Cashing out

Last fall, Anita Palmer faced a fork in her career path. A single mom of a 10-year-old son, Ms. Palmer had been working 20 hours a week as a media relations coordinator for Point Loma Nazarene University in San Diego. She was also nurturing a growing freelance editing business and dreamed of working from home and building her work schedule around the needs of her son, Benjamin. Her university job, however, paid 65 percent of their health-care premiums and, as Benjamin's sole supporter, Ms. Palmer worried about giving that up.

Then in October, Point Loma offered Ms. Palmer a full-time position. That meant more time away from her son and her editing business, but it also meant full health coverage. "I was at a point whether I could either accept the offer of a full-time job, or turn another direction and work toward 100 percent self-employment, trying to cobble together enough health-care coverage," Ms. Palmer said. "I would've preferred to work from home, 100 percent self-employed . . . but the determining factor was health insurance."

Having to lash her career decision to the cost of health care was frustrating, Ms. Palmer said. "Although I know I'm in the same position as thousands of people, it makes you feel somewhat helpless concerning your own future."

Americans spent $1.6 trillion on health care in 2002, a price tag that's expected to double by 2013, according to the Employee Benefits Research Institute. Among workers not covered by government medical plans, nearly half in an EBRI survey said increased health-care costs had forced them to decrease contributions to savings plans; another quarter said they had used most of their savings paying for health-coverage hikes. One in four Americans said they or an immediate family member had passed up a career opportunity, delayed retirement, or stayed at a job they would have quit, solely to keep their health insurance.

Several forces are working to drive up health-insurance costs. One is a growing number of medical malpractice lawsuits, which have led to increases in malpractice premiums, which in turn contribute to rising health-care costs. As more physicians are forced to give up treating patients or are driven out of business altogether, patient access to medical treatment increasingly is limited. In January, President Bush called on Congress to pass a law that would rein in frivolous malpractice lawsuits while capping damage awards at reasonable sums.

But another problem is that, with the current insurance system, people do not have an incentive to price shop for medical care. This leads to higher prices that eventually get passed on to everyone in the form of higher premiums. That could be changing, though, with new ways to pay for medical treatment-including tax-advantaged accounts, association health plans, and cash-only clinics-freeing consumers to choose alternatives to the stratospheric premiums and treatment restrictions that mar traditional health plans.

This January marked one year since the Health Savings Accounts (HSAs) established as part of the Medicare Act of 2003 became available to consumers. HSAs are interest-bearing bank accounts that allow individuals and families to save pre-tax money for medical expenses. Financial institutions such as banks offer the accounts, which are linked with high-deductible health-insurance plans offered by mainstream insurers. (For example, J.P. Morgan Chase offers HSAs for Blue Cross Blue Shield of Wisconsin.)

Because of the high deductible on the health-insurance component of HSAs-on average, $1,000 for an individual or $2,000 for a family-monthly premiums are often less than half of the amount those insurers charge for traditional co-pay plans. Workers may deposit annually an amount equal to their health plan's deductible, to a limit of $2,600 for individuals, and $5,150 for families. (In 2005, contribution maximums will be indexed to the cost of living.) Account holders then treat their health insurance as they would insurance for their auto or home, paying for routine expenses out-of-pocket or using money they've saved. In the event of a catastrophic medical need, workers can use money saved in the HSA to cover the linked health-plan deductible. Then, as with traditional plans, insurance coverage kicks in.

By September 2004, about 440,000 Americans had signed up for HSAs, according to America's Health Insurance Plans, an insurance industry group. From an investment standpoint, advocates of the accounts say they're a triple threat to the status quo: Deposits aren't taxed, interest earnings aren't taxed, and withdrawals are also tax-free, as long as they're used for medical expenses. Funds left unused at the end of each year can roll over and continue to grow tax-free.

That's why Daniel Cosgrove is switching. A physician and medical director at the WellMax Center for Preventive Medicine in La Quinta, Calif., Dr. Cosgrove for years carried a pricey health-care plan for himself, his wife, and their three children.

"I had this full-on private insurance-$900 a month, and we never used anything all year except for a few vaccinations," Dr. Cosgrove said. Now his family is opting for a high-deductible, low-premium HSA-linked plan. "Now for less than $5,000 a year, I can get catastrophic coverage . . . and use the money I'm saving to cover the deductible or pay for preventive care."

Similar to HSAs, Flexible Spending Accounts (FSAs) are another option that allows individuals to put aside a portion of their before-tax salaries to pay for medical expenses. FSAs are employer-established benefit plans that don't require a high-deductible health-insurance policy. Although no statutes limit contributions to the accounts, some companies cap them at $2,000 to $3,000. Money left over in an FSA account, however, cannot roll over from year to year-if you don't use it, you lose it.

Another option, called a Health Reimbursement Account (HRA), allows employers to set aside funds to reimburse employees for qualified medical expenses. HRAs provide "first-dollar" coverage-that is, they cover all medical expenses until HRA funds are exhausted-and unused funds roll over at the end of the year.

Meanwhile, families of all income levels could save money with a health-care provider like Robert Berry. The Greeneville, Tenn.-based physician is among a fast-growing group who are cutting ties to insurers altogether and accepting only cash for medical services rendered. The goals: To improve patient care, rein in out-of-control costs, and end their own feelings of indentured servitude to insurance companies.

Dr. Berry launched the PATMOS EmergiClinic in 2001. PATMOS, the isle of the Apostle John's exile, serves both as a reference to Dr. Berry's Christian faith and as an acronym for "Pay At TiMe Of Service."

A former medical missionary, Dr. Berry first considered opening a cash-only clinic while working as an emergency room doctor at a Greeneville hospital. He remembers treating patients who weren't sick enough to be in the hospital, but who checked into the ER because they had no insurance and nowhere else to go.

"I left ER medicine to start a clinic primarily for the uninsured of my community," Dr. Berry told the Joint Economic Committee of Congress during testimony last April. "My motivation was simply to try and flesh out in my own life an answer to the age-old question: Who is my neighbor?"

Dr. Berry's neighbors come from as far as 200 miles away to take advantage of care at prices like those advertised in his clinic's folksy brochure: Sore throat, $35. Sports physical, $50. Stitching up a simple, one-inch cut, $95 (additional inches, $25 each).

He jokes that most services at his clinic cost "somewhere between an oil change and a brake job." He is able to keep his fees low because he receives what he actually charges, instead of relying on lowball insurance reimbursements that often didn't even cover his costs to provide care. Also, by not accepting insurance, Dr. Berry doesn't have to pay a small army of administrators to process claims and hound insurers for payment. If he were to accept insurance, he estimates his overhead would triple.

Clinics like Dr. Berry's, combined with other health-care payment options, could drive down medical costs overall by forcing providers to compete. For example, a patient spending his own money for a lab test may be more likely to shop for the best price.

Prices already are falling at clinics associated with SimpleCare, an alliance of more than 1,600 "pay-as-you-go" doctors across the country who charge lower fees when patients pay in full at the time of service. For instance, SimpleCare has negotiated with major labs for test prices that are 50 percent to 70 percent lower for cash patients than for those with insurance, according to Lori Swanz, vice president of the Seattle-based consortium.

Despite such potential savings, Americans are lukewarm to the idea of cash-only clinics-or high-deductible health plans, according to EBRI. While more than half of those surveyed believed their health care would improve if they had more responsibility for their medical decisions, only a quarter said it would improve if they had to shoulder more of the costs.

But the average annual combined cost per worker of employer-sponsored plan premiums and associated co-pays is more than $2,500, according to Hewitt Associates, a human-resources consulting firm. That's about the same amount as the maximum annual contribution to an HSA. Ms. Swanz points out that many patients, particularly those relying on Medicare, are locked out of certain, potentially lifesaving preventive care anyway.

For example, Medicare prohibits doctors from referring patients for an A1C, a test designed to catch diabetes in its earliest stages, unless the patient is obese, has a family history of diabetes, and is already symptomatic. By then, Ms. Swanz said, the A1C is a moot point.

A SimpleCare patient can have the A1C for only $14-because his doctor decided the test was necessary treatment.

Maybe that's why SimpleCare is adding members at the rate of about a doctor a day. "We're hearing our members say they couldn't sleep at night knowing they didn't treat a patient" because an insurer wouldn't authorize it, Ms. Swanz said. "They don't want to work for insurance companies anymore. They want to work for patients."