Employers put health coverage in workers' hands

— -- Nick Trikolas plans to drop health insurance for his employees and give them money to buy their own coverage. He says doing so will put him in the vanguard of a movement by employers searching for answers to rising health costs.

"This may be the future of health insurance," says Trikolas, CEO of Ilios Partners in Chicago, which plans to switch its 100 employees from group to individual coverage this year.

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As health insurance costs continue to rise, some employers are adopting a controversial new approach: ending group coverage and giving employees $50 to $200 or so a month to help them buy their own.

The shift is touted as a lower-cost way for employers to offer workers some kind of health coverage, while making smaller and more predictable financial contributions toward that coverage. Like other companies considering the switch, Ilios will pay a portion of employees' medical costs into tax-free accounts that workers can tap. It also will provide a link to an independent website where workers can compare price quotes from a variety of insurers.

If broadly adopted, the new model would represent a fundamental shift in health coverage in the USA. Most people with health insurance are in group plans offered by their employers.

Critics say the change would end the long-standing, implicit social pact to provide coverage to sick and healthy workers alike in favor of a more Wild West, go-it-alone approach that could benefit young and healthy workers but leave those older and sicker unable to get medical insurance.

That's because ending group coverage removes a key protection in group insurance plans. Insurers cannot reject members of group plans for health reasons, and everyone in the group pays the same premium.

In most states, insurers can reject individual applicants for health reasons and can charge widely varying premiums based on the applicant's age, health history and other factors. Only in a handful of states, such as New York, Massachusetts and New Jersey, must insurers sell coverage to everyone, regardless of their health.

"What scares me is it's tempting for an employer who may have one or two sick employees to say, 'You're not my problem, try to get coverage from the state,' " says John Hickman, an Atlanta attorney who advises businesses on their benefit plans. "It could leave a lot of people without coverage." He says the new model could work if Congress passes national rules requiring insurers to take everyone, regardless of his or her health.

The idea comes as the percentage of employers providing insurance shrinks and the number of uninsured Americans grows. Last year, 60% of employers offered group coverage, down from 69% in 2000. The number of uninsured rose to 46.6 million, up from 44.8 million in 2005.

Large companies use group coverage as an important recruitment and retention tool, but smaller firms struggle more with costs and are less likely to offer group coverage.

Proponents of individual coverage, including Paul Zane Pilzer, whose Zane Benefits firm offers services that help employers make the switch, say most workers will be able to buy coverage on their own.