The Wall Street Journal-20080129-Employers Explore Health-Care Options

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Employers Explore Health-Care Options

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David Martin, owner of Accucam in Coopersville, Mich., thought he had run out of health-care options for his workers when MEGA Life & Health Insurance Co., the provider of Accucam's group health plan, dropped its coverage. Premiums had doubled the prior year, and participation dwindled to three of 15 workers.

So instead of providing group insurance, Mr. Martin is offering allowances -- such as contributions to health-savings accounts, or HSAs -- to employees who buy their own coverage in the individual market. Other small and medium-size employers are also providing stipends to workers who buy their own coverage through similar defined contribution programs.

By adopting such strategies, employers aim to shield themselves from premium increases and reduce administrative burdens, while providing employees with help toward their medical expenses, a key element for recruiting and keeping staff.

"It's a paradigm shift from employer-sponsored plans to employee- owned coverage," says Sam Gibbs, a senior vice president at eHealth Inc., parent company of eHealthInsurance Services Inc., an online insurance broker, whose platform Mr. Martin is testing.

Individual policies are portable, so workers don't have to worry about losing coverage if they change jobs. Plus, employees keep the funds in their HSAs, he says.

Critics say workers with health problems may end up paying very high premiums, face exclusions for existing medical conditions, or wind up without insurance in the state-regulated individual market -- challenges not faced in group plans. In addition, when adopting novel ways of providing benefits, employers need to be mindful that they comply with state and federal laws.

According to the Kaiser Family Foundation, 59% of small companies offered health benefits in 2007, down from 68% in 2000. Over that time period, annual premiums have almost doubled, to $12,106 for family coverage and $4,479 for an individual.

"[That is] just too expensive," says Mr. Martin, who used to split premiums 50-50 with employees. Now, he is offering to contribute $1,000 annually to the HSAs of workers who buy high-deductible health plans, or HDHPs, through eHealthInsurance's site. Employees can pick from more than 160 carriers.

HDHPs have lower premiums than the more-traditional types of plans, but enrollees have to pay more out-of-pocket costs before insurance coverage kicks in. By law, funds in HSAs generally can't be used to pay for premiums, but workers can spend the funds tax-free on qualified health-care expenses.

Mr. Martin has purchased a policy and six workers are now shopping for coverage. By law, to open an HSA, employees must purchase a health plan with a deductible of at least $1,100 for an individual and $2,200 for a family.

Meanwhile, in San Francisco, Andrew Hoag, co-founder of Zwaggle.com, an Internet site where parents can trade in their kids gear, is testing technology company Canopy Financial Inc.'s MyCanopy.com.

Through MyCanopy.com, employers provide workers with a fixed amount of money each month that they can use to enroll in an HDHP, which they can pick through the site, and to fund accompanying HSAs.

Mr. Hoag says the system makes it easy for him to manage costs and forecast expenditures, while workers have more control over -- and a bigger stake in -- their health spending. He is likely to give $500 per person each quarter to workers who enroll -- maybe more to those who can't get coverage because of health problems.

Canopy Financial Chairman and Chief Executive Vikram Kashyap says MyCanopy.com is working with insurers on developing products for people who can't get insurance because of past or present illnesses, and is making headway in California. MyCanopy.com also has teamed up with a company that specializes in helping people access state high- risk pools where the uninsurable can get coverage.

Karen Politz, a research professor at Georgetown University's Health Policy Institute, is one of the skeptics. Some 30 states have high- risk pools, but the premiums can be as much as double the usual rate. And some, such as in Florida, are closed to new enrollment because of lack of funding. Fewer than 200,000 Americans are covered through high-risk pools. As a coverage option, says Ms. Politz, "It's a fig leaf."

When adopting novel programs, employers need to be mindful that they comply with applicable state laws as well as federal rules on benefits, which are regulated by the Treasury and Labor departments.