By last year, about 20% of U.S. employers were already offering a consumer-driven option to their workers, a figure that is expected to rise to 30% this year. So far, between three million and four million workers have opted for the coverage. Like Staples, companies with consumer-driven health on the menu have high hopes for eventually cutting employee health benefits costs. Staples projects a possible 10% savings per year, but first the company needs to convince its 40,000 U.S. employees to join LeMieux and start thinking about costs themselves.

Toward that end, Staples has been introducing a consumer-driven health option as one of the choices in its employee benefits cafeteria plan and pricing it "as if it were our primary plan," says Nancy Lazgin, director of global benefits at the Framingham, Mass.-based company. Staples also has included consumer-driven features in more traditional PPO and HMO options.

With Staples' consumer-driven option–which is administered by Lumenos Inc., one of several specialty providers offering consumer-driven programs–employees are also able to develop their own personalized plan by using a Web-based model that lets them select different deductibles and co-pays and then weigh these against the resulting premiums to decide a comfortable balance of risk and costs. Still, growth in participation has been slow, going from 15% of employees in the plan's first year, 2003, to 18% in 2004 and 20% this year.

The basic idea behind consumer-driven health is simple: Employees in traditional health insurance plans are unable to be good consumers of healthcare because they don't have any sense of the real cost of their care or any clear stake in cutting costs. For example, if a health plan typically charges the employee a $10 co-pay for a visit to the doctor's office, the employee sees that as the full cost of going to the doctor, though the plan itself may be paying $75 for that visit.

Unfortunately, while the concept is simple, the plans are often anything but. Typically, in a consumer-driven plan, employees are each given a health reimbursement account (HRA) that is funded by the employer. (Some plans use pre-tax-dollar health savings accounts, or HSAs , which were recently changed to allow for rollover and portability so that they would work with consumer-driven plans.) From that account, employees pay for their healthcare until they reach their plan's relatively high deductible, when a traditional HMO or PPO kicks in. The traditional plan carries a relatively low premium, which both employers and employees welcome, because of the high deductible, which employees are not so happy about. The catch that sometimes frightens employees: There is often not enough money in the HRA to cover their required out-of-pocket expenses. On the other hand, the carrot that frequently entices those who do not anticipate sizable medical expenses is the fact that they get to roll over into the next year unused HRA money.

For gourmet health food retailer Whole Foods Market Inc.–a company that has the advantage of a high percentage of young, health-conscious employees–embracing the consumer-driven approach was a no-brainer. A few years ago, Whole Foods had to bail out its HMO and comprehensive plans to the tune of $7 million because healthy workers were opting for a high-deductible catastrophic plan, leaving sicker, older workers in the other two plans. The company was facing the prospect of a 35% premium jump. Instead, in 2003, Whole Foods made a total conversion to a consumer-driven plan.

MIXED MESSAGE ON SAVINGS

The Whole Foods plan carries a $1,000 deductible, plus another $500 for pharmacy. Employees pay up to $2,000 in co-pays, but once they've spent $3,500 in a year, the company will then cover 100% of their medical expenses. Meanwhile, each employee is issued a MasterCard debit card with between $300 and $1,800 on it, depending on length of employment, to be used for out-of-pocket expenditures. Finally, Whole Foods also pays all premiums for the traditional plan.

Whole Foods Chairman and CEO John Mackey says initially the plan caused some "unrest" among employees. He visited literally every store to explain the plan, and in the end, he opted for putting it and several other options developed with employee consultation to a vote. The current plan won by 83%.

A year out, Mackey reports that per-employee medical costs have fallen 42.8%, from $2,795 to $1,599. After deducting the cost of employee HRAs, this represented a savings to Whole Foods of 26%. Employees were able to roll over $14.2 million in unused HRA funds.

Unfortunately, at this juncture, very few companies have such double-digit savings to report. "The research shows that cost savings are in single digits for most plans," says Tom Billet, a senior health consultant at Watson Wyatt Worldwide.

Laura Tollen, a senior researcher at the Kaiser Permanente Institute for Health Policy, cautions that companies that adopt consumer-driven health plans hoping for a major impact on their bottom lines may be disappointed. Consumer-driven plans may help mitigate healthcare inflation, she says, but the impact will be less than expected "because incentives, to be cost-sensitive, only work on people at the lower end of the spending spectrum. That's a good thing, but it's not the people who spend $1,000 to $2,000 a year on healthcare who are driving up healthcare costs; it's the people with chronic conditions." According to Hewitt Associates' Tim Beauregard, people with chronic health conditions account for some 75% of claim costs. Ultimately, savings from the consumer-driven plans with healthier and younger populations would be eroded by higher costs from traditional plans serving the older and sicker employees, who have much less to gain from the new plans since they are unlikely to ever be able to roll over any portion of the HRA, yet are likely to have to self-fund the portion of the deductible not covered by the HRA.

For this reason, providers such as Alexandria, Va.-based Lumenos advocate that companies shift entirely to consumer-driven plans and take away the traditional options, if they want to see the inflation rate of their year-to-year health costs go from 15% down to zero. "Twenty-five percent of our accounts don't offer any other plan besides the consumer-driven one," says Doug Kronenberg, Lumenos' chief strategy officer. "When they do that, we see 94% satisfaction rates."

Tom Policelli, vice president for business development at UnitedHealth Group Inc., a traditional insurer that recently acquired consumer-driven provider Definity Health Corp., also suggests offering only a consumer-driven option. "If it's offered [with many] options, you need to work awfully hard to align your other plans' pricing correctly, or people will not make the change," he says.

THE CHRONICALLY EXPENSIVE

Policelli claims that employers who make the full conversion to a consumer-driven insurance plan can see savings of 4% to 10% in their health benefits costs in the first year "and sometimes as much as 15%." But even he concedes that the savings slow in subsequent years–averaging 4% in years two and three.

For larger companies, though, such a full-scale conversion is not an option. "They have a historical commitment to choice, and they have lots of categories of employees," says Watson Wyatt's Billet. "Besides, it's a really big step to take, and they want to have more experience with how it works before making that big a change." As well, he says forcing workers to accept higher deductibles can lead to disgruntled employees and make it harder to attract good people.

Steven Kraus, a principal at Deloitte Consulting LLP, says that educating those with chronic conditions is key to making consumer-driven health a success. "Companies have to be willing to get involved in disease management," he warns. "For people to be good consumers, they need to be educated, and they need incentives to accept disease management."

Despite consternation among experts about segmentation of the market into sick and well, there is little evidence so far that this is happening. Staples' Lazgin says that to date, the profile of employees who have opted for her firm's consumer-driven plan is virtually the same as for the other options.

Ken Pearlberg, marketing manager for the health plans offered by the 230,000-member American Postal Workers Union, says the same is true for his members. "The average age of our workers is 48 to 49, and that's the average age of the people in the consumer-driven plan after three years," he says. "My opinion is that this is a reasonable alternative for people. If you use your HSA right, you can get your basic and preventive care virtually free." Pearlberg notes that one reason postal workers may opt for the consumer-driven plan is that unlike their other insurance options, it includes vision and dental–a significant incentive to switch.

In the end, while the arrival of consumer-driven plans is likely to help some companies stem the rise in health benefit costs, many believe there is a limit to what they can accomplish, much in the same way HMOs and PPOs were more effective in early years than in recent times. "Consumer-driven plans are good as far as they go," says Bruce Bradley, General Motors Corp.'s director of healthcare strategy and public policy. "But unless you can get the waste out of the system, which accounts for 30% to 40% of the healthcare dollar, you're not going to solve the problem of soaring costs." He estimates that of an annual increase in healthcare inflation of 15%, perhaps 5% could be addressed by making employees better consumers; the remaining two-thirds of the increase would be systemic. GM, he notes, considers health benefits, which are provided for current employees and retirees, to be an "integral part of the package" to recruit and retain its 170,000 U.S. employees, so that simple cost-shifting is not a good option. "The key to cutting costs is to find the most effective care for the serious medical cases among those employees," he says.

Toward that end, the giant carmaker is devoting considerable effort to measuring the performance and outcomes of its healthcare providers. But "the problem of health costs in the U.S. is not going to be solved by any one company," says Bradley. "This is a national problem and it goes a long way toward explaining why we're not competitive globally."

That may be so, but for now Staples' LeMieux is happy with the latest approach to tackling the problem. His family was able to roll over much of his HRA in the first year. "We had higher expenses the next year," he says, "but still didn't use up all of the HRA fund. And I think we use healthcare differently now. We ask more questions, and it's eye-opening to see what things really cost. I'm very much a fan of this approach."