Wednesday, September 18, 2013

Will Employee Health Coverage End Up Like Employee Retirement Income?

A long time ago, companies shifted their employee retirement programs from defined benefit plans to self-managed defined contribution plans.

Employees no longer are guaranteed a defined benefit, that is, a pension, but are provided with a defined contribution -- they put in their own money and the company contributes matching funds up to a certain percentage.

Companies no longer bear the burden of making sure their employees have income after retirement.  Employees must manage their retirement accounts themselves -- typically choosing from an array of investment alternatives offered by their employer.

If the employee contributes enough and chooses the investments wisely, he or she may have enough for a comfortable retirement.  If not, well . . . .

We are beginning to see a similar move with employee health care coverage.

Companies long have provided employees with medical coverage.

We now are seeing a shift away from what may be loosely referred to as a "defined benefit insurance plan" -- where the company provides the benefit of coverage and pays most of the cost for employees -- to a "defined contribution insurance plan", where the company contributes a sum of money and requires the employee to purchase a plan directly from an insurer.

On October 1, the Affordable Care Act will begin providing public "exchanges" where various plans may be purchased.  Insurance and consulting companies already are setting up private "exchanges" doing the same thing.

Large companies should like the idea, as most are self-insured.  Requiring employees to buy their own coverage shifts the risk away from the company to the insurer, thus making the company's employee health care costs more predictable.

Is this the future?

Employees have accepted the shift away from guaranteed pensions to self-managed 401(k) plans.  Are we seeing the beginning of self-managed insurance benefit plans?

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