If employees feel a financial pinch every time they go to the doctor, get an MRI or replace a crown, they will be more conscious of slowing the growth of medical costs.
At least that’s the theory behind a new health plan offered by the Whole Foods Market Inc. grocery chain, one of the companies turning to so-called "consumer-driven" medical coverage to save money, the Wall Street Journal reported.
The upside is no premiums. After a few months on the job, employees are covered. The downside is high deductibles — $500 for prescriptions and $1,000 for all other medical costs. To help meet the deductible, Whole Foods contributes $300 to $1,800 into employees’ accounts, depending on their longevity with the company. Employees are not allowed to add tax-free contributions to the company payments.
After the deductible is reached, the plan pays 80 percent of most medical expenses, much like a traditional plan would. Any unused money can roll over to the next year.
The new plan has been a resounding success for the company. Medical claims dropped 13 percent in the first year, and hospital admissions per 1,000 employees fell 22 percent, according to Whole Foods' figures. The company estimates that it spent about the same amount per employee on health insurance in 2003, including deposits into the new employee accounts, as it did under its old plan in 2002, the Journal reported.
Under the new plan, workers at the 159-store grocery chain are turning to generic drugs, rejecting unnecessary procedures and watching doctors’ charges more closely.
Other companies may not see the same savings as Whole Foods, where the average age of an employee is just 32. The company's emphasis on healthy products tends to attract people who exercise regularly, eat organic foods and have few health problems.
Critics of the plan, however, say the high deductibles may discourage people with chronic conditions from getting the care they need. They also fear that people may skimp on health care today so they can roll over the money and save for more serious problems in the future.
In an environment of spiraling health-care costs, consumer-driven plans are attracting attention. Companies such as Lockheed Martin Corp., Medtronic Inc. and Wells Fargo & Co. offer the new insurance plans as a choice along with more traditional options. Whole Foods is one of the few companies of its size to adopt a consumer-driven plan as its only option.
Whole Foods founder and CEO John Mackey, who considers himself a libertarian, got the idea from a libertarian think tank and asked his top executives to put the new plan in place in just a few months at the end of 2002. His motivation was the fact that several million dollars would be needed to put the company’s self-insured plan in balance. Claims had significantly outpaced money set aside to pay them.
"Because we were in crisis, we had to kind of cram it down our [employees'] throats," Mackey said.
After hearing strong concerns from workers, Mackey decided the next year to let employees decide what insurance plan to use and what benefits to offer. The new health-insurance plan got 83 percent of the vote, and the employees agreed to trade-offs. Many employees lost several vacation days, and they chose to set aside only $2.25 million for the match on their 401(k) contributions each year.
Jen Burdge, a bakery manager in a store in San Francisco, said, "My first concern was who was going to pay for my acupuncture. It was $60 per visit, and I was going two or three times per week." That would have cost her more money out of pocket had she not cut back on her appointments.
The new plan "certainly never stopped me from going to the doctor," she says. "But it made me a more conscious spender. You have this amount of money and this much time."