Commentary: Workers, Beware of Brave New Health Plans

By Michelle Conlin

Get ready for the Big Shift, Round Two. First, during the 1980s, CEOs deftly phased out rich defined-benefit pensions and moved workers into you're-on-your-own 401(k)s, shredding a major safety net even as they locked in lifetime benefits for themselves. The move promised the rank and file a chance to make big money in the stock market, but it has also enabled companies to cut 22% of their retirement spending since 1986, according to the Labor Dept. Warning labels about the risks of employees becoming their own investment managers--or about how much less companies would be contributing--were often missing from the promotional brochures.

Now, health benefits are in the crosshairs. Faced with soaring increases of 13% and more in runaway costs--and with no relief in sight--companies for the past year have been shifting more of the bill onto workers in the form of higher deductibles, co-pays, and premiums. If the labor market continues to weaken, companies could be even more emboldened to shift more risk, responsibility, and management for health care onto employees.

Enter the new "consumer-driven" health plans, which such companies as Novartis and Humana already are offering as one option. For now, companies are piloting the new plans alongside traditional ones. But experts say that if the consumer-driven trend takes off, it could save employers as much as 15%. Indeed, what HMOs were to the '90s, these plans could be to this decade--and they have the potential to have the same profound impact on your health care as 401(k)s had on your retirement nest egg.

On the surface, they sound great. An employee who chooses one over a traditional plan will get, let's say, a defined yearly contribution of $2,000--about average for plans now being piloted--for his family. He can spend the money any way he wants, using it to buy preventative care or forgoing doctor visits altogether and rolling the sum into his account the following year. The idea is that since it's his cash--and not some all-you-can-eat plan--he's less likely to rush to the emergency room every time his kid bumps his head. But if the family exceeds the $2,000, they could be on the hook for what is in essence a supersize deductible, ranging from $2,000 to up to $4,000 and possibly even more. Only after that interim cost is met does a kind of traditional health coverage kick in.

If the grand experiment in 401(k)s taught us anything, it's that many corporations sloughed off responsibility without providing an adequate support structure for employees. Now they are in danger of making the same mistake again. Ten years ago, HMO advocates made big noises about the creation of clearinghouses of impartial information--Consumer Reports for health care--that would enable workers to make informed, savvy choices. But it's still nowhere in sight. Doctors and hospitals have been leery about releasing information. As it stands now, workers would be expected to wander the health-care maze without a clue about price and quality.

If you're young, healthy, or manage your coverage just right, the plan could work splendidly. One of its chief virtues, advocates say, is that it injects consumerism into an arena that's sorely lacking in economic discipline. But can health-care spending be rationed so easily? The very name "consumer-driven" seems to equate needing a biopsy with buying a burger. If you're unlucky enough to have a child who gets cancer, for example, the payment on the gap between the company-paid voucher and catastrophic care could end up swamping your family's finances. There's also the danger that the cash-up-front plans could skew the risk pool, attracting healthy workers and their dollars. That could leave sick or older employees, whose bills could easily exceed the cash grant, consigned to far costlier plans. That essentially amounts to a two-tiered health system. Says Princeton University health-care economist Uwe Reinhardt: "This is a simple device to try to roll out more of the health-care cost from employers to employees and, within employees, from the healthy to the sick." In other words, you're on your own.

Conlin writes about the workplace from New York.

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