The former CEO of the Medical Society of Virginia has launched a new insurance company, nHealth Inc., with the goal of helping employers address the runaway cost of providing employee medical benefits.

nHealth's consumer-directed approach puts employees in charge of managing their healthcare using Health Savings Accounts. The company drives down premiums by focusing coverage on medical services that represent the greatest risk of financial burden to individuals and families.

"Nationwide, we have an insurance-premium affordability crisis on our hands," says CEO Paul Kitchen, the former CEO of the Medical Society of Virginia. "The traditional managed care model has become extremely complex, administratively burdensome and unaffordable. Our company seeks to significantly impact premiums and control future rate increases by returning to a more basic insurance model and giving the control of healthcare back to the consumer."

The nHealth business model works much like buying other insurance such as homeowner's and automobile coverage. With a vehicle, for example, the driver pays for charges such as oil changes, windshield wipers or tires, and insurance takes care of fender-benders and major accidents. Similarly, the nHealth member is insured against the catastrophic costs of healthcare and pays directly for the lower-incremental bills known as professional services fees, and a single deductible that covers both medical and drugs. Professional services include the hands-on activity performed by a physician or other healthcare professional, including diagnosis, therapy, surgery, anesthesia administration, consultation and care oversight. 

"One of the best-kept secrets in healthcare is the actual cost of doctors and other medical professionals. Published data show the average doctor's office visit is well under $100," Kitchen said. "With our approach, we let insurance take care of the financially ruinous expenses – as is the case with most other forms of insurance coverage – and let the consumer pay the reasonable costs of their doctor and the deductible. We believe that both physicians and patients benefit when services and fees are part of the physician/patient relationship and dialogue."

Employers pay into an individual's tax-exempt Health Savings Accounts, from which the an employee's medical fees are paid. Unspent balances remain in the employee's account from year to year.

nHealth will initially target small businesses with fewer than 100 employees. Small businesses are finding it increasingly difficult to continue to cut the check for benefits.  With premiums on average increasing 8 percent to 12 percent a year – rates three to four times that of inflation—some companies have already dropped their healthcare benefits altogether.  

One problem with traditional third-party payer insurance is that patients had little incentive to be vigilant consumers seeking the best combination of price and quality, in the marketplace. In theory, with HSAs, when consumers see a relationship between their medical costs and their bank accounts, they are more careful about how they spend healthcare dollars.

"Real change is long overdue in the health insurance industry," said Paul F. Nezi, executive vice president of strategy and business development, and a former senior executive at Anthem Blue Cross and Blue Shield of Virginia. "Employers have waited a long time for something innovative and meaningful.  The nHealth Plan addresses an unfilled need that exists in the market today."     

"The nHealth product is available today statewide.  The plan works equally as well for young and old, healthy and those with health problems," said Jim Slabaugh, the company's executive vice president of sales and marketing, and co-founder of Keiter, Slabaugh, Penny & Holme, an employee benefits and human-resources consulting firm.  "Efficiencies achieved through the plan's unique approach to paying for healthcare incents everyone to maximize the use of healthcare."