A Health Insurance Dilemma
In January 2004, in a Knoxville hospital,
Shannon van Tol gave birth to Tennessee's
first quintuplets: Meghan, Willem, Isabella,
Ashley, and Sean. Amid the cigars, balloons,
and donated diapers, Guille Cruze--CEO
of the White Stone Group, the software
company where the quints' father, Willem,
worked--was both elated and worried.
Willem van Tol had worked as a programmer
at White Stone for more than three years
and, like many of the firm's 70 full-timers,
had enrolled his family in the company's
health care plan. The year leading up
to the quintuplets' arrival had included
a great deal of medical care, including
fertility treatments, three ultrasounds
a week, eight weeks of bed rest in the
hospital, and extended stays for the newborn
babies.
All told, the medical bills added up to
more than $2 million. Cruze knew that
his insurer, Blue Cross Blue Shield, would
pass some of the costs back to him. But
when he received his renewal notice a
few months later, he was stunned. His
annual premium had shot up more than 30%,
from $290,000 to $380,000. For a company
with $8 million in revenue, that extra
$90,000 was going to hurt. "Willem
said he was sorry," says Cruze, who
tried to reassure his employee. "I
told him that it was okay, that we would
live and die as a team."
Privately, Cruze wondered what to do.
When he hired his first few employees
in 1997, he covered 100% of their health
care expenses. Every year since, insurance
premiums had gone up, forcing him to scale
back. By 2004, he covered 95% of expenses
for single employees and 55% for families.
With this latest increase looming, Cruze
was fed up. What if premiums jumped another
30% next year? In a moment of frustration,
he considered doing away with health benefits
altogether, but he soon realized that
such a drastic step would destroy the
close-knit culture he had spent years
cultivating.
Cruze called dozens of insurance carriers
for quotes, and they all told him that
a $400,000 annual health insurance bill
was the norm for a company White Stone's
size. The situation seemed hopeless. Then
he read about an interesting alternative:
health savings accounts. HSAs let individuals
save money for health care expenses using
pretax dollars. The accounts seemed like
a good deal for employees. They could
roll over any money remaining at the end
of the year and take the accounts with
them if they should leave White Stone.
They could also withdraw funds for nonmedical
expenses, though they'd have to pay income
tax and a 10% penalty. After age 65, they
could withdraw anything remaining, paying
only income tax.
There was one big drawback: HSAs are used
in conjunction with qualified health plans
with low premiums and high deductibles--between
$1,000 and $5,100 for individuals and
between $2,000 and $10,200 for families.
(Unlike flexible spending accounts, HSAs
limit employees to one health plan.) Cruze
could save a bundle by taking advantage
of the low premiums, but he worried that
his employees might resent the high deductibles,
or forgo necessary medical treatments
to avoid paying them. The only way to
get around that problem, he figured, would
be to cover the deductible himself. After
doing some calculations, he figured out
he'd still wind up paying about $400,000
a year.
Cruze was torn. On the one hand, he liked
the idea of HSAs. He'd much rather deposit
money into his employees' accounts than
continue filling an insurance company's
coffers. But HSAs were a new concept,
and he worried that his employees would
be confused and even intimidated by the
complex model. In many ways, it would
be easier to stick with a traditional
plan and either absorb the entire increase
or ask employees to pony up a bigger percentage
of the premium payments. By November 2004,
as the renewal date for the company's
insurance policy loomed large, employees
began speculating about the fate of their
health benefits. Cruze had to make a decision
fast.
The Decision
One Monday last November, at White Stone's
monthly town hall meeting, Cruze stepped
up to the podium and proclaimed, "It's
your money!" The slogan was part
of a campaign designed to teach employees
about their new HSAs, which would be administered
by Wells Fargo. As COO Jeff Peters and
HR director Leslie Evans handed out pamphlets
and debit cards, Cruze made a PowerPoint
presentation to explain how the system
would work.
Each month, he explained, an employee
with a family plan would have $379 deducted
from paychecks for the same Blue Cross
Blue Shield plan he or she had always
used. White Stone would cover the entire
deductible, $417 a month, deposited into
the employee's HSA, and kick in $58 toward
the premium, for a total monthly contribution
of $475. (If Cruze had simply renewed
White Stone's traditional policy, the
company's contribution would have been
$487 a month, and the employee would have
paid $383 a month, on top of a $1,000
deductible.) Under the new plan, individual
members would follow the same drill, but
make premium payments of only $52 a month.
Cruze pointed out that employees would
no longer be required to make copayments
on doctor's visits and prescriptions because
the entire bill would be paid for with
the money deposited in their HSAs by White
Stone. He also emphasized that HSAs would
help them become educated consumers. "I
saw it as a healthy education for them,"
he says. "They needed to learn that
all-you-can-eat health care is not an
entitlement and start asking doctors hard
questions like, 'Do I really need this
test?'"
At first, employees seemed dubious. "People
were scared because they didn't understand,"
Cruze says. Evans, the HR director, held
weekly meetings with plan members and
their spouses at which she addressed questions
and problems that arose. Initially, employees
complained that their doctors didn't understand
how HSAs worked. Rather than submitting
their bills to insurance carriers, doctors
had to swipe debit cards and create payment
plans if charges exceeded the amount of
money in employee accounts at any given
time. In one case, just two days after
the plan went into effect this past January,
Evans stepped in to help an employee whose
doctor insisted on being paid up front.
"We knew we would be at risk for
the first few months until employees could
build up their accounts," Cruze says.
"The whole thing took some education
and a little bit of getting used to."
Now, almost a year later, many of the
kinks have been worked out. The best part
about HSAs, Van Tol says, is that he no
longer has to make copayments--the quints,
who will turn two in January, are healthy
but still have quite a few doctor's appointments.
Even better, he adds, is that the kids
are finally sleeping through the night.
By: Darren Dahl
