Health Care and Insurance and Government

State revamps health coverage: New health savings accounts and high-deductible policies could help stem rising costs

October 31, 2005

Indiana state government will unveil a fresh approach to insurance coverage next year when it offers health savings accounts to its 33,000 employees and their dependents.

The state wants employees to take more control of their health care and consequently harness spiraling costs, Personnel Director Debra Minott said. The high-deductible AnthemBy-Design plan it chose to accomplish that will be offered as one of five coverage options during an open enrollment that starts Oct. 31.

"We really see a looming crisis in terms of providing health insurance benefits to employees," Minott said.

However, the plan is not flawless. The state had to drop a popular health maintenance organization option in devising its 2006 lineup, and some see the fairly new health savings accounts as another way to dump more cost on employees.

Even so, the move gives Indiana leader-ofthe-pack status for now.

Health savings accounts have grown in popularity with private employers, but state governments have been slow to catch on. A 2004 survey by Mercer Health & Benefits LLC showed only a few had implemented consumer-directed health plans, a category that includes HSAs.

"States usually are not the ones on the front edge," said Bob Boyer of Mercer's Indianapolis office.

The AnthemByDesign plan, administered by Anthem Blue Cross and Blue Shield in Indiana, combines the accounts with insurance that sets annual deductibles at $2,500 for individuals and $5,000 for families.

Employees will pay all their health care costs up to those deductibles, then 20 percent of subsequent charges up to an outof-pocket maximum. Certain preventive care like physicals also are covered under the plan.

HSAs allow people to set aside money before taxes and use it to pay the deductible or other health care expenses. Account contributions are limited to the deductible amount but can come from more than one source. State workers will have some help there-Indiana will deposit $1,500 into individual accounts and $3,000 into family accounts.

People have total control over their accounts, including the state money, Minott said, and can roll over unused balances on the interest-bearing accounts from year to year.

Indiana chose Anthem to administer the newest option because the state already uses the insurer for two other plans.

"It was really just convenience to tack it on to our existing contract with Anthem," Minott said.

Big numbers forced state government to rejigger its coverage, dropping the popular M-Plan 1, which Minott described as a "rich benefit plan" with low overall costs to employees.

Indianapolis-based M-Plan reported this year that claims for that plan exceeded premiums by more than $10 million. That would have meant a premium hike of several thousand dollars per person. About 10,000 employees used M-Plan 1.

Indiana also discovered that its employees used their health care plans more than those in surrounding states.

"If that continues unchecked, we will not be able to afford-neither the state nor employee-the premiums associated with that kind of usage," Minott said.

High-deductible plans typically carry lower premiums.

The state also dropped HMOs from Lafayette's Arnett HealthSystem and Indianapolis-based Advantage Health Solutions Inc. Minott said those plans had low membership, and the state wanted to reduce its administrative load.

Proponents think HSAs make people spend more judiciously because health care costs aren't obscured by low co-pays.

"Right now, it's a theory because they're so new," said Paul Fronstin of Employee Benefit Research Institute, a Washington, D.C.-based agency that studies employee benefits and public policy. "Until we have enough data to see how people behave on the plans, we're just guessing."

Fronstin doubts the impact of these accounts, which started in 2004.

He noted that 20 percent of the U.S. population is responsible for 80 percent of health care spending. A high deductible will do little to change the habits of someone who already spends several thousand dollars on medical care.

"If you don't change the way that 20 percent uses health care, you're probably not going to put a dent in health care costs," he said.

Fronstin also noted that HSA opponents believe they represent a new way for employers to shift costs to employees.

Minott rejected that notion. She pointed out that the state will contribute to each account and also pay the entire premium for the high-deductible plan.

The state doesn't expect this new option to solve the problem of escalating costs, she said, but it's a step in the right direction.

Minott has modest goals for Anthem-ByDesign's debut. She said she expects no savings for Indiana next year but believes the program will plant seeds for new behavior "and ultimately, we think, lead to reduced claims costs in the future."

She'd like to see 5 percent to 10 percent of Indiana's employees sign up for the HSA-backed plan in 2006. That would provide the state with a good-size representation for evaluating how it works and what flaws need to be addressed.

Minott has at least one interested party in her corner. Indiana Gov. Mitch Daniels sent state employees an e-mail in September, touting the benefits of the new "innovative consumer-driven health care option" for 2006.

Daniels said he likes the new plan so much he'll use it to cover his family.
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