Assuming the Affordable Care Act (ACA) stays on track through the aftermath of the election, it will offer numerous new benefits, such as guaranteed coverage for all adults starting in 2014. Some companies may want to stop providing health coverage and instead give workers money to buy their own. One of the more popular ideas being discussed is to give workers a lump sum, a voucher or defined contribution, and then let them use that money to buy their own individual health plan through the state health insurance exchange. One upshot is that workers could shop for plans that best suit their needs in terms of doctors and benefits, rather than relying on what their employers pick. They also get to take their policies with them if they leave their jobs. This model “gets a boost now”, said David Lansky, chief executive of the Pacific Business Group on Health.
The defined-contribution model is like a 401(k) plan in which employers put a fixed amount of tax-deferred dollars into employees’ retirement accounts and leave it to the workers to manage the money. In the case of health benefits, employers gain more control over their spending and avoid the hassle of picking plans for their workforce.
Small business employers should be eager for a new way of doing things as medical costs and insurance premiums keep climbing. Businesses with less than 50 employees have nothing to loose - no penalties or “taxes” - for not maintaining a group health plan. Some smaller firms, especially in technology, may want to keep benefits in-house to compete for the best talent. But companies in retail, hospitality and other service sectors with lots of lower-wage workers will be at the front of the line to sign-up for defined contribution plans.
Larger companies tend to be fairly conservative are unlikely to give up their paternal healthcare role in the near term, but faced with escalating healthcare costs, some employers will look at unconventional options. Extend Health, a California-based company, has already helped 40 companies in the Fortune 500 make this switch on retiree health plans, and it said many of those clients are interested in doing the same for current workers. Aon Hewitt, a major benefits consultant, is launching a private health exchange this fall aimed at employers with more than 5,000 workers.