Health care crisis: employers have begun a gradual but powerful shift from managed health care programs toward those that demand awareness, involvement and savvy consumerism by employees. Options are emerging and trends are forming nationwide.

Facing a double-digit hike in the cost of health care benefits for a fifth consecutive year, employers more than ever are pondering and implementing creative solutions and choices that demand greater overall awareness and involvement, financial obligation and savvy consumerism of their employees.

Just like home purchases, airline fares and clothing brands invite consumers to comparison shop, some health care plans allow employees to look for deals for health care insurance coverage, including the costs of doctor visits and prescription medications, while also asking employees to be wise enough to forecast their health care needs and not enroll in a program that offers options on items and services that they do not and will not need.

According to a report in The Wall Street Journal (WSJ), "Companies are undertaking what could amount to the biggest shift in employer-provided health care in a decade. The trend is away from health maintenance organizations (HMOs), whose costs have been rising at a faster clip than medical prices overall, and toward greater choice--but at a price."

According to the Health Insurance Association of America (HIAA), "Most Americans are happy with their current employer-sponsored health insurance, [but] nearly half said they would consider switching to a new consumer choice health plan if given a chance. More than half of the businesses asked said they either currently give their employees that chance, or intend to offer it to them sometime in the next five years."

Two main features are offered by many employers' health-care accounts in 2004: payment for over-the-counter medicines and issuance of pre-funded debit cards.

In September the U.S. Treasury Department ruled that health care flexible-spending accounts can be used to pay for over-the-counter drugs. One reason for this change is that many drugs have been reclassified as non-prescription.

Employees may now use pretax dollars to pay for everything from antacids and allergy medicines, to pain relievers and cold symptom relievers, in addition to paying other out-of-pocket costs for deductibles, co-payments and uncovered medical services, prescription drugs and medical equipment.

Money left in one of these accounts at year-end may be used by that employee to stock and replenish their medicine cabinet.

According to CBSMarketwatch.com, a growing number of employers now issue debit cards in January to employees who elect to participate in the spending accounts. The debit cards can come prefunded with the annual amount of the account contribution. Employees simply swipe the health-care spending debit card at the doctor's office, pharmacy or drug store to pay for qualified items. No longer are employees required to fill out tedious forms and submit copies of receipts.

CBSMarketwatch.com also reported that many employers are charging extra for medical coverage for spouses and families and even trying to coax families to get off their plans altogether.

"Some employers and trade groups have reduced dental benefits to include only cleaning and x-rays, no longer covering other dental work such as fillings or major services such as crowns and implants," according to CBSMarketwatch.com. And, "Many employers are cutting back their prescription drug coverage, only covering the generic versions or increasing deductibles and co-payments for the name-brand medicines.

"The cost of medical benefits is expected to rise 12 percent or more next year. At that pace, benefits costs will have doubled since 1999. Having already passed on deep cost cuts to doctors, hospitals and HMOs, now employers will continue to push more benefits costs on to their employees," the Web site reported.

More than 59 percent of employers allow employees to deduct money from their paychecks that is not taxed and set aside into accounts to pay for planned out-of-pocket costs for medical and dependent care. But only 18 percent of employees use this valuable option, citing the fear of losing the money they set aside and the hassle of completing and filing forms to get the money out. WSJ reported that at General Electric, just 15 percent of eligible employees enroll in health-care flexible spending accounts.

The federal government does not tax employer-paid health insurance premiums, but does tax health care paid for by individual employees. Three exceptions to this rule are medical savings accounts (MSAs), flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs). Each gives medical savings tax advantages similar to health insurance premiums. However, according to the National Center for Policy Analysis, legislation is needed to make them more widely available, more flexible and morn portable.

MSAs combine tax-free accounts with high-deductible insurance. However there are many restrictions and the MSA program is temporary. MSAs are available only to small business employees and the self-employed. Joint employer-employee contributions to the MSA are prohibited and the full amount needed to pay deductibles cannot be deposited into the account each year.

FSAs allow employees to set aside money tax-free for anticipated medical needs. Unlike MSAs, any employer may establish FSAs. FSAs have no insurance requirement and no funding limits, and allow joint employer-employee contributions. However, FSAs may be used only for medical expenses, and employees forfeit any unused funds at year's end or when they leave their job.

HRAs are similar to FSAs, with important exceptions. A recent IRS ruling affirmed that deposits to the HRA accounts are not taxable, and that funds may be rolled over each year. Unlike FSAs, only employers may contribute to HRAs. At an employer's discretion, workers may roll over unspent HRA balances and may have limited access to leftover balances after they leave a job. Like FSAs, the funds call be spent only on health care or insurance premiums and can never be withdrawn as cash.

According to HIM, "Consumer choice health plans give consumers greater incentives to help control their own health care spending and to get more involved in their health care decisions."

HIAA's survey, conducted by Public Opinion Strategies in mid-July, concluded that 44 percent of those employees surveyed said they were at least somewhat likely to switch to a new consumer choice health plan.

In a separate survey conducted by Public Opinions Strategies in August 2003 also for HIAA, 13 percent of the employers asked said they were likely to offer a consumer choice plan to their employees next year, and another 27 percent say they intend to do so sometime in the next five years.

The HIAA survey also revealed that 40 percent of employee benefit executives know of these new consumer-choice directed plans, with executives at businesses employing more than 1,000 employees the most familiar with the new option.

"Although some employee benefits executives expressed concern about the complexity of the new plans," the HIAA study showed that "consumers consider themselves capable of assuming additional responsibility for their own health care choices."

Employee benefit executives said the new plans are working well for the employees and the companies where this benefit is offered, HIAA's survey showed.

Corporate Examples

WSJ reported that Sears, Roebuck & Co. is "moving away from fixed-dollar co-payments to arrangements that force workers to pay a percentage of each medical bill. And many companies are making it far more expensive to use brand-name drugs rather than generics."

International Paper, for instance, is replacing two of its plans with two consumer-driven options. Under one, WSJ reported, a family of four would get a personal care account with $1,000 that can be used to partially offset a $4,000 deductible. Employees can go to any doctor they choose, but will pay 35 percent instead of 20 percent of the cost if they stray outside the plan network.

Lockheed Martin is introducing a plan that, for a single employee, includes a $1,000 deductible and a $500 health care fund that can be spent on doctors' visits and hospital services. It also includes new co-insurance charges for drugs, with the highest levies on brand-name medications that are not on the company's "preferred" list.

WSJ reported that deciding what plan makes sense "is getting tougher because there are more variables than ever to consider. For many workers the most-noticeable hit will be in their paychecks." Employees are expected to pay, on average, $196 a month for family coverage, or 15 percent more than in 2003, according to Towers Perrin, a benefits consulting firm.

In other examples cited by WSJ, financial company Washington Mutual Inc. has doubled its co-payment for visits to specialists in its HMOs, and is increasing the out-of-pocket maximum on another one of its plans to $2,250 from $1,500 for in-network services and to $4,500 from $3,000 for those who go out-of-network. And American Airlines' parent company, AMR Corp.'s non-union employees who sign up for one plan will pay 40 percent of the cost when they go outside the plan's network, twice as much as in the past.

According to WSJ, employees and employers should re-think HMOs. "Many people joined HMOs because they were cheaper or avoided them because of rules that limited access to specialists," WSJ reported.

"But HMO costs have been climbing at a faster clip than medical care overall, while some of those knotty restrictions have been eased. So while HMOs are not necessarily the deal they once were, they may allow more freedom of choice than in the past."

WSJ reported that many companies now offer a range of options, from low-cost, bare-bones plans to ones that are more costly but offer richer benefits. At Verizon Communications Inc., for instance, non-union employees can choose between plans with $200, $400 and $1,000 deductibles.

Many employers are providing workers with information that can help them find the best care, WSJ reported. For example, Verizon is rolling out new online quality rankings of more than 620,000 doctors and 4,700 hospitals nationwide, plus information about how to treat diabetes and other chronic illnesses. Washington Mutual is adding new online resources that employees can use if they or someone in their family has been diagnosed with a particular illness, including questions to ask doctors and the pros and cons of different protocols.

Some companies are offering the carrot as well as the stick to keep costs from soaring further, WSJ reported. Verizon workers pay $60 a year less in health care premiums, for example, if they indicate that no one in their family uses tobacco products. Lockheed Martin will put an extra $100 in the health-care fund of workers who fill out an online health-risk assessment. The information is then funneled to "health advocates" who provide workers at risk of running up big medical bills with information about disease management programs and healthy lifestyles. Sears, meanwhile, has hired an outside company to scour medical claims information to identify gaps in workers' care and offer guidance.

On average, human resource consulting firm Hewitt forecasts that companies will receive 2004 cost increases of 13.5 percent for HMOs, 12.5 percent for traditional indemnity plans, and 12 percent for preferred provider organizations (PPOs) and point-of-service (POS) plans.

That means from 2003 to 2004, the average cost of health care for a person working at a major company will increase from $6,018 to $6,831 for HMOs; $6,300 to $7,056 for PPOs; $6,391 to $7,158 for POS plans; and $6,738 to $7,581 for indemnity plans, according to Hewitt's data from the Hewitt Health Value Initiative[TM], a cost and performance analysis database of more than 2,000 health plans in 139 U.S. markets, including 300 major employers and more than 16 million health plan participants.

According to CBSMarketwatch.com, a growing number of employers now issue debit cards in January to employees who elect to participate in the speeding accounts.

The debit cards can come pre-funded with the annual amount of the account contribution. Employees simply swipe the health-care spending debit card at the doctor's office, pharmacy or drug store to pay for qualified items.

No longer are employees required to fill out tedious forms and submit copies of receipts.

Number of U.S. Workers Participating in 401(k) Plans Declines

More American workers are turning their backs on 401(k) savings plans, likely spurred by job insecurity, rising health care costs and lagging fears about the stock market, according to a survey of employers.

Approximately 73 percent of eligible employees participate in 401(k) plans, down from 77 percent in 2001, according to the survey of 3,200 plan sponsors representing $500 billion in assets and 8 million participants.

Overall, participation fell 3.6 percent this year, on top of a 2.5 percent drop last year, after having steadily risen for years.

Given the tenuous nature of Social Security and other retirement benefits, "You really have to worry when that number is declining," said Nevin Adams, editor-in-chief of PlanSponsor.com, the retirement-industry trade publication that conducted the seventh annual survey.

Counting all types of employer and union-sponsored retirement plans, only about 48 percent of American workers aged 21 to 64 participated in 2002, though almost 60 percent had access to such plans, according to the Employee Benefits Research Institute.

Hike in Health Care Costs Causes Employees to Cut Back on Retirement Savings

Nearly three-quarters of workers surveyed showed a level of concern about the potential affect of rising health care costs on their retirement and financial goals, according to an American Express Financial Advisors Inc. study, as reported by PlanSponsor.com

More than two-thirds of workers have seen an increase in their share of health care costs, which, in turn, has had a ripple effect on worker spending and saving habits. Fifty-five percent said they are reducing discretionary spending, 24 percent are cutting back on workplace benefits they receive at additional costs--a move that includes reducing contributions to retirement plans--12 percent are switching to a less-expensive health plan and 6 percent are dropping their health care coverage, completely according to the survey.

More than one-third of the 958 respondents said they plan to decrease the amount allocated to savings and investing overall. Unless the health care cost situation improves, retirement contributions may continue to plummet as 29 percent of workers said, a "significant increase" in the cost of health benefits would make them consider reducing their regular retirement plan contributions.

* 42 percent would make a 1 percent to 2 percent reduction as a percent of their salary currently being deducted;

* 21 percent would cut back 3 percent to 4 percent;

* 22 percent would decrease their contribution by more than 4 percent.