Get the Lowdown on Consumer-Directed Health Plans

On the Horizon
HSAs aren't the only new health insurance development. A bill that would allow smaller businesses across the nation to offer group health insurance at the favorable rates offered to larger groups is likely to come before the Senate by the time you read this. If approved, it could take effect by fall.

In another encouraging sign, some states are taking steps to increase access to health insurance options (see "Healing Hands," March for details). And businesses are acting to help employees stay healthy. "Employers of all sizes seem to be demonstrating some interest in long-term cost-management strategies like disease-management programs and wellness," says Finnegan. Mercer's study found that the percentage of employers offering at least one disease-management program rose from 32 percent in 2004 to 41 percent in 2005.

That's important, because consumer-directed health plans may not be able to help with the underlying problem of steeply rising costs for medical care. Compared to the managed-care revolution that helped slow mushrooming health insurance costs in the 1980s and 1990s with the spread of HMOs, consumer direction has less opportunity to change the way care is delivered, Claxton says. "Most of the health-care money is still spent by people who spend a lot each year," he notes. "Most of the incentives in this new arrangement aren't relevant to them because once they're past their out-of-pocket maximum, there's no incentive to spend less."

While waiting for long-term approaches to reduce overall health-care costs, entrepreneurs should pay close attention to their business models and their employees to see how their individual companies should approach health insurance. Says Finnegan, "Employers have to judge how critical health benefits are to the health of their business." That means evaluating what competitive employers offer in the way of benefits as well as asking your employees what is important to them.

The average health insurance policy won't get cheaper anytime soon. Mercer warns that health premiums should rise slightly faster this year than last--6.7 percent compared to the 6.1 percent increase for all employers seen last year. But that doesn't mean you have to be average. Mercer's study found that last year, employers were able to keep the rate of growth below earlier projections partly due to the help of care- and disease-management programs and consumerist strategies. The most common approach businesses took, however, was having employees pay a bigger share.

Some entrepreneurs don't consider that an option. Dave Morgan, CEO of 100-person New York City online behavioral advertising company Tacoda Inc., pays 75 percent of his employees' medical and dental premiums. The 42-year-old entrepreneur expects a 2006 increase similar to the 11 percent hike he experienced last year. But Morgan, whose company has annual sales of more than $10 million, hopes to maintain his current plan and eventually improve it by adding vision coverage without shifting costs to employees.

It's part of a long-term strategy to grow his firm, he explains. With bigger firms resorting to shifting costs to employees and cutting benefits, he hopes having a better health insurance plan will help him get better workers. "The technology and advertising industries are very competitive ones for recruitment and retention," Morgan says. "We are always looking for an edge."

Meanwhile, Noon sees his company's HSA as more than a tool to stretch his compensation dollars. He also hopes it will eventually provide the health insurance conundrum's only real permanent solution. That is, reining in skyrocketing health costs by encouraging patients to choose less expensive care. "Putting the people back in charge and having them have some pain when they use the health-care system," he says, "is the only way of having price competition work."

Before You Plan
Know what to look for when selecting a health insurance agent.

Selecting the right agent to handle your health insurance needs can be a daunting task--almost as confusing as choosing a medical plan. These tips from Employee Benefit Risk Management Services can help ease the stress and clarify the attributes you should seek.

  • Make sure the agent represents both group and individual health insurance companies. Often, individual insurance is a better option for employees' dependents.
  • Make sure the agent considers managed care plans such as HMOs. You want to make options with higher benefits and lower rates available to your staff, even though the choice of physicians is more limited.
  • Your agent should have a strong understanding of consumer-directed health plans, including HSAs. This is essential to help you accurately decide if such a tax-saving opportunity is an option you should pursue.
  • Consider agents who have access to multiple health insurers so you have the most possible options from which to choose.
  • Always start with your property and casualty agent, who is responsible for all your business insurance risks and who has access to health insurance specialists.
Mark Henricks is Entrepreneur's "Staff Smarts" columnist.
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This article was originally published in the June 2006 print edition of Entrepreneur with the headline: What's Up, Doc?.

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