,600 for singles and $5,150 for families.
Wierenga, 54, said he could not wait any longer for relief.
"Something went crazy in the health-care system. Twelve years ago, the premium for a family plan was $194 a month. Last year, it was $1,100 a month, with half the coverage," Wierenga said.
He could not keep paying double-digit increases in insurance premiums, and several years ago he asked his three employees to start absorbing the increases. So they wanted something cheaper, too.
The new HSA plan went into effect at West Michigan Piano on May 1, so no one knows yet how it will compare with their traditional Blue Cross Blue Shield plan.
However, Wierenga expects to see the company's insurance costs drop by about 40 percent.
"It will give us cost savings. But even more important is that it gets people to be more in control of their health," he said.
Receptive audience
Health savings accounts are the wave of the future, said Saxton. His company already is handling about 800 medical savings accounts, and he predicts they will quickly be replaced by this new model.
"The (HSA) philosophy is going to go big. There's 100 times more interest in HSA's than there was in (medical savings accounts)," Saxton said.
Health Care News reported this month the accounts could become the "dominant form of health-care financing in the next five to 10 years." It also said "analysts project more than 40 million accounts will be established over the next decade."
Corporate interest was evident this spring when about 200 Grand Rapids area business leaders attended a discussion of alternative health coverage hosted by Advantage Benefits Group.
Bob Hughes, president and owner of Advantage Benefits, said at the sessions that affordable $10 co-pays have made it easy for consumers to use expensive services without worrying about the costs.
In fact, higher use of expensive tests and procedures is responsible for 75 percent of the increase in health-care costs, said Paul Brand, president of RealHealth, an alliance of 80 West Michigan employers.
U.S. Rep. Peter Hoekstra, R- Holland, believes HSAs will bring costs down and might be "the last stand against going to national health care," he said.
The current system has "no consumer accountability," with people "ignorant about the health-care costs" they rack up, Hoekstra said.
"It is one of the most compelling issues in Washington today. Many of us believe we are at the crossroads. We need to make a choice (between a consumer-driven system or national health care).
"The more folks we can drive into HSAs, the less strain there will be on the health-care system," he said.
The new HSA is unexplored territory. But initial response shows a growing interest, said Carroll Jenson, director of product development at Fortis Benefits in Grand Rapids.
Before this year, about 25 percent of total business at Fortis came from consumer-driven plans such as the HRA and MSA.
In January, that figure jumped to 40 percent, Jensen said.
Not everyone is cheering for HSAs.
A health plan that rewards people for avoiding medical help worries Kim Horn, president and chief economic officer of Priority Health, a regional insurer that provides coverage to more than 400,000 West Michigan residents in a 32-county area.
Horn agrees the industry practice that has people "carry around a credit card and use (it) without any idea of what we're spending" has to change.
But the savings accounts could present a new set of problems, she said.
One challenge may be informing consumers about the cost of medical care. Another is that people on their own may not have the discounts negotiated by large insurers and HMOs, she said, and may end up paying full retail price.
Horn said, "For the most part, we are passive participants or uninformed demanders," in the world of health care, and only price lists for consumers will change that.
But there is no infrastructure in place to tell them about costs.
Health-savings accounts are here to stay, Brand said, because they will bend a trend that was breaking West Michigan's entrepreneurial spirit.
"When you look at the strength of this community -- the Meijers, the Gordon Foods, the Haworths --- you're looking at people who started their dream business out of their garage," Brand said. "But people who do this now are already $12,000 in the hole for their health insurance."
That is the average yearly premium a small business owner pays for family coverage under a traditional plan, he said.
And those costs have been rising at 15 to 20 percent a year.
The annual increases caught up with Donald and Dottie Dodgson, who employ their 22-year-old son, Ryan, in their family business, Complete Flooring &Interiors.
They just started health savings accounts for the three of them.
"We had a high deductible plan before that didn't cover much," said Donald Dodgson, 48. "But we think this is a win-win. It's tax-deductible, and you can let (the account) build up."
Brand said HSAs will catch on because they give employers and employees "a pocketbook reason to be wiser consumers of health care," he said.
"People are spending their own money. It's an incentive to get off the couch and get healthy," Brand said.
At the same time, employees who are chronically or acutely ill are not harmed under these plans, Brand said.
HSAs differ in important ways from health reimbursement accounts -- HRAs -- and flexible spending accounts -- FSAs.
HRAs belong to the company, but health savings accounts belong to the individual.
Money left in flexible spending accounts at the end of the year goes back to the employer.
But money left in health savings accounts rolls over and keeps earning interest for the individual.
