As we near the open enrollment deadline for health insurance, you’re going to hear a lot of voices claiming that the exchange is a success or failure. While I don’t have a definitive answer for you, what I can confidently predict is that the next major trend in health care is virtually unimpacted by health care reform legislation.
Defined contribution, which is hosted on a private exchange, is an increasingly popular method for employers to provide health insurance for their employees. Considering that the vast majority of Americans receive their health insurance through their employer, this model has the potential to fundamentally change how most of us choose coverage and engage in our health choices.
Here’s how defined contribution works: employers contribute a set amount of money (the “defined contribution”) into an account that employees can use to purchase health insurance among a variety of plan options on a private exchange.
This option allows employers to budget a fixed amount for health benefits rather than a percentage of a plan that can be subject to rising costs over time. It also empowers employers to attract and retain top talent by continuing to offer a wide range of plan choices to meet the needs of diverse workforces. Plans that were not historically available alongside one another — options like accountable care organizations, PPO plans and HSA accounts — can now be hosted on a private exchange for maximum flexibility and with full administrative support.
This mix of cost containment, variety and reform compliance is a major reason why consultant Bain & Co. estimates that as many as 80 million people will receive their health insurance through private exchanges within the next four years.
The transformative opportunity in this model lies in this changing social contract between employer and employee. Because defined contribution puts more responsibility in the hands of employees to choose and navigate their health care coverage — and more visibility into the true costs of health care — the hope is that employees will take more ownership over their health choices.
Admittedly, this will require an adjustment process for the majority of us who have traditionally relied on our employer to make the majority of our health plan choices. Businesses, with the help of insurers, must do all they can to clearly communicate all of the options available to employees. Defined contribution solutions also need to have imbedded decision tools that effectively help participants select the most appropriate plan for their unique needs to be widely adopted in the marketplace.
In order to successfully navigate today’s shifting health care landscape, employers need to consider all of their options. The cost certainty and flexibility offered by defined contribution makes it an especially attractive solution for companies looking to meet their benefit needs.
Jennifer Danielson is president of Regence BlueCross Blue Shield of Utah. She can be reached at email@example.com.
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