Are HSAs the answer? President Bush's proposals make health savings accounts more attractive.

IN THE LAST FEW YEARS, employers and health plans have been slowly but steadily moving toward so-called consumer-directed health plans, or CDHPs. They include health savings accounts and health reimbursement accounts, HSAs and HRAs.

Both types are designed around a cheaper-to-buy high-deductible health plan, coupled with an account from which deductibles and first-dollar coverage is paid. And both depend on a more informed consumer making smarter health-care decisions, usually through access to a health plan's Web-site resources.

Expanding HSAs was the main focus of the president's health-care initiative in the January State of the Union address. He reported that 3 million Americans have signed up for HSAs since the legislation was passed in December 2003, with 14 million projected by 2010. Enactment of his new legislative proposals would further increase that amount by 50 percent, to 21 million.

Proposals include eliminating all taxes on out-of-pocket spending through HSAs, not just the deductible amount as in current law, and making them portable. Employees could take the insurance plan with them when they change jobs, move, become self-employed or leave the labor force. "Americans should not have to worry about changing doctors," says the president's plan, "learning a new insurance company bureaucracy, having their premiums go up if a family member is sick, losing their insurance tax advantage when leaving employment-based plans, or being subject to more costly mandates. The lack of portability can lead to job lock' in which workers are hesitant to leave their job if anyone in the family is in less-than-perfect health."

Just how will that work? Insurance is based on an individual company's risk, says Rob Hillman, vice president of large group sales for Anthem Blue Cross and Blue Shield of Indiana. "It would be difficult for an individual to be able to carry the HSA group policy to another company and fold it into another company's policy." It might become similar to COBRA, he says, where you keep your former group coverage, but once you're eligible, you go with the new employer. Current HIPAA law was intended to prevent job lock by waiving preexisting condition requirements, he adds.

Allan Hubbard, Indianapolis businessman and now assistant to the president for economic policy and director of the National Economic Council, fielded questions on the specifics of the president's proposal the day after the State of the Union. Regarding portability, he said federal officials are talking about making it optional for insurance companies and for employers. "But the way it would work would be for a portable HSA insurance policy to be ERISA-based, so it would not be tied to any particular state, which would allow someone to leave his or her employer, take that policy with him or her, and know that it would not be underwritten for health reasons. So you can keep that policy with you as long as you want it. And you can take it anywhere in the country."

Within Anthem, HSAs are most popular with two to 50- or two to 100-employee small groups, says Hillman; larger employers are more interested in HRAs. In those plans, only the employer contributes to the reimbursement accounts, and although it can carry over from year to year it is not portable; employees cannot take it with them.

"The non-portability of the HRA dollars seems to be an area that is more appealing to the large employers because of the total exposure," says Hillman. HRA accounts are funded with "nominal" dollars rather than real dollars, paid out when actually used. For example, an employer might promise to pay $500, and if $300 is used, $200 is carried over. Still, only $300 was paid out that year, not $500.

Unlike HRAs, employees are the main contributors to HSAs, which brings some criticism. Are the wealthier and the healthier more inclined to choose those plans? They would have the money to fund the deductible and they are less likely to need to use it, thereby saving the money for emergencies or potentially non-health-care uses down the road.

Bob Boyer, who heads the Indianapolis office of Mercer Health Benefits, says the overall enrollment in all CDHPs is still low, though. Mercer's annual health-care survey shows only 2 percent of small employers and 5 percent of large employers offer CDHPs now. However, 11 percent of small employers and 13 percent of large employers are likely to offer a plan this year and 13 percent of small employers and 17 percent of large employers will likely offer one in 2007. "HRAs were more common in 2005," he says. "HSAs are gaining ground in 2006."

Building interest in consumer-driven plans. UnitedHealthcare's Indiana Health Plan CEO, Daniel Krajnovich, says the consumer-driven health plan is a key product the company is bringing into Indiana in its push to compete with Anthem, which has about 35 percent of the market. After Anthem, all other plans, including UnitedHealthcare's, drop to single digits, he says.

With the acquisition late last year of Minneapolis-based Definity Health, a leading provider of consumer-driven health benefit programs in all 50 states, and its own CDHPs offered since 2002, Krajnovich says UnitedHealthcare now has more than 1 million members in CDHPs, making it the largest player.

Anthem's Indianapolis-based parent company, Wellpoint, also moved aggressively last year to acquire Virginia-based Lumenos, another major consume-driven health product company operating throughout the country.

UnitedHealthcare includes a CDHP option quote with every health plan quote it makes, says Krajnovich. "UnitedHealthcare offers a totally integrated product, meaning we also own the bank." HSAs are individual accounts deposited in a bank and earning interest, tax-free.

Other presidential healthcare proposals on HSAs include allowing employers to make higher contributions to the HSAs of chronically ill employees (discriminatory under current law), and improving information on price and quality to make health care more "transparent."

Hubbard noted that as people spend HSA money over which they have discretion, they'll be more concerned about how they spend it. "We've got to add to that the information that allows them to spend it wisely. And that's why we need transparency when it comes to prices and quality, where people know in advance what procedures cost, what services cost, and where they also know the quality history of the provider."

Alex Slabosky, CEO of M-Plan, the largest HMO in the state with 157,000 members, and the second-largest health plan, was a bit disappointed in the narrow scope of the president's agenda. "There were high expectations in the healthcare community on what the president was going to say in the State of the Union. There were no bold new initiatives; there was little attention to health care."

Other ways to cut costs.

Sally Stephens, president of Spectrum Health Systems, Indianapolis, says her field of disease management is "growing by leaps and bounds," as employers realize it's the only thing that will have a long-term impact on health-care costs. "The market has caught up with us."

Spectrum works with public and private companies from manufacturers to cities and towns providing health risk assessments, wellness programs, a 24-hour nurse line, case management and health coaching. Coaxing and incentives have been used in the past to get employees and covered spouses to participate in screenings and assessments. This year, one manufacturing client has gone a step further, requiring participation to access the employer's health plan. Another client has two health plans, says Stephens, and to join the richer plan you must go through the annual health assessment.

Spectrum collects the assessment results and only tells the employer who is eligible for the discounts, typically $20 to $40 a month for participating. The bottom line for employers is keeping people well and avoiding unnecessary health-care costs. Stephens reports drops in cholesterol and blood pressure readings, 80 percent better compliance with prescribed medications, nearly $13 saved for every dollar invested in heart disease management programs, and a 50 percent reduction in emergency room visits. "It's helping move people from being users of health care to truly being consumers."

Like Spectrum, Mercer's Boyer says he's seeing more employers requiring employees to get a health risk assessment to be eligible for the health plan. "Some employers have said health insurance is not a right, it's a benefit," he says. Although noting that it's "not a fully formed trend yet" because some employers are a bit skittish about adopting the policy, it's on the upswing.

With wellness and disease-management programs, employers are mitigating health care trend by getting to chronic conditions before they become acute conditions, says Boyer. "That's hand-in-hand with consumerism."

Celebrating its 10th anniversary this month is United Group Services, Anderson, a TPA serving self-funded employers from 75 to 2,000 employees. President Rich Mousty says his company first finds the best PPO network to match the employer's needs, then helps determine plan design. "Don't refrain from looking into and/or making changes every year, even if they are minor," he advises. "Continue to tweak the plan." The impact of playing catch-up is much more difficult on employees.

Wellness programs, disease management and evidence-based claims management are all important programs at United Group because Mousty says 5 percent of the population generates 60 to 70 percent of the costs. Over the last two years, using a New York company's software program built around several large employers and 10 million lives, his clients have saved $1.5 million tracking best practices per AMA guidelines, and stopping inappropriate care. When a problem is found, a physician contacts the treating physician. "Eight-five percent of the time, the physician receiving the recommendation takes action. They're very receptive."