Passing The Buck on Health Costs? A new medical insurance, called consumer-driven coverage, can save your business money. But is it just health care for the healthy?
By Michelle Andrews

(FORTUNE Small Business) – Year after year of double-digit insurance-premium hikes have some small businesses fearing for their health. Some have stopped providing health insurance. But an increasing number are offering "consumer driven" plans that give workers more responsibility for their health care. Proponents say the plans can reduce the burden on employers and help stem the growth in medical expenditures. But do the plans truly reduce health-care costs or just shift the burden to employees?

A report published by Forrester Research in July predicted that consumer-driven plans will account for 24% of all health-care plans by 2010, compared with 4% today. While larger firms like Medtronic and DuPont already use these plans, small businesses are starting to catch on as well, says Todd Page, national sales manager for J.L. Barnes Fortis MGA Offices, which has an arrangement with the National Federation of Independent Business to offer members consumer-driven plans. "When small businesses hear about the plans, most of them buy them," Page says.

The details of consumer-driven plans vary, but there are some common elements. Most plans cover preventive-health-care costs--such as physicals and breast-cancer screening--in their entirety. Other medical costs, like visits to an eye doctor or a dermatologist, are paid out of an employee-managed medical fund, which is usually paid for by the employer, and typically covers about $1,000 a year in medical costs. If the medical fund is exhausted, coverage then usually shifts to a plan with a high deductible--sometimes as much as $3,000. Employees may have the option to roll any money left at year's end into the next year's fund. For young, healthy workers with few medical costs, these plans can be especially attractive.

The benefits? "By having consumers actively engaged in the process instead of thinking everything costs $10, the plans help rein in rising medical costs," says Tim Brown, a senior vice president with Aetna. And employers get a break: While other small businesses are trying to swallow 15% to 20% increases, rates for the consumer-driven plan at TeamWorks Media, a Chicago multimedia production company, rose 8% this year. "Premiums have been well below market, and employees have been satisfied with the plan," says Tom Smithburg, chief financial officer for the 15-person outfit. "It's a win-win." That's especially true for firms whose only alternative is no coverage.

But critics argue that "consumer-driven" is a nice way of saying "consumer-paid"--that employers simply use the plans to shift more costs to their workers. In general, "consumer-driven plans are not an enhancement, they're a reduction in benefits," says Barry Barnett, a principal with PricewaterhouseCoopers HR Services. The catch comes after an employee's account funds are exhausted. For example, an employee with a $1,000 health account and a $3,000 insurance deductible might have to cover $2,000 in medical bills before his insurance kicks in. Such costs pose problems for older, sicker workers.

Some more creative plans are working to solve those problems. TeamWorks' provider, Destiny Health, separates people's health-care costs into "controllable" and "uncontrollable" buckets; 120 chronic illnesses like diabetes and heart disease fall in the latter category. Any employee health-care costs that relate to "uncontrollable" costs are covered by insurance rather than by the employee's personal medical fund. Perhaps innovations like those will help nurse consumer-driven plans to the point where their acceptance is healthy.