(FORTUNE Magazine) – The Manhattan office of acupuncturist and herbalist Phyllis Bloom is serene by the standards of the medical profession. The fragrance of soothing oils and the faint sounds of Chinese music fill the waiting room, pleasantly empty of other people. That could change. Now, before she inserts long needles all up and down the patient's body, Bloom gets to ask the question physicians have long asked: "Are you insured?"

These are heady days for the likes of Bloom. Alternative medicine, a collection of therapies that range from the promising to the preposterous, has finally found a place in corporate health plans. For now, relatively few companies pay for employees' trips to these practitioners. But wait around. Demographic forces are favorable; the news media are fascinated. Eventually every company may have to face this question: How much does this stuff cost, and will it make the patients better?

Like a lot of trends, this one seems to have bloomed on the West Coast. "There are companies in San Francisco that wouldn't think of having a health plan that didn't include Chinese herbal medicine," says consultant Louise Kier Zirretta. Two years ago the Washington State legislature went so far as to pass legislation requiring insurance companies to cover the services of all licensed health practitioners. That broad group includes purist naturopaths, who don't believe in antibiotics.

Insurance companies, arguing the right to reject wacky therapies, protested, and a federal judge overturned the law; even so, some self-insured Washington companies, Microsoft among them, have voluntarily written generous coverage of alternative practices into their health plans. One option for Microsoft employees includes unlimited access to all denominations of chiropractors and naturopaths and to Christian Science healers (see table).

Coverage of alternative medicine has moved east as well. This past January, Oxford Health Plans, one of the largest health insurers in the New York metropolitan area, began offering its corporate customers a rider on their policies to cover the services of acupuncturists, chiropractors, and, in Connecticut, naturopaths. (Only 11 states, including Connecticut, have officially recognized naturopathy.) Why do such a thing? "The distinction among insurers is getting fuzzy," says Kevin Quinn, a benefits consultant. "With this and other initiatives, Oxford is no longer plain vanilla."

Oxford says it carefully screened the practitioners and excluded from its network of 2,000 the flakier ones, such as orthodox chiropractors. So far only 25,000 or so individuals are covered by the rider, out of Oxford's total insured population of 1.9 million. That's tiny, but the group includes some high-profile trendsetters who use the coverage to help attract and keep employees. Among them is fashion designer Donna Karan.

What Microsoft and Donna Karan have in common are young work forces and young leadership, key to explaining their enthusiasm for alternative medicine. It's not so much the old and desperately sick who turn to far-out therapies as it is the young, well educated, and relatively affluent, according to a 1993 study published in the New England Journal of Medicine. As Dr. David Eisenberg, 42, a Harvard Medical School assistant professor who led the study, speculates, "We boomers challenged a lot of establishments when we were younger and still don't accept that there's only one way to do things."

But that still leaves the question: Is this new stuff worth it? Proponents insist that alternative care will drive down medical costs because herbs are cheaper than drugs, acupuncturists not as pricey as orthopedists. Maybe, but in the short run it will more likely drive up costs. According to the Eisenberg study, 96% of the people who go to an alternative practitioner continue to see a conventional doctor for the same medical problem. (In other words: additional medicine.) As insurance policies pick up the tab for such treatments, employees who never tried them are likely to do so, and those who used them a little will be inclined to use them a lot.

"People who used to come for just one visit now come for three or four," says acupuncturist Bloom, whose $90-an-hour services are covered by Oxford. Acupuncturists are signing up new Oxford customers at a rate of 20 a week and chiropractors at a stunning rate of 400 a week.

What's a clear-headed company policy on alternative medicine? There are several sane choices. One is to pay for only the methods that clearly work, such as acupuncture for pain. A second choice is to pick an insurer that screens alternative medicine providers--but decline to pay the extra 3% to 6% for those services. Even if an Oxford corporate customer won't buy the rider for alternative care, its employees can still get a list of the practitioners in Oxford's network, whom they can visit at their own expense. Oxford has screened out the most obvious quacks. And the practitioners in the network, grateful for the advertising, give discounts to Oxford customers. The service is proving such an effective marketing tool that another major insurer, Aetna U.S. Healthcare, plans to put together a similar network for its customers in the New York City area.

Ultimately many companies will wait for the results of the same objective, controlled tests that mainstream medicine has to endure. The National Institutes of Health is underwriting ten such investigations. Researchers at the University of Texas, for example, are trying to determine whether various herbs and plants, including ginseng and mistletoe, can be helpful in cancer treatment. Harvard's Eisenberg is conducting an NIH-sponsored investigation of alternative treatments for back pain. He also hopes to persuade at least a dozen major corporations to put up a minimum of $100,000 each to test whether teams of mainstream physicians and alternative practitioners treating patients with back pain together would get better results than physicians working alone.

It will be a few years before these investigations come to conclusions. Until then, companies that want to be certain they are not subsidizing quackery ought to wait for Dr. Eisenberg and his colleagues to finish their work.