New healthcare law expected to broaden insurance options

High-deductible HMO insurance linked to health savings accounts is expected to become more popular as a result of legislation signed into law last month.

The law makes it easier for health insurance companies to create HMO plans with high deductibles, if they are offered in conjunction with the kind of health savings accounts being promoted by the Bush administration.

Health savings accounts allow employees to save pretax dollars to be used for healthcare expenses not covered by insurance. HMOs, or health maintenance organizations, are health plans that require members to use doctors within a network, place limits on referrals to specialists outside the network, and stress preventative care.

The changes will make it ''much easier to get these products approved, and it will allow more of these products to be sold in the Commonwealth," said Kevin Beagan, deputy insurance commissioner and director of the State Rating Bureau, which oversees insurance products sold in Massachusetts.

Until now, the commissioner of insurance had greater discretion to reject HMO products with high deductibles. Currently, HMOs in Massachusetts cannot have deductibles exceeding $2,700 a year for an individual and $5,450 for a family.

''Part of the goal of the legislation is to create options for affordable health insurance," said Harvey Cotton, an employee benefit lawyer at Ropes & Gray LLP, which has a large benefits consulting practice. ''This provision introduces another very attractive, potentially low-cost option."

Cotton said insurers will be able to offer HMO policies in Massachusetts with annual deductibles between $1,050 and $2,700 for individuals and deductibles of $2,100 to $5,450 for family policies. The limits are set by several sets of rules, including IRS regulations and the new healthcare law.

The law is intended to expand insurance coverage to the 500,000 residents who now lack it. It requires them to buy health insurance by July 7, 2007. Subsidies will be available for those who can't afford coverage, but residents who don't comply will face sanctions, such as the loss of tax refunds.

Under the law, employers are also encouraged to offer health insurance to their workers. Companies with more than 11 workers that don't do so will pay a fee of $295 for each employee. In addition, firms that don't offer insurance or allow workers to pay for insurance with pretax dollars may be liable for some of their employees' healthcare costs.

Amy M. Lischko, director of Health Care Policy at the Massachusetts Department of Health and Human Services, said HMOs tied to savings accounts will help the reform plan meet two of its goals. Lower monthly premiums should appeal to some Massachusetts residents who previously have gone without health insurance, she said, and high deductibles will encourage more judicious use of healthcare services.

That, in turn, is expected to help control overall healthcare spending and reduce annual premium increases, which have averaged more than 10 percent in each of the last five years.

''There's a segment of the population that wants these products," Lischko said. ''They'd rather pay less in premiums, keep the monthly payments down, and manage their healthcare dollars more actively. The health savings account lets them do that."

HMOs have long been more popular in Massachusetts than in most other states. The restrictions of networks typically enable insurers to keep premiums lower than with other types of policies, such as preferred provider organizations.

But after years of double-digit healthcare cost increases, insurers and employers are looking for ways to cap premium increases. And along with lawmakers, they want to find new ways to create low-cost products that will encourage people who previously were uninsured to buy healthcare insurance. Increasing deductibles is an obvious way to lower premiums.

Already, executives at the state's large health insurance companies are considering the possibility of developing high-deductible HMOs as a way to extend insurance to the uninsured.

''We are excited about the prospect of offering affordable products to the currently uninsured, such as a higher-deductible HMO tied to a health savings account," said Bruce M. Bullen, chief operating officer of Harvard Pilgrim Healthcare, the state's second-largest health insurer, with more than 900,000 members.

James Roosevelt Jr., chief executive of Tufts Health Plan, said HMOs with high deductibles and health savings accounts provide ''people a way to put money aside tax-free to cover that first set of services included in the deductible. This type of coverage gives them more coverage for more serious treatments they may need."

Roosevelt said he doesn't know whether Tufts, the state's third-largest insurer, will offer such a plan next year when the law takes effect.

Many provisions of the healthcare law require the state to write rules and regulations governing how reform will be implemented. Until that is done, insurers and others involved in healthcare reform said, it is difficult to make specific predictions about how companies and employers will respond to the new law.

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By Jeffrey Krasner, Globe Staff

Jeffrey Krasner can be reached at krasner@globe.com.

© Copyright 2006 The New York Times Company