“Defined contribution” offers new health insurance wrinkle

By John Thomas, Associate Editor
March 1, 2002

Although it’s too early to determine utilization of mental health services under a new and growing form of health insurance, there’s no reason to expect that those enrolled won’t seek psychological services when needed.

That’s the prediction of Cynthia Feiden-Warsh, vice president of sales for Lumenos, an Alexandria, Va., firm that began offering the alternative to managed care insurance about a year ago.

The new health care strategy is being called “defined contribution.” Somewhat like standard “defined contribution” retirement programs, an employer gives employees a fixed amount of cash with the understanding that he or she will use the money to purchase health insurance, adding personal funds to the employer’s contribution, usually around $1,400 annually.

Under the defined contribution program, consumers, using web-based information and referral services, choose the physicians they trust and the services they need and have the potential to save money in the process, Feiden-Warsh said.

“Subscribers might decide it’s not a wise investment of healthcare dollars to go to a doctor every time they have a sore throat,” she added.

The employer contributions and any additional funds made by employees are placed in a Health Savings Account. Members can use their savings account to pay for routine health care and are free to spend money in their account on most health-related services, including those not usually covered by other health plans.

Money remaining in the account at the end of the year can be rolled over and accumulate in the health savings account for future health care needs.

She said Lumenos and other companies that offer defined contribution plans eliminate bureaucratic red tape, which allows doctors to focus on patient health and wellness to create a more positive healthcare experience.

Lumenos, Definity Health, Destiny Health and Health Markets, Inc. were among the early start-up companies that started offering the program in 2001 and are accepting both renewals and new orders for 2002.

“We haven’t been in business long enough to determine any utilization patterns at this point,” Feiden-Warsh explained.

“There is certainly no intent to limit access to mental health service through the new program. As with other health concerns, subscribers will be able to make their own decisions about which services to seek out, including mental health services.”

Feiden-Warsh said mental health professionals are available through their networks of providers, and there is information available on Luminos’s website dealing with anxiety, depression and substance abuse.

The intent of defined contribution health plans is to reduce employer costs and make consumers more responsible for their health care decisions instead of leaving those decisions up to managed care companies, she said.

Under a defined contribution plan, once a limit is reached (usually the amount of money the employer and the employee has put in the health savings account) the employee would be responsible for nearly all additional healthcare costs, which would be capped at some point and where a more typical health insurance policy would kick in.

The defined contribution plan is a radical departure from the usual idea of a pool of risk–a chance that a few members of group will have high claims that can be covered by the premiums paid by those who utililize fewer services. Under defined contribution, healthy people would probably pay less than is currently required, while sicker people would wind up paying more.

Based on early reports of acceptance by both employers and employees, several large insurance companies are starting to offer their own defined contribution health plans. These include Aetna, Humana, Cigna, UnitedHealth Group and Wellpoint Health Networks.

Feiden-Warsh said that while a lot of big insurance companies are getting into defined contribution health plans, she’s not concerned that they will run smaller companies such as Lumenos out of business.

“I don’t think they have the culture or the vision to compete successfully,” she said.

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