Making it personal: by educating and engaging the plan member, the health-care industry can empower insureds to improve their health and lower costs. (Life/Health: Underwriting Insight).

As employers look for ways to manage heath-care benefit expenses while providing reasonable coverage for employees, a new consumer-driven heath-care model is emerging. Some refer to this shift as "defined-contribution," or "next-generation," health care.

As a leading employee-benefits provider, Principal Financial Group is seeing more and more owners of growing companies looking into a health-reimbursement arrangement packaged with a catastrophic-deductible plan to meet this changing need. A health-reimbursement arrangement is used for health-related expenses, but it can be carried over to future years if it is not all used. This provides an incentive for members to use their health dollars wisely. The catastrophic plan provides risk protection for the high-cost claims.

It could be said that these plan designs are an extension of the cafeteria plans that have been available for many years. But the health-reimbursement arrangement provides a new twist. Through education rather than cost shifting, health-reimbursement arrangements help members to become consumers, not just patients.

Becoming aware of price is an important step for a health consumer. Today, members are unaware of the true cost of health care. While preferred-provider organizations have saved money, the PPO plan design has insulated the majority of members from actual costs. Most use a copay for office visits, and members see their copays as the cost of health care. A health-reimbursement arrangement/catastrophic-deductible plan eliminates copays. This model forces members to be more aware of actual costs of care.

The higher deductibles reduce employers' costs by transferring a higher share to members. But it isn't as drastic as employers anticipate. Most claim liability still resides with a relatively low percentage of patients. At Principal Financial, 15% of the members generate 80% of the costs. Even with higher deductibles, the majority of claim liability is still present. Many employers using the higher deductibles feel pressured to offer a competitive plan design to retain and attract employees. Therefore, they are uncomfortable setting a deductible level much above current out-of-pocket limits. While the health-reimbursement arrangement model produces savings due to cost shifting, it will not shield employers from health-care inflation, nor will the model "control" health-care costs for the future.

But health-reimbursement arrangements give more control to employee members, who will feel empowered to control the disbursement of these funds. It is important that members be rewarded for wise spending by being able to roll over remaining funds for use in subsequent years. Without the rollover feature, these arrangements will be viewed as money that must be spent annually.

For consumer-driven health-care plans to be effective, the plan design must include the following features:

* extensive educational information on health care via the Internet;

* focus on wellness and prevention, both in education and plan design, to ensure that members seek appropriate routine care;

* health-risk appraisals for members to assess their current health status;

* assistance for members, such as decision-support tools and customer-service lines staffed by clinical employees; and

* better identification of patients at risk and disease-management programs to help patients improve their health.

These tools will help transform health-plan members into consumers. But changing human behavior takes time. It will be a while before savings resulting from this behavioral change become apparent.

As members become better consumers, they will demand that more information be available to them. Two key areas consumers evaluate are price and quality. The market is weak in these areas.

Some price information is beginning to emerge in the market. But this usually represents average fee-schedule information for a geographic area, not the specific pricing by provider that the consumer will need-and demand. There is quality information available on inpatient hospital procedures. But quality data for outpatient and physician costs is not yet available.

While the health-reimbursement arrangement model has not secured large memberships, it has been successful. This type of arrangement spotlights the fact that members are not consumers--and they need to be. Members have a vested interest in improving their health and have the need to access health care responsibly

Gary Cain, a Best's Review columnist, is senior vice president, Group Life and Health, at the Principal Financial Group, Des Moines, Iowa. He can be reached at [e-mail].