Employee-allowance health plans gain toehold in state. (Up Front).

After some delay, health insurers are rapidly rolling out a new form of hybrid health plan in California, as they look for antidotes to rising health care costs.

Consumer-driven health plans, first introduced to the state last year, provide employees with a lump sum they can use to pay for health services attached to a high-deductible preferred provider organization.

The idea is to give consumers more control over their own health care by paying them from the "first dollar" they spend, while encouraging them to conserve dollars as well. The PPOs ensure that patients can choose from among a high number of health care providers.

"California has been slow to adopt these plans, but my sense is that every major player in the industry now either has a program or is going to develop one," said Kirby Bosley, head of the health care practice in the Los Angeles office of Mercer Human Resource Consulting.

Consumer-driven plans were pioneered by a small Minnesota company, Definity Health, four years ago. They were adopted sooner in the Midwest, with its higher penetration of PPOs, while in California--a leading health maintenance organization state--adoption has been slower. Currently, consumer-driven plans have less than 5 percent of the market nationwide.

Last year, Pacific Business Group on Health, a consortium of 44 large health care purchasers, announced it would begin offering Definity plans to its members in January 2003.

Momentum gains

That move gave the plans some credibility, but this month, when industry heavyweight Blue Cross of California announced its own plan, the concept gained more momentum.

The Blue Cross plan will be available to businesses with at least 500 employees starting Jan. 1.

PacifiCare Health Service Inc. also plans to announce its own plan in coming weeks, and Health Net Inc., is evaluating a pilot plan in Washington for introduction to California, said Brad Kieffer, a Health Net spokesman.

"When you see Fortune 500 companies are looking at this it drives a lot of interest throughout the industry," said Gene Householter, a senior vice president for Blue Cross, a subsidiary of Thousand Oaks-based WellPoint Health Networks Inc.

Blue Cross officials said they decided to offer their plan, called the Power HealthFund PPO, after a number of large customers with several thousand employees each began inquiring about them.

Though it will be offered only to large companies at first, Blue Cross expects it will eventually broaden the plan to businesses of all sizes, Householter said.

The consumer-driven plans are among a number of ideas the industry is using to combat rising health care costs, as well as employees' increasing dissatisfaction with the restrictions of traditional HMOs.

Health care premiums rose last year in the double-digit range, and are expected to do surge again this year close to 20 percent, according to a number of surveys. In response, insurers have scrambled to find alternatives that will hold down costs.

New Ideas 

Under a typical scenario, the PPO might have a deductible as high as $2,000, while the employer-funded employee spending account could total $1,500 or less. Once an employee has spent down the personal account, he would be responsible to dip into his own pocket until traditional PPO coverage kicks in. The difference between the deductible and personal account acts as a disincentive towards spending health care dollars.

While some are offering consumer-driven plans, insurers are seeking to limit choice by segregating providers into tiers based on cost.

This month, PacifiCare went even further, announcing a new "Value Network" HMO with even fewer hospitals and doctors to choose from.

The providers in the plan also were chosen because of quality, another tool that insurers have begun to use to limit costs. The idea is that high quality health care can save money in the long run.

The Blue Cross plan will be custom fitted for each employer, but the company expects the deductible on the PPO will generally range from $1,000 to $5,000, while employers can fund their employee-spending account for varying amounts.

The plan also can include a separate spending account that employees can fund with pretax dollars. However, unused dollars in these accounts cannot legally be rolled over from one year to the next.

Proponents say consumer-driven plans have the capacity to hold down costs while avoiding the perception of HMOs as gatekeepers that restrict access to specialists.

However, some critics fear that consumers may horde employer-supplied dollars and not seek care when they need it. At the same time, there is a fear that those with chronic illnesses may suffer by having' to pay higher out-of-pocket expenses if the employer's contribution doesn't cover the deductible.

Blue Cross expects that large employers will offer the plan as an option, along with a traditional PPO and an HMO product, Householter said.

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