HSAs catching on

Tracey Jihad has five kids and a chronic illness -- reason enough to worry about rising health care costs. So she was apprehensive when her employer announced that it was starting the transition to a new kind of high-deductible health insurance.

Four years later, however, Jihad is sold on the way the new coverage lets her control health-care decisions -- and hold down costs for herself, her coworkers and her employer. "Especially with the economy, this shows that we can be proactive about reducing health care costs," said Jihad, medical records data coordinator for LifeSource, a St. Paul-based nonprofit that coordinates organ donations in the Upper Midwest.

What sold Jihad on the new coverage was the careful way that LifeSource helped employees through the transition. The organization didn't just shift medical costs to them -- it showed how they could all save money. It didn't just dump medical decisions in their laps -- it taught them how to make smart choices.

"The employee is key to everything, their ability and desire to take hold of it," said Kim Thompson, an independent insurance agent who works with LifeSource.

The rapid growth of high-deductible health plans -- they now cover more than 1 in 10 insured Minnesotans -- has thrown a spotlight on the way employers make what can be a tricky transition. The plans require people to pay a larger share of medical costs out of pocket, but let them set aside pretax money in health savings accounts (HSAs) to cover some of the costs.

Advocates hope the new plans will help rein in health care costs by encouraging consumers to use medical services more prudently. But many experts worry that consumers will scrimp on needed care or valuable preventive services -- saving money now but driving up health costs in the long run.

"Education matters a lot," said Steve Parente, associate professor of finance at the University of Minnesota's Carlson School of Management and director of the school's Medical Industry Leadership Institute. "If you just introduce these plans without an education component, they'll fail."

"They're not taking cost increases down to zero, but they're definitely bending the cost curve down," he said.

In 2005, LifeSource decided to offer its employees the option of switching from traditional health insurance to high-deductible policies.

The organization educated employees on cost-saving strategies such as going to MinuteClinics for minor illnesses and shopping around for everything from prescription drugs to mammograms.

It also gives them data showing how much their collective choices can save. Last year, for example, they cut prescription drug costs 28 percent by using more generics and by shopping for the best pharmacy prices.

But the organization also counsels employees not to cut preventive services -- which are covered by its plan -- and sponsors wellness programs such as a health fair and healthy meals. It also purchased access for all employees to Healthyroads, an Internet-based health resource that also offers free, one-on-one phone coaching.

Holding costs steady

The strategy seems to be paying off. The first year LifeSource offered the high-deductible plan, all but five employees who received benefits signed up. The next year, only two employees remained on the traditional plan. By 2007, LifeSource offered only the high-deductible plan though Blue Cross and Blue Shield of Minnesota.

At a time of double-digit annual increases in premiums, LifeSource has managed to hold its costs steady between 2008 and 2009. Costs actually fell in the previous two years, following a period of increases at the plan's inception.

The organization is not the only happy party. Overall satisfaction is high among the 79 employees on the plan, LifeSource says. For good reason: The organization pays 100 percent of employees' premiums (which employees supplement for family members), 100 percent of care once they meet their deductibles and 50 percent of the deductibles themselves. It also fully covers preventive care services such as immunizations and cancer screenings, even before deductibles are met.

"This is a change in paradigm for how we think of health care and health insurance," Thompson said. "Everyone is important."