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This year, the University of Minnesota has offered its employees a variety of health insurance options in an effort to control costs while maintaining health care access. Health care analysts say the choices made by U of M employees could signal a new wave in health care coverage. The analysts are especially interested in the reaction to the plan known as "defined contribution," which places a greater responsibility for health care decisions with employees.

	"People don't understand what health care actually costs," says Tom Valdivia of Definity Health. He says employers set aside a fixed amount for each worker and puts it in a personal spending account. "One of the things we're trying to do is make sure people understand what does health care cost." (Tom Scheck)

The University of Minnesota withdrew from the state workers' health insurance plan and decided to offer four different health insurance products to its employees.

Vice President of the Academic Health Center, Dr. Frank Cerra, says the U of M faced a 40-percent increase in costs in health insurance premiums over the next two years. He says the university had to look for other options.

"The incremental cost of $60 million in round numbers just for the expected rise in health care premiums was absolutely more than we could afford," he said. "For our total benefit package, it was up about $90 million, much of it driven by health care costs."

The university chose a system of self-insurance. As part of the change, employees must choose from among four health insurance options.

Cerra says the 30,000 employees and families enrolled in its health insurance plan must become more accountable for their health care decisions. "That's really why the university went down this pathway. It felt it could do a better job in working with its employees to get benefits which are tailored better to our employer groups and work with the health of the community and do it what it can do to keep the costs down," according to Cerra.

Cerra says there are four health plans being offered by the U of M and he says employees have to make their decisions soon.

	Jon Christianson, a professor of health care management at the U of M's Carlson School of Management, says the high cost of health insurance is due largely to consumer use of the health care system - expensive medical technology and prescription drugs. He says the challenge for businesses is balancing cost containment with the demand by employees for unrestricted access to the health care system. (Tom Scheck)

Industry analysts are watching the selections carefully. The reason? One of the models the U of M is offering gives the consumer total control over their health care decisions.

The plan was designed by Definity Health of St.Louis Park. "People don't understand what health care actually costs," says Tom Valdivia, the company's medical officer, who says employers set aside a fixed amount for each worker and puts it in a personal spending account. "One of the things we're trying to do is make sure people understand what does health care cost."

For example, the U of M will put either $500 or $1,000 into an employee's account. An employee can select any doctor or health care provider and can spend the money on any procedure they choose. If all the money in the account is spent, the employee pays for it out of pocket, until the bills hit a preset deductible. If a worker hits the deductible, Definity picks up the remainder of the costs.

Definity has its defined contribution plan in place at 18 businesses around the nation.

Jon Christianson, a professor of health care management at the U of M's Carlson School of Management, says the high cost of health insurance is due largely to consumer use of the health care system - expensive medical technology and prescription drugs. He says the challenge for businesses is balancing cost containment with the demand by employees for unrestricted access to the health care system.

"Employers are clearly looking at it because as premiums go up, they want to offer something to their employees that will at least be perceived that will have value over and above the traditional insurance policy, so you're getting more for what you're paying for. And that's the positioning with Definity with employers is that employees have more choice," Christianson says.

Valdivia says if an employee doesn't spend all of the money in the account, the money rolls over. "You have a stake in saving for the rainy day in the future," he says. "My incentive now is to get the optimal care, that is if I have viral infection what I really need is some Tylenol®, water and rest."

	HealthPartners CEO George Halvorson says his company won't offer a defined-contribution plan to the university this year, but it may offer one in the future. Halvorson says HealthPartners will offer a separate base insurance policy to some employers. That plan gives employees the option of bumping up their coverage. (Tom Scheck)

Christianson says it's possible the U of M employees may reject defined contribution plans. He says employees may perceive it as a cost shift from their employers to them. They also may not want the added burden of selecting doctors and other care providers.

Analysts say the Definity plan will appeal to younger, healthier workers. People with chronic health conditions like diabetes or asthma will probably choose a more traditional health insurance plan.

Michael Scandrett with the Minnesota Council of Health Plans, says if young people move away from traditional insurance, health care bills will increase for those left behind in the traditional insurance pool. "The whole purpose of insurance is to spread the risk across a whole group of people, which includes sick and healthy people, so that when we're the ones who have the big health care needs, we'll have it paid for because the pools include the dollars that the healthy people kicked in," Scandrett says.

Besides the Definity plan, U of M employees can select from three other health plans: Preferred One, HealthPartners Classic and Choice Plus.

HealthPartners CEO George Halvorson says his company won't offer a defined-contribution plan to the university this year, but it may offer one in the future. Halvorson says HealthPartners will offer a separate base insurance policy to some employers. That plan gives employees the option of bumping up their coverage.

"They make that contribution and let consumers spend the money and make choices that they feel work for them and their family. If they choose more expensive choices than the employer has chosen to fund, then the consumer pays the difference out of pocket," Halvorson says.

If defined-contribution plans become more attractive to employers and their workers, the state's other HMOs may create similar plans or purchase them from health coverage wholesalers.

Another St Louis Park firm, Vivius, has established a defined-contribution plan that it's marketing directly to HMOs around the country.

Vivius CEO Dave Teckman says their plan allows workers to design their own network of hospitals, doctors and clinics for a fixed price with coverage through a traditional insurance company.

He says if consumers choose low co-pays for doctor's office visits, the cost of their monthly premium may increase. If they choose a basic network of doctors and clinics with higher co-pays, employees may pay nothing but a basic premium.

Teckman says Vivius hopes to introduce the product to a small number of markets and expects to find a partner in Minnesota soon.

"What you're finding again is the existing entities here, especially in the Twin Cities, are listening to their employers and consumers and they're saying show us new products and services. The existing ones don't meet our needs today," Teckman says.

Plans like Vivius' are in their infancy. If they are widely adopted, health experts say they may usher in a new wave of health care coverage, one that places more responsibility on the consumer.