(Reuters) - Wells Fargo & Co plans to cut costs by moving its workers into insurance plans that encourage them to spend less on healthcare.

The bank told Reuters that it is rolling out a new insurance approach next year that will give employees accounts to help cover medical expenses. They can either put their own pretax dollars in the accounts, or pay higher insurance premiums and have the company fund the account.

If employees opt to put their own money into the accounts, they are on the hook for more of their medical expenses if they get sick. If they stay healthy, they benefit from lower premiums.

These types of accounts are believed to be useful in encouraging consumers to think more about how they are spending healthcare dollars.

For most employers, these accounts are one option among many for health insurance, said Alexander Domaszewicz, a principal with human resources consulting firm Mercer.

Only a handful of other companies, including General Electric Co and JPMorgan Chase & Co, are going the same route as Wells Fargo and offering only account-based healthcare plans.

"It still isn't common for very large firms," Domaszewicz said in an interview this week.

But other companies may follow suit. Account-based health plans can cut employees' and companies' premium costs by 15 percent, according to Mercer.

Other employers often follow big companies like Wells Fargo when it comes to benefits, Domaszewicz said.

In materials sent to employees recently, Wells said it was making the change "because rising health care costs and the impact of federal health care reform require us to take a new approach to managing costs together."

Studies are mixed over whether the new U.S. healthcare law will drive up employers' healthcare costs, but overall U.S. health insurance premiums have surged over the last decade.

A study last month by the Kaiser Family Foundation found that the average annual premium for family coverage through an employer increased 9 percent to $15,073 in 2011 from the year before. Since 2000, premiums have risen 134 percent.

Employers pay nearly three-quarters of that premium, a rate that has held fairly steady for the last 10 years, according to the foundation's data.

"This is one of the fastest-growing expenses employers have," said Randall Abbott, a senior consultant at healthcare consulting firm Towers Watson.

Cost-cutting is particularly crucial in the financial sector, where the mortgage crisis, low long-term interest rates, and weak loan demand are depressing revenue. San Francisco-based Wells Fargo is looking to shave $1.5 billion from its quarterly operating expenses by the end of 2012 under a program known as "Project Compass."

Wells earned $7.3 billion for common stockholders in the first half of the year, up from $5.3 billion in the first half of last year.

A Mercer survey found that health benefits costs on average will rise 5.4 percent in 2012, the smallest increase since 1997, because employers have been so aggressive about cutting these expenses.

"We view this as effective use of healthcare services, not as cost-cutting measures," bank spokesman Ancel Martinez said on Wednesday.


U.S. employers began widely offering healthcare coverage after World War Two to get around government salary controls.

With 275,000 full- and part-time employees, Wells Fargo is the 12th-largest employer among public companies, according to Fortune Magazine.

About one-third of the bank's employees already use some sort of account-based plan. Wells will still offer traditional plans in California and other states where switching would force too many employees to change their doctors.

Under the bank's program, employees can have a "health reimbursement account," which Wells funds, or a "health savings account," which workers fill with their own pretax dollars.

Both accounts will help cover out-of-pocket expenses until a deductible is met.

After that, Wells will cover between 80 and 90 percent of medical expenses, with the employee picking up the rest. After an employee reaches an out-of-pocket maximum, Wells covers 100 percent of additional expenses. An insurance company administers the claims.

Eligible preventive care, such as routine checkups, annual screenings and immunizations, is covered 100 percent. Employees can earn money to put into their accounts through participating in health and wellness programs.

A Wells employee in North Carolina covered on an individual basis would pay a premium of about $23 per two-week pay period for the health savings account option, compared with $48 for the health reimbursement account plan.

An employee in an individual plan can put up to $3,100 into a health savings account under IRS rules next year. The deductible in that plan is $3,000.

In the health reimbursement option, the company can put between $200 and $1,000 in an employee's account. The deductible is $2,000 for individual coverage. Employees must pay $25 for a primary office visit, which is less than the full cost. There are also co-pays for generic prescription drugs.

Employees who use health savings accounts can roll their money into the next year if they do not use it all and take it with them if they leave the company.

(Reporting by Rick Rothacker in Charlotte, North Carolina; and additional reporting by Bill Berkrot in New York; Editing by Dan Wilchins, Martin Howell, Lisa Von Ahn and Carol Bishopric)

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