A Richmond startup thinks there’s a market for treating health care more like car repairs – encouraging employees to pay out-of-pocket for routine tune-ups and letting insurance cover the accidents and emergencies.
Hoping to implement this style of health care on a broader scale, nHealth recently raised $12 million, with most of that money coming from local investors. The company is rolling out plans that cover high-dollar expenses and leave the smaller-ticket items, like doctor checkups and medications, to the policy holder. As part of the plans, which have much higher deductibles, employees can choose to set aside money tax free in Health Savings Accounts (HSA’s) for future need.
The company received a license from the Virginia Bureau of Insurance earlier this year. So far, nHealth insures one business that’s testing the idea as a pilot program.
Small businesses do not, by law, need to provide health insurance for their employees. But for most small businesses, health care coverage is an essential – and increasingly expensive – recruitment and retention tool.
The company’s five Richmond employees work at an office on Glen Forest Drive. Chief Executive Officer Paul Kitchen said he plans to hire another two or three sales employees by the end of the year.
The company purchased a 40-person firm in Ohio to handle the payment of claims and other support services.
nHealth is trying to get Virginia insurance brokers to add the plans as part of their offerings, with the hopes of insuring as many as 5,000 employees around Virginia by the end of the year, according to Kitchen, the former CEO of the Medical Society of Virginia.
To reach its goal, the company is targeting businesses with fewer than 100 employees. The pricing options are similar to non-HSA plans, with higher deductibles equal lower prices per employee.
The actual savings accounts work much like 401(k) plans and carry additional fees from the banks that administer them. Employees may divert up to $2,900 per person (or $5,800 per family) per year into the accounts, for which they receive a debit card. The money may be used for any health fcare cost at any time, and may be invested. The money may also be withdrawn without penalty when the policy holder turns 65. (Health Savings Accounts have received some heat in Congress as a tax shelter for the wealthy.)
Health Savings Accounts plans are often linked to high deductible plans because unlike regular insurance policies, which pay for routine visits, the plans cover care that runs above the deductibles.
“With our approach, we let insurance take care of the financially ruinous expenses – as is the case with most other forms of insurance coverage – and let the consumer pay the reasonable costs of their doctors and the deductible,” Kitchen said.
That should motivate policy holders to seek better deals and only visit the doctor when necessary, Kitchen said, adding that health costs from unhealthy lifestyle choices such as smoking and obesity might also diminish as consumers pay more of the costs involved with such conditions.
“The challenge in healthcare isn’t how to pay. What we’ve got to change is the behavior. When folks get skin in the game, they’ll be responsible for the care and the costs,” Kitchen said.
More than 6.1 million people have HSA-eligible plans, according to the research arm of industry group America’s Health Insurance Plans. nHealth’s is not the only company offering Health Savings Accounts in Virginia.
Optima Health, a subsidiary of Hampton Roads-based Sentara, says the plans are increasingly popular in Richmond. Roughly a third of the small businesses who are shown the option decide to go with it, said Lance Pessarra, a small group sales manager for Optima in Richmond.
However, not everyone thinks they’re such a good idea. Employees at many small businesses are hesitant to switch, according to local business owners and insurance brokers.
Jennifer Whitlock, a principal at the computer support firm TheHelpDesk Company, looked at changing insurance plans last year.
“We needed to manage costs. We could pay 50% of our current plan or switch to a health savings account with a high deductible. We were going to pay 100% of the HSA plan and contribute to their HSA accounts.”
“(The employees) voted to stick with the current plan,” Whitlock said.
Jay Starke, president of the insurance brokerage Starke and Associates, said the plans can be disruptive to the employees. He said employers who care about their employees are staying away from the HSA plans.
“The high deductible is scaring the heck out of them (the employees),” Starke said.
nHealth said one of its challenges is showing employees that they need not be afraid of high deductibles. The company has charts that show how the plan can lead to wealth creation over time, much like retirement savings.
“It’s got to be different enough for people to see, but we’ve got to be careful not to be too different,” Kitchen said.
nHeath’s other executives are:
James Slabaugh, Executive VP Sales and Marketing.
Paul W. McVay, Executive VP and COO
Charles Duncan, Executive VP and CFO
Paul Nezi, Executive VP of Strategy and Business Development
Kenneth Hein, VP Sales
James A. Hammond, VP and CIO
Frank B. Clare, Medical Director
To Keep Health Plans, Many Firms Shift Costs, New York Times, September 26, 2007