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A time to choose

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"I mean I don't think it's a bad plan. It just didn't work for us," says Steve Cotariu of Pentair. He dropped his consumer-driven health plan this year because he spent more money on his medical care than he expected. (MPR Photo/Lorna Benson)
For many American workers, health insurance is their most important benefit after their paycheck. It's important because many employees simply can't afford health insurance on their own. But increasingly employers can't afford it either. Since the year 2000 the cost of employer purchased health insurance in the U.S. has surged 73 percent. Many small employers have responded by dumping their insurance. Many large employers have scaled back benefits and asked employees to pay more of the bill. Still, health care costs keep soaring.

With no government solution on the table, some employers have turned to the marketplace for ideas on how to reign in health care costs. And as it turns out, the market has a new plan. It's called consumer-driven health care. Its premise is based on the idea that if employees -- consumers -- have more responsibility for their health care decisions, they can bring down costs by making better choices.

St. Paul, Minn. — Last year Golden Valley-based Pentair did a little experiment that could pave the way for major changes in the company's health insurance. It tested out a consumer-driven health plan on some of its employees.

Pentair has about 10,000 workers in the U.S. They make water filtration products and computer enclosures. Most of its employees received the company's traditional health insurance plan, but a few hundred workers at Pentair's manufacturing plant in New Brighton, Minn., were required to try out a consumer-driven health policy for one year. Company executives were offered the plan too, although it was optional for them.

Still, when Vice President for Business Development Steve Cotariu and his wife heard about the experiment, they didn't hesitate to sign up.

"We saw it as a good opportunity 'cause the kids are gone away and so we're empty nesters and you kind of think, 'gee, you know for the next several years our medical costs can go down,'" according to Cotariu.

The Cotarius figured they could save money with a consumer-driven health plan because the policies are cheaper than traditional insurance. On average this type of plan costs employers about 30-percent less. Pentair then passed on some of those savings to the Cotarius by reducing the couple's monthly insurance premium.

But the lower premium means less insurance coverage. High deductibles, of more than $1,000 for an individual, are common with these types of plans. The deductible is designed to give employees a financial incentive to shop for cost-effective care or even re-evaluate whether they need medical care in certain situations.

To Steve Cotariu this new approach seemed like a good idea.

"I think it's just an evolution in health care and it makes sense that you kind of ... if you manage your own health care, kind of keep the costs down, it's better for you, it's better for the company," he says.

And consumer-driven health plans have another element that is especially appealing to Cotariu: a health savings account. The account allows employees to set aside tax-free money to help pay for their share of their medical expenses. His company contributed the first $1,000 to his account. Cotariu thought if he could stay healthy and avoid dipping into it, he would be able to build up a nice chunk of money that he could use on future medical expenses.

But his experience didn't play out that way.

"I mean I don't think it's a bad plan. It just didn't work for us," says Cotariu, who dropped his consumer-driven health plan this year because he spent more money on his medical care than he expected.

Cotariu, 48, chalks it up to a decision to run his first marathon.


It's early on a Saturday. The temperature is about 20 degrees and Cotariu has just started jogging across the Stone Arch Bridge in downtown Minneapolis. Today he feels good, but a few months ago this run would have been painful.

"I ended up having a couple of injuries that I ended up in physical therapy," Cotariu says.

Cotariu sprained his leg while training for the Twin Cities Marathon, but he didn't let that derail his marathon plans. He kept on training and visited a physical therapist a lot.

"And so I ended up burning through the threshold and I got in to the point where I was paying everything out of pocket," he says.

Cotariu says he didn't add up all of those medical bills, so he doesn't know exactly what he spent out-of-pocket last year. But he says it was more money than he would have spent if he had kept his old health insurance plan. And he wasn't the only Pentair employee who felt that way.

Pentair says about half of the employees in its one-year experiment dropped their consumer-driven health plan this year and returned to their old insurance.

"To have 50 percent remain in was very encouraging to us," according to Stephanie Maxam, who is in charge of benefits at Pentair.

It's encouraging because Pentair believes the results are a sign that consumer-driven health plans do work for a large percentage of employees. Maxam estimates that for every employee who signs up for one of these plans, Pentair will save between 5 and 10 percent on that employee's health care costs. The savings would come through cheaper insurance policies, more employee cost-sharing and less overall health care spending. Since Pentair already spends about $60 million a year on health care, that 5 to 10 percent could easily add up to millions of dollars in savings if enough employees join the plan.

"One of the reasons we're doing it is to try to educate employees and to bring them into the team with us, really to try to manage our costs. We can't do it on our own as a company. We have to have their involvement," Maxam says.

Maxam says consumer-driven health plans are a step in the right direction because they show employees the true cost of their health care, something that traditional plans with co-pays have not done.

"They have no idea that when they go to the pharmacy and they fill a prescription and they pay $20 for a co-pay that the actual prescription costs $250. They don't understand that and they don't understand that when they go to the hospital to the emergency room and they pay their $75 co-pay, that the emergency room visit really costs $1,500," Maxam says.

Pentair offered its consumer-driven health plan to the rest of its employees this year. Maxam says only about 5 percent of the company's 10,000 workers signed up for the insurance. It's a slow start, she admits. But Maxam says she's not surprised either because the plans do require employees to make some big changes in how they manage their health care and she says they don't work for everyone. That's why Maxam says Pentair has no plans to force its employees to take a consumer-driven health plan, despite the possible savings to the company.


Pentair is one of many Minnesota companies testing out a consumer-driven health plan. And yet the concept is still quite new to most employees. Many haven't even heard of the trend yet. But the movement has actually been around for several years.

"There have been people who have been advocating this for a long time," according to Regina Herzlinger, a Harvard Business School professor and author of the book Consumer-Driven Health Care. "It began to happen around 2000 because managed care, which was supposed to be the silver bullet that controlled health care costs, turned out to be something like a bullet that killed the customer. Consumers just didn't like managed care and so employers loosened up the tightness with which health care was managed under the health maintenance -- or HMOs -- and costs started to explode."

So consumer-driven health care is the newest attempt to control those costs. And employers seem interested in the concept so far. But most are aware that it probably will take years to figure out if the approach works.

The fact that employers are even in the health care business is really a fluke of history. Today about 156 million people get their health insurance through their employer. The practice got its start during World War II when the government passed a law to control wage inflation. That meant benefits were the only way companies had to compete for employees. So they started to offer perks like health insurance, and the practice stuck.

Today the circumstances are very different. Many employers still need to offer health insurance to compete for employees, but they say the high cost of that insurance is compromising their competitive edge. So for the past decade or so, employers have tried to keep insurance costs down by using managed care that limited employee choices.

Regina Herzlinger says it's time for employers to abandon that approach and instead hand over more control to employees.

"Currently most consumers who have health insurance have a choice of one policy," she says. "In the rest of the economy we have incredible choice. We have 330 models of automobiles, for example, and lots of radio channels and television networks. And when we have choice, we create competition. So the idea behind consumer-driven health care is to give consumers the same sort of choice that they have elsewhere in the economy and the hope is that it will produce the same kinds of results."

Namely health care that's effective and reasonably priced.

Currently the two most popular types of consumer-driven health plans are Health Reimbursement Arrangements, also referred to as HRAs and Health Savings Accounts -- HSAs. A Health Reimbursement Arrangement is owned and funded by the employer, so employees must leave the account behind if they leave their job. A Health Savings Account, which was created by a 2003 change in federal law, is owned by the employee and can be funded by both the employer and the employee. HSA money is also portable, so employees can take their account with them if they switch employers. And the money can be invested just like a retirement account.

Kathy Dunmire, a vice president with Blue Cross Blue Shield of Minnesota, says the investment potential makes HSAs particularly appealing to some people.

"In our plan we pay simple interest up to the first $2,500. Over $2,500, members have the option of investing in a group of about 10 to 12 pre-selected mutual funds. And then once they reach a significant dollar amount -- over $10,000 -- they're eligible to open a fully self-directed account through Charles Schwab," Dunmire says.

In the two years that Blue Cross has offered HSAs, Dunmire says sales have increased 40 percent, making them the insurer's fastest-growing product. About 88,000 Blue Cross members have an HSA. Dunmire says many of those people were previously uninsured. She doesn't know why some uninsured people have bought this new type of insurance, but some researchers have hypothesized it could be that they didn't think traditional health insurance was a good deal. They say the investment potential of the new medical savings accounts have suddenly made it seem like a much better deal.


Not all employers are willing to roll out HSA or HRA programs just yet. At J&B Group in St. Michael where "No Name Steaks" are made, the company wants to add the plans, but it's worried that employees might not be ready for such a big change in their insurance.

"We didn't want to implement something that was not understood," says Teresa Lindenfelser, who oversees employee benefits. "To switch to a more consumer-directed plan, we really need people to be aware of their health conditions and aware of health costs. Otherwise people really don't know how to use them and they're kind of turned off to the whole idea. They think of it more as just a cost-shifting from the employer to the employee."

So instead J&B Group decided to take an interim step on the possible path to HSAs. The company has invested $90,000 in an on-site nurse program that's designed to identify employees with potentially costly health problems. Three days a week nurse Merrie Healy visits the plant to check in on her patients.

Carlos Patino recently found out from Healy that he's pre-diabetic. Diabetes is a potentially expensive health condition when it's not caught early and managed well. So far J&B group has identified six employees with diabetes who didn't know they had the disease. The company estimates that it has saved over $115,000 in health care costs by identifying its employees' conditions early.

And J&B group is hoping to save even more money in the years ahead on the assumption that all of its employees will begin to take better care of their health.


Teresa Lindenfelser says many employees have been receptive. Some have been reluctant.

"And then we have another group that is sitting back. They're wondering, 'well why is this going on, you know? What does this have to do with my employer?' You know they're a little skeptical and they're sitting back and watching," she says.

And therein lies one the biggest challenges to any consumer-driven health care plan: will consumers cooperate?

"That's the $64,000 question," says Jon Christianson, a professor of health policy and management at the University of Minnesota. "What kind of impact is it going to have in the long run? And it's not going to have much of an impact if employees don't sign up."

Christianson says it is clear that consumers are willing to make some changes, but so far it's mostly in cost-sensitive areas, like switching from brand name to generic prescription drugs. Changing behaviors, like smoking or overeating, are much more difficult. He says researchers haven't seen any proof yet that consumer-driven health plans are able to reduce those types of health costs, which are often the most expensive costs in health care.

But the plans are still very new and Christianson points out that enrollment numbers are probably too low to make any good predictions.

"It could be many, many years before we really understand whether this is going to have a major effect on health insurance or whether it's just going to be something that seemed like a good idea at the time and then sort of disappeared," he says.

Regardless of its long-term potential, consumer-driven health care plans are a choice many employees will have to at least consider. Surveys suggest that more than half of all employers with insurance will introduce the plans within the next few years.