Tufts HMO, S. Africa firm end venture

A joint venture between Tufts Health Plan and a giant South African healthcare company that had been championed by state healthcare czar Jon Kingsdale as a way to popularize consumer-directed health plans will die quietly at the end of the year.

Officials at Tufts, the state's third-largest health insurer, and Destiny Health Inc., the US subsidiary of Discovery Holdings Ltd. of Johannesburg, said the agreement to provide a Tufts health plan called Liberty will be terminated Dec. 31, partly because it failed to attract enough participants. The plan covers 10,000 people in Massachusetts.

``We have mutually decided not to extend this joint venture that comes up for renewal at the end of the year," said James Roosevelt Jr. , chief executive of Tufts Health Plan, which has about 603,000 members in Massachusetts. ``It did not meet its initial enrollment targets."

``Tufts is looking to pursue its products independently," said Patty Peterson , vice president of marketing for Destiny Health Inc., of Chicago. She called the decision to terminate the relationship ``mutual."

Consumer-directed health plans generally feature larger deductibles and higher copayments, requiring the consumer to pay more out-of-pocket. Tufts officials said they have 150,000 members in consumer-directed plans other than Liberty.

People enrolled in Liberty will see no change in coverage through the end of the year. They will then have an opportunity to choose another Tufts plan or one from another insurance company, as provided by their employers.

Tufts introduced Liberty in spring 2003, when only one other insurer, Blue Cross and Blue Shield of Massachusetts, offered a consumer-directed health plan. At the time, Kingsdale was Tufts' senior vice president for planning and development, and he said consumer-directed plans had the potential to be as important to healthcare insurance as health maintenance organizations, or HMOs, were beginning in the 1970s.

Kingsdale is now executive director at the Commonwealth Health Insurance Connector Authority, the government agency implementing the law intended to extend healthcare insurance to some 500,000 residents who lack coverage. He could not be reached for comment.

Supporters of the consumer-directed approach say that when people have their own money at stake -- Kingsdale likes to call it ``skin in the game" -- they become more discerning consumers and eschew some high-cost procedures and medications that aren't necessary.

Critics say consumer-driven health plans are little more than slick mechanisms to shift part of the cost of health insurance from employers to employees, enabling companies to check the growth of healthcare spending. In Massachusetts, the average health insurance premium has increased by more than 10 percent in each of the past six years.

Consumer-directed plans are often tied to health savings accounts, which let members save pretax dollars to pay for deductibles and other uncovered out-of-pocket costs.

Destiny covers more than 70,000 people in the United States. The company has pursued US growth because South Africa is one of only three countries where healthcare is provided primarily through employers. (The third is Singapore.)

The centerpiece of Discovery's US health plan is a program in which members earn bonus points -- akin to frequent flyer miles -- for healthy lifestyle choices such as exercising, losing weight, and quitting smoking. So-called Vitality Bucks can be traded for a variety of incentives, including plane tickets and consumer electronics.

Roosevelt said it was necessary to team up with a partner three years ago because Tufts did not have the capability to process health-savings-account transactions. Now it can do that, and is expanding that capability to other products, giving members a suite of consumer-directed plans, he said.

``Liberty let us get into the consumer-directed market and learn what this market demanded before our competitors did," Roosevelt said. Employees who signed up for the plan over the past two years were unhappy, he said, in part because they didn't understand they would be responsible for an out-of-pocket deductible before insurance started paying for healthcare.

Mark S. Gaunya , a principal with Borislow Insurance Inc. of Methuen, which advises companies on health insurance plans, said the joint-venture product was ahead of its time in Massachusetts.

``Liberty was a third- or fourth-generation consumer-directed health plan in a market trying to understand the first generation," he said.

At the same time, he said, Liberty needed to improve. For instance, he said, members who wanted to take advantage of wellness rewards had to log into computer accounts to register their activities, a cumbersome process that made the whole proposition less attractive.

Destiny's US expansion is now tied to Guardian Life Insurance Co. of New York. The two firms offer Destiny's consumer-directed plan in Illinois, Virginia, Washington, D.C., and Maryland, and disclosed plans earlier this year to market the plan in Texas.

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