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Bosses offer assurances

Like some other employers contacted, Trikolas says he doesn't expect his employees, who are mainly in their 20s and 30s, will have a problem qualifying for individual insurance. If any do, he says the company will help them find coverage.

"I can guarantee you that no company would leave those people high and dry," Trikolas says.

David Davis, executive vice president of Sweet and Sassy Franchising, which franchises salon and spa services aimed at girls ages 5 to 12, says his company plans to introduce the Canopy program this year and end its group coverage. Davis, whose company is based in Southlake, Texas, says the main goal is to give workers more options.

"We have employees who have families with young kids, some have older kids and some employees are single," Davis says. "Those scenarios present widely varying health care needs. Something like this gives us and our employees a little more flexibility."

What happens if some can't get coverage?

"Currently, we don't have any issues like that at all," Davis says. "We'll have to address that if it occurs. As we bring new people on, we'll get a better sense of how it will work. We may jump into it and say it's the best thing we've ever seen, but we will evaluate that as we go."

Canopy's Kashyap says most people can get insurance. Those who cannot, he says, should be looked upon like bad drivers, who have to pay more for auto insurance. He expects health insurers, possibly with the help of government or employers, ultimately will develop coverage for higher-risk people.

"There are some people in the minority who will be adversely impacted, but the system in general is designed for the majority," Kashyap says.

Bret Berneche, chief executive officer of Cardinal Homes in Wylliesburg, Va., used Zane benefits to help get health insurance for himself and his 112 employees.

In August, Berneche told his employees that their group health insurance would end that month.

Between premium increases and mounting state and federal rules, offering insurance was costing the company too much — $846,000 a year.

"It was certainly a blow," Berneche says. "The choice was having the health plan we had or going out of business."

After he canceled the group plan, he heard about Pilzer's program and signed on. Cardinal puts $100 to $200 a month into each employee's health reimbursement account.

Even if Berneche carries out his plan to nearly double the size of his company, he still expects to save at least $360,000 this year with the new program. Zane Benefits handles the accounts and reimburses employees out of their individual accounts for medical expenses.

Many employees were able to buy individual policies for less than the monthly amount put in by Cardinal, Berneche says. The money also can be used for eyeglasses, dental care and other medical expenses.

"I don't know if everyone bought insurance. But there are various ways to get some kind of health coverage, through state programs and self-pay programs and catastrophic insurance programs," he says. "Everyone here has a health reimbursement arrangement that they can spend the way that best suits their families' needs."

Though some pay less for premiums than they did under the company-subsidized group plan, others, including Berneche, pay more.

He and his wife, Dorothy, both in their 40s, pay about $900 a month in premiums, and each has annual deductibles of $5,000, meaning that's what they pay before coverage kicks in each year. The cost of prescriptions adds $200 to his monthly costs. He says his total costs are at least $1,000 a month more than under his group policy. Still, he says, "I am happier today with this program … than I was before."

Berneche says he can talk more openly with company employees about health issues. He does not feel as constrained by federal and state rules and has more control over health costs.

"I had to worry about that every year," Berneche says. "We're no longer in the health care business."

Legal issues

Legal questions remain about whether to classify this hybrid coverage as group or individual policies. Consumer protections are not as strong in individual plans because states allow them more leeway than group plans.

Berneche had to certify on his individual insurance application that his company was not reimbursing him. Yet the contributions his company provides are at least a partial reimbursement.

In Virginia and many other states, policies sold as individual plans have different rules on what they must cover and how applicants can be scrutinized.

The Department of Labor and the Treasury Department are considering whether federal rules that apply to group insurance also apply in programs such as Zane's, in which an employer makes a contribution but doesn't offer a group plan, a statement from the Department of Labor says.

For instance, says Mila Kofman, a health policy professor at Georgetown University, "what happens if an employee can't buy an individual policy" but others in the company can? "Then you have a potential violation of the non-discrimination provisions" in federal law.

Daryl Richard, a spokesman for UnitedHealth, says, "A number of groups, including brokers, insurers and government agencies, are seeking to fully understand the nuances of how individual and employer-sponsored coverage may best work together in compliance with both state and federal regulations."

The main goal, he says, "is finding ways to make health coverage available to as many Americans as possible."