To look at its offices, you would not expect RD Systems to be the site of one of the most far-reaching social and economic experiments in the country. Housed in a featureless metal box in an industrial office park about 20 miles north of Rockford, Ill., the 30-year-old manufacturing company is the very picture of old-fashioned, traditional business. It has also been the picture of stability: Half of its 40 employees have worked there for more than five years.  So it came as a shock to president Jo Ribordy-Christofferson, 41, when four years ago Blue Cross & Blue Shield of Illinois, her insurer of ten years, announced that the premium for the plan she offered employees was going to shoot up 60%. RD Systems had always paid 100% of its employees' premiums, and Ribordy-Christofferson knew that she risked losing her highly sought-after engineers if she offered less. To cut costs, she switched from her preferred-provider organization, or PPO, to a high-deductible plan from another insurer, but found that its customer service was unacceptable. Something else had to be done.  That's how old-economy RD Systems came to offer an innovative, newfangled kind of coverage. Known as "consumer driven" health insurance, it gives her employees more responsibility for managing their spending and will save the company $49,000 this year, a reduction of about 30% from what she estimates it would have paid under the old arrangement. And while Ribordy-Christofferson no longer pays all of her employees' costs, the new plan offers perks to keep her workers happy and healthy. "There just isn't a downside," Ribordy-Christofferson says. "This is health insurance pushing in the right direction."  It's easy to see why small businesses are looking for new answers. Health insurance premiums for all companies went up 14% on average last year, continuing a trend of double-digit annual increases. For small businesses, the problem is particularly acute: In 2003 almost half saw hikes of more than 15%, according to the Kaiser Family Foundation's 2003 Employer Health Benefits Survey.  Desperate for solutions, some small businesses have turned to government- or nonprofit-sponsored programs (see the companion story, Home Remedies) or pursued self-insurance (see Heal Thyself); some have even dropped health insurance altogether (see Working Without a Net). But more and more entrepreneurs are turning to consumer-driven plans, which typically combine a high-deductible health insurance policy and a tax-advantaged, employee-managed medical account that covers some or all of the deductible. Any money left in the account at the end of the year generally rolls over to the next year, an incentive for employees to spend prudently.  Consumer-driven plans are controversial; critics say that they simply shift more costs to employees, especially sicker ones. But proponents argue that not only are they good for individual businesses but they also may help fix our nation's broken health-care system.  "Right now, if a company's employees are in a PPO, there's no upside for them in saving money and using it wisely," says Ray Herschman, national practice leader for consumer-driven health care at Mercer Human Resource Consulting. Why worry about whether you really need to go to the doctor when all you're ever responsible for is a $20 co-payment? By giving employees a pot of money of their own to spend on health care, consumer-driven plans aim to make them smarter and more cautious health-care users. The hoped-for result: They'll spend less, and premiums will finally begin to come under control.  Last year about 500,000 employees were covered by consumer-driven plans. Up from 100,000 in 2002, that was still a minuscule percentage of the 175 million who had health insurance. But health policy experts expect that health savings accounts, which were created in January under the new Medicare law, will give consumer-driven plans an enormous boost. The accounts, in which contributions and interest are tax-free, must be paired with a health plan that has a deductible of no less than $1,000. "We're getting lots of calls," says Jeremy Claeys, spokesperson for the National Small Business Association, an advocacy group based in Washington, D.C. "People are saying, 'I want to know more. How do I get one?' "  By day Larry Johnson works as an assembler at RD Systems, building and installing the automation equipment designed by the company's engineers. But after work hours, he's South Beloit's version of Body by Jake. Over the years Johnson, 41a man of medium height with a pinched waist and powerful shouldershas become something of a gym ambassador to his fellow employees. "I teach them how to use the weight machines," he says.  So why are RD Systems' employees getting so interested in pumping iron? Because they like movies, for one thing. Their health plan from Destiny Health includes a "wellness" program called Vitality, under which employees accrue points when they visit a gym (25 points a visit), quit smoking (3,000 points), or maintain a healthy weight (5,000 points). Ribordy-Christofferson, a longtime distance runner, earns 2,000 Vitality points every time she competes in a race. The points can be redeemed for movie tickets, airline miles, and special deals at hotels. The hope is that the program will make employees healthier and help keep premium costs low.
(*No, that's  not a typo.) How smart small businesses are keeping their insurance bills down and their employees smiling.