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Pick-your-policy health care

Some large employers are experimenting with a new way of offering and paying for health insurance for their employees. Sears Holdings and Darden Restaurants, which owns Olive Garden and Red Lobster, will give their employees a lump-sum amount to pay for their health insurance in the coming year. The employees will then go online to shop for the insurance plan they want. Pick a high-deductible plan with a cheaper monthly premium, and you get to pocket the difference. Pick the fanciest plan—with a lower deductible and a plethora of specialists in-network to choose from—and you’ll pay the extra cost, out of pocket.

Most employers offer a single health plan, or perhaps two. They tell you what this year’s premiums and co-pays cost—end of story. What’s different in the new model is that the employer provides a fixed lump-sum—adjusted for the number of family members being covering—and the employee decides how much to spend on health insurance.

Darden Restaurants will offer multiple medical, dental and vision plans in an online marketplace.

“Our employees get the ability to shop,” says spokesman Ron DeFeo. “They get to ‘buy-up’ or ‘buy-down,’ depending on their needs for health care.”

‘Buy-up’—and pay more—if they have a lot of medical problems, or end up at urgent care with the kids every time they turn around. ‘Buy-down’—and pocket the difference—if they’re single, healthy, and don’t plan to see the doctor.

DeFeo says based on employee surveys, Darden thinks full-time workers will opt for cheaper insurance with higher out-of-pocket expenses, and keep some of the lump-sum payment as income.

“It’s up to the individual to understand what they need—whether it’s doctor visits, or anything that they have to deal with in the future," DeFeo says.

Just the prospect of such individual decision-making can make a regular health-care consumer’s head spin. In this case, employees will be deciding between five competing health insurance policies, and numerous pricing models, in an unfamiliar online marketplace.

The new model will face hurdles. Health-care management professor Jonathan Kolstad at the Wharton School points out that shopping for health insurance isn’t like shopping for a smartphone. It’s hard to anticipate what features and options a person might need in the future—faced with a life-threatening illness like diabetes or cancer.

“You not only need to figure out where you can go for care,” says Kolstad, “but then weight it with the probability of that happening, which of course is very low. And we have a lot of reason to believe people have a hard time making decisions with kind-of low-probability events.”

A more high-probability development is that health-care premiums will keep going up. And employers will be watching this new trend, to see if they can shift some of the rising cost on to employees, by giving them a single lump-sum payment, and letting them decide how to spend it on health care.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.
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Really, Mitchell, fear-mongering? The audio includes Mitchell saying, "just the sound of that makes my head explode", and between that and the above text, there's this very loud message that choice is NOT better. How is choice not better here? Have we not advanced beyond the Henry Ford adage that you can have any color you want as long as it's the one I pick? We have low cost cars, low cost cell phones, low cost food, and each of these things serve a useful purpose in the ecology of the economy. Having more choice in health insurance is a welcome boon -- not a panacea, mind you, but a step in the right direction.

Choosing a cheap insurance policy is a bad idea. Bad, bad, bad. You never know when lightning will strike, so to speak. You may be the picture of perfect health today, and then suddenly find out you have cancer. Life happens. Be prepared. "Better safe than sorry."

As for high-deductible policies, what good is a high-deductible policy if you can't afford to pay the deductible?

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