Market differentiation

A month after it rolled out a program that ties high-deductible health insurance with Health Savings Accounts, Reno-based Hometown Health Providers Insurance Co.

finds two dramatically distinct markets.

On one hand, the option is drawing interest from low-income families because the highdeductible health insurance means premium payments are lower than competitive plans.

At the same time, the Health Savings Account feature is drawing the attention of high-income families for whom the accounts' tax advantages are important, says Ty Windfeldt,marketing director for Hometown Health.

The company, a division ofWashoe Health System,worked about a year to develop the program that it rolled out at the start of May.

Here's how it works: In 2003, Congress authorized Health Savings Accounts.

People who are enrolled in a high-deductible health plan can use a designated Health Savings Account to set aside money tax-free to cover medical expenses.

How high is the deductible? Federal law says a qualifying plan must have a minimum annual deductible of $1,000 for an individual or $2,000 for a family.

It also must limit annual out-of-pocket expenses, including deductibles and co-payments, to $5,100 for individual coverage or $10,200 for families.

Once a Health Savings Account is established, unused funds can be rolled over from year to year.

The accounts are portable when people change jobs, so long as the new employer offers a qualified high-deductible plan.

Strategically,Windfeldt says, the decision to offer the high-deductible,Health Savings Account option helped protect Hometown Health from competitors who were preparing similar products.

Although Hometown Health bills itself as the first locally owned health plan to offer Health Savings Accounts,Windfeldt acknowledges that competitors based elsewhere have come after Hometown Health accounts.

"We have been able to retain a couple of accounts we otherwise might have lost," he says.

The high-deductible coverage,meanwhile, helps the insurer's parent company, the operator of hospitals and clinics in the region, reduce the number of uninsured families in its service territory,Windfeldt says.

The biggest challenge in putting the program together, he says,was settling on a financial institution to serve as a partner on the Health Savings Accounts.

Hometown Health ultimately signed on with Mellon Bank, then spent weeks ironing out the details of the interface between the insurance company and the Pittsburgh-based banking company.

Next up, he says, is a focus on education of employers and potential participants about the program.

"This adds another layer of complexity for the employer,"Windfeldt acknowledges.

He says Hometown Health executives recognize that individuals are unlikely to sign on through their employers until they understand the benefits tax and otherwise of a Health Savings Account.

But the insurance company has gotten a good sense of the program's potential from one group that closely follows new wrinkles in health coverage.

"The market that is most excited about this,"Windfeldt says,"is

individual physicians for their own offices.

They understand it."