Health Care Choice at a Price

You'll have lots of options--and you'll pay more

For a decade, Americans have loved to hate managed care. We've grumbled about long waits to see doctors, perfunctory examinations, and restricted access to specialists and costly care. We booed lustily at the mere mention of HMOs in movies such as John Q.

Now, the days of tightly controlled managed care may be coming to an end. The new world of health care will offer more choice: You'll pick your own doctors and hospitals and have more say over which drugs you get. But you are also going to pay lots more. Call it choice at a price. "You are going to have more to sort out and more opportunity to hand over cash," says Kaiser Family Foundation Vice-President Larry Levitt.

Already, workers are paying more for their medical plans. And with costs projected to rise 12.7% this year (charts), 40% of large employers expect to shift more expenses to their workers, according to a 2001 survey by the consulting firm Mercer.

One ominous sign: The California Public Employees' Retirement System (CalPERS) has warned its 1.3 million members to expect a staggering 25% premium increase for health insurance in 2003. "I don't think the public understands the extent of health-care inflation. They were shielded from it by a 3.9% unemployment rate" that forced employers to swallow cost hikes to attract quality workers, says Jon Gabel, vice-president at Health Research & Educational Trust, the research arm of the American Hospital Assn.

But employers are doing more than just raising premiums and deductibles. Today, the health-care market is blossoming with dozens of new ideas for delivering care. None of these models is likely to be the long sought-after silver bullet that will improve care while holding down costs. Each is aimed at giving consumers a financial incentive to seek care only when they need it and to think twice before running to the doctor at the first sniffle.

New consumer-driven, or defined-contribution, plans try to encourage workers to become more active in choosing--and paying for--health care by combining company contributions with high employee deductibles. Web-based insurance products allow workers to tailor a network of doctors to their specific needs and ability to pay. Evolving drug benefits aim to drive consumers to low-cost pharmaceuticals. Consultants help patients navigate the maze. And some doctors provide custom care to those who can afford it. "These new plans give workers the power to decide whether high quality is worth the extra cost," says Len Nichols, vice-president at the Center for Studying Health System Change, a Washington research group.

Confronting this thicket of options will force you to pay as much attention to buying treatment for a disease as purchasing a car. The winners: smart consumers willing to spend the time, energy, and money to get the best care. The losers: those who don't shop carefully and those who can't afford the increasingly heavy tab. "For some employees, this is a great thing," says Paul Fronstin, senior research associate at the Employee Benefit Research Institute. "The people who are going to end up losing are those who don't have the money to spend."

At the moment, consumer-driven plans are getting all the buzz. A year ago, they were a niche product, sold by a handful of small insurers such as Lumenos and Definity Health and offered by few employers. Today, major corporations such as Medtronic and Textron are signing on, and insurance heavyweights such as Aetna are rolling out their own plans.

They work like this: Your employer contributes, say, $1,000 to your health account. You also face an annual deductible of $1,500. For the first $1,000 of expenses, you have no out-of-pocket costs. For the next $500 you pay every cent. You then share the next $2,000 with your employer. You may pay 20% or 30%, and the employer pays the balance. After that, the company picks up the tab for any major catastrophic illness. "Employees have to be made aware of the price of health care. They have to have some skin in the game," says Michael Taylor, a principal at consultants Towers Perrin.

Premiums are roughly the same as for a standard preferred provider organization. You can see any doctor, though the plans are built around a network, so you can save by using a doctor who has negotiated lower fees.

Since roughly half of all workers spend less than $600 a year on medical costs, relatively few will have to dip into their own pocket. Why not just spend it all? Because the plans allow you to carry over any unused portion of your employer's contribution to the following year. Spend only $600 in 2002, and you can use the remaining $400 in 2003.

To further encourage you to use the funds wisely, the plans also offer Web sites that allow you to track your spending, compare the costs of local doctors, and even get consumer ratings for physicians and hospitals. They also provide medical information and personal advice from a nurse.

Employers expect to better control costs by contributing a set amount to an employee's health account. And companies may well increase their annual contribution by less than future medical inflation, shifting a greater burden to workers. Pattie Duca, senior director of global benefits for drugmaker Pharmacia, expects her company will save 15% in the first year with such a plan.

Some insurers are taking consumer choice another step--allowing you to customize your network of doctors and hospitals. In a few months, Health Net (HNT ), a major West Coast managed-care company, hopes to roll out such a program in Spokane, Wash. Using a Web-based product developed by Minneapolis-based Vivius, workers whose employers offer the plan will be able to build a list of specialists in 20 practice areas, decide how much they want to pay out-of-pocket for that care, and fit those choices into a flexible monthly premium. The product, called U Select, will allow workers to see what a visit to a participating doctor costs. "We're trying to provide transparency and see what choices people make," says Steve Lynch, president of Health Net of Oregon in Portland, which will run the experiment.

Don't think you'll avoid these changes by sticking with old-style managed care. Many of today's HMOs no longer require you to get an approval to see a specialist. But that also comes with a price--the $10 office visit is about to go the way of the $5 movie.

Managed-care plans are finding other ways to make you more cost-sensitive. Most of us have tiered drug benefits, where we pay only $10 for a generic, but $30 for a branded version. Well, get ready for tiered hospitals. You'll pay a token amount for going to the community facility, but several hundred dollars for the local teaching hospital--even if it's in your network.

To take advantage of these changes, you'll need access to reliable data about quality and costs. The Net holds great promise for making such info widely available. And many new health plans are being built around data-packed Web sites. But two problems need to be addressed. First, consumers are overwhelmed with information. Type "diabetes" into the Google search engine, and you'll get 3.8 million responses. On the other hand, finding objective data about a specific surgeon is impossible. "The potential is there," says Arthur Levin, director of the Center for Medical Consumers in New York. "But it is a misrepresentation to say we have the information that will allow us to choose wisely."

To fill the gap, organizations such as the Pacific Business Group on Health, a consortium of 47 California employers, fill Web sites with detailed information. "Employers will be passing on cost increases to employees," says Peter Lee, the group's director. "But they would rather not just say, `Pay more.' They would also like to give consumers more information about how to make better choices."

Health-care technology has made great strides in recent years, and that is likely to continue. So what is different in the post-HMO world? You'll have to learn a lot more about how to take advantage of those advances. And you'll have to pay for them.

By Howard Gleckman

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