Kimberly Salzbrunn of Oswego, Ill., is on the cutting edge of a dramatic change in health care. Since January, she has taken her 2-year-old son Jacob to the doctor three times for chronic breathing problems, purchased five prescriptions, and spent a recent Saturday in the emergency room. She has not yet had to pay for any of it out of her own pocket.
So far, she's paid her bills--$358--by drawing down $1,500 that her employer, Budget Rent-A-Car (BD ), is putting aside for her health care this year. She can use the money for her own medical needs, or those of Jacob or her husband, Dan. Preventive care is 100% covered, though doctors must be in the network.
If the Salzbrunns use up their $1,500, they must pay health-care expenses themselves until they hit a $2,000 deductible. If they don't spend the entire $1,500 this year, what is left will be added to their account in future years.
Salzbrunn, a 34-year-old job training specialist, is one of tens of thousands of Americans with what's known as consumer-driven, or defined-contribution, health care. Her plan is run by Definity Health of Minneapolis, one of two players--Lumenos of Alexandria, Va., is the other. About 50 companies offer these plans, including defense contractor Raytheon (RTN ) and chipmaker Intel (INTC ).
So far, 12% of Budget's staff--625 workers--is participating in the plan, launched Jan. 1. Budget won't disclose how much workers kick in, but it's 20% less than the preferred provider organization (PPO) and 10% more than the HMO options.
Already, Daytona Beach (Fla.)-based Budget says people are realizing health care costs a lot more than a $10 co-payment. "Employees are saying `I didn't realize my prescription cost that much. I went to the doctor and asked if he could prescribe the generic,"' reports Jan Cohen, who heads Budget's benefits office. Steps like that add up. Consultants Watson Wyatt say savings run at just 1% to 2% in the first year, but that figure grows over time as participants change their behavior. The providers offer a wealth of information. Salzbrunn has used Definity's Web site to compare medicine prices, check drug interactions, and research herbal treatment options. She also uses the site to track her account. "They give you a lot of information," she says.
That sentiment is shared by Ken Lipowitz, a 44-year-old vice-president for risk management in Budget's Daytona Beach office. Lipowitz, married with a 15-year-old son, takes two thyroid drugs a day. He prefers his new account to his old PPO because he has just one deductible. "Last year, I had a family plan. I had an individual plan," Lipowitz says. "Every deductible was different. I could never figure out whether I was hitting my deductibles or not. It just seemed like I was always paying out money."
With health-care costs poised to double in five years, companies have no choice but to find alternatives. If employees like those at Budget continue to express satisfaction with consumer-driven plans, they're likely to get a lot of company--very soon.
By Laura Cohn