Focus On Health Benefits (Cover Story)

A steady uptick in the premiums that employers pay to provide health insurance coverage to employees has prompted some companies to look at an alternate model: Catastrophic coverage plans.

A high annual deductible is the crux of a catastrophic care insurance policy. That deductible can range from $1,500 to $5,000. The plan eliminates the $15 or $25 co-pay that most employees now make at every visit to the doctor's office.

Instead, the patient pays the entire doctor bill out-of-pocket until the total payout reaches that $5,000 ceiling. After that, the insurance policy kicks in to pick up the entire tab.

However, says Phil Randazzo, owner and president of Nevada Benefits, "Only a handful of companies have changed to a catastrophic coverage plan; there's just not that much savings. Most companies are raising co-pays instead."

At the current co-pay price point, many people run to the doctor for minor complaints like coughs and colds. En masse, those costs comprise the bulk of insurance policy payouts.

So, says Randazzo, raising the average $25 co-pay can result in substantial savings.

But if catastrophic policies did come into vogue, he adds, people would be compelled to shop carefully.

"Now they don't care what the doctor charges for an office visit; that will change after adding a deductible to office co-pays."

The consumer already pays more.

Valerie Clark, president of Clark and Associates, says that over the years, as the cost of insurance has more than doubled, the risk has shifted from the insurance company to the consumer.

That trend will continue, she says. "Consumers are going to get pushed into consumer-directed health care."

That's CDHC for short. It means patients will shop for a doctor visit the same way they shop for any other big-ticket item like a television or stereo. They'll call around to compare prices.

"Consumers may check prices more closely if they are paying," says Clark. "We are seeing more people gravitate toward those plans."

Among the companies served by Clark & Associates, 15 percent to 20 percent are moving in that direction, while another 25 percent to 40 percent are asking about it.

However, cautions Clark, it's a good idea for a company to offer options that employees can choose to add to their health insurance plan. Because while every company must meet a budget, in the end, she says, "It boils down to employee morale."

But a tsunami of catastrophic care plans is not on the immediate horizon.

"I've not had many requests for changes," says Norm Roberts, president and founder of Alta Insurance Agency. "The movement is incipient, not yet a trend." Rather, he says, "A lot of companies are going to min-med plans."

Mini-med means no catastrophic care.

But people want it, says Roberts, because the preponderance of the money is spent on low-end claims.

A study of indigents in Tennessee asked people what they wanted. "They wanted everything except catastrophic care," says Roberts. "They said, 'We want the stuff we use doctor visits.'"

But choice is determined by demographics, he adds. Blue-collar workers with high school degrees opt for

mini-med while college educated white-collar employees choose catastrophic care.

A third choice exists that involves health savings accounts and health reimbursement arrangements.

Kevin Sampson, president of Health Benefits Associates, brokers insurance policies but also serves as a third-party administrator for firms that take on the risk of reimbursement.

How it works:

The IRS allows one to open a tax-free health savings account if one is enrolled in a high-deductible plan. (Enrollees open this account online. Employers don't contribute to the account.)

But the employer isn't out of the picture if it's in a health reimbursement arrangement. The employee submits run-of-the mill claims for doctor visits and lab tests directly to the employer through that third-party administrator who pays the bills. (The employer is later billed for the entire batch.)

"Some companies save $6,000 to $8,000 a month with that reimbursement arrangement," says Sampson.

But many companies are afraid of risk under a reimbursement plan, he adds.

Once, says Sampson, "Everybody had a plan that paid for everything."

And once, he adds, physicians were motivated by care, not cost. "Now doctors offices are becoming entrepreneurial. Collecting payment at the doctor's office is modeled on any other business."

The key, says Sampson, is that higher deductibles and higher co-pays lead to lower health care premiums.

Still, says Randazzo, premium costs keep going up. Last year's increase ranged from 4 to 8 percent. But among his clientele, only 1 to 2 percent of companies cut benefits. "They reduce staff first."