Aetna Offers a Look at Health Coverage's Future

Edition: December 2001 - Vol 9 Number 12
Article#: 1111
Author: Robert Neil

Employers, providers, consumers and government officials have been looking for effective changes in the payer side of health care, and now, one of the country's biggest insurers, Aetna Inc., Hartford, CT, has joined the pursuit.

In what the company calls a ''Consumer Directed Plan,'' Aetna has launched Aetna HealthFund, a product that combines familiar features of a PPO with a unique employer-funded health savings account. The new offering bears some similarity to ''defined contribution plans,'' which began receiving publicity last year. (See March 2001 Repertoire.) Both options strive to customize health coverage to the specific needs of the consumer, and give employers greater flexibility in choosing a product for their employees.

Aetna's HealthFund sets up an employer-funded health savings account, into which employees dip when they need routine medical care. Employers work with Aetna to determine the amount of the savings account and the employees' deductible, or out-of-pocket expenses. At the end of the year, unused funds in the account roll over to the following year, a feature that should make the plan attractive to consumers.

Changing Options
The plan demonstrates that hospitals as well as consumers are beginning to deal with changing insurance options. For providers, business is no longer solely about pursuing large managed care contracts to secure enough patients to remain in operation. A decrease in overall HMO enrollment nationwide indicates consumers and employers are looking carefully at non-HMO choices, and Aetna is offering a plan that fills a need, and that need likely is only the beginning of a new movement.

If insurers' methods are changing, hospitals will also have to change, and suppliers won't be able to assume that a facility with large HMO contracts is necessarily the best target customer. In fact, providers that have a balance of managed care and alternative payer agreements could be in the best position.

To better understand what's going on in the market, you first must have basic knowledge of health care's alphabet soup. PPOs, or preferred provider organizations, allow patients a wider choice of physicians, hospitals and specialty care. Many consumers have dropped out of more restrictive HMOs (health maintenance organizations) in favor of PPOs, which have been making a noticeable comeback in the last three years.

Providers in a PPO network don't take on risk or capitated contracts, which set up a provider's income based on patient usage of the system. Contrast that to hospitals and physicians in HMO networks, which do assume some risk and take a chance on losing money if patients use the system a lot. That issue has been a source of great dissatisfaction for a number of providers.

More than a decade ago, insurers began offering HMOs, which were cheaper for employers, insurers and consumers, but also more confining. The plans required members to visit pre-selected providers in order to save money. Then, the condition was accepted as a necessary sacrifice. Employers, who subsidize employee health care benefits, enjoyed the savings and touted the plans in recruitment packages to new workers.

However, the evolution of health care coverage has now reached a point where costs are straining HMOs and the savings that originally lured participants are shrinking. Yet their restrictions remain intact.

One of the primary reasons for the high costs is medical advances. Wonderful technology has produced pharmaceuticals and treatments that greatly improve the quality of life, but such technology is expensive. These costs have lead to very visible payer/provider battles over reimbursement fees for treating patients.

Out of this frustration came the defined contribution proposals, which ambitiously involve consumers in pre-selecting specific levels of coverage in a variety of specialty areas. Herein lies a noticeable difference between defined contribution plans and Aetna's HealthFund: Instead of asking enrollees to make decisions on specialty care, a PPO plan covers expensive or unexpected health services. Since Aetna has one of the industry's largest provider networks, enrollees will get some of the benefits of an employee-funded plan as well as the security of a traditional product.

Aetna Is Not Alone
This is a major step toward making defined contribution-type plans a legitimate rival to traditional managed care. Aetna is the first national, full-service health benefits company to offer this type of plan, and its experience will be watched closely by competitors. However, Aetna is not alone in developing new products for a changing industry. Humana Inc., a large and innovative insurer based in Louisville, KY, has been discussing defined contribution products as well. Although nothing official has been announced, some observers expect the company to unveil new plan options in 2002. Other payers likely will disclose their versions of consumer directed plans next year as well.

Meanwhile, Aetna has picked a perfect time to launch its new product. Fall is the season when many employers begin negotiating benefits packages for their workers. Predicted increases in HMO premiums have forced some companies to consider passing along higher costs to their employees. HealthFund could prove to be a popular alternative to firms that aren't ready to fully embrace defined contribution, but are definitely seeking a step away from managed care.

Aetna officials say HealthFund would be ideal for employers with at least 1,000 workers, and Aetna itself, with more than 40,000 employees, will be the first company to offer the new plan.

A number of providers around the country have expressed a strong desire to work with non-HMO contracts. If plans such as HealthFund become a legitimate option, hospitals will make changes accordingly, and suppliers will need to do so as well.

About the Author: Robert Neil is an Orange County based health care analyst and business writer who specializes in supply chain and managed care issues. He may be reached through his Web Site: