The voucherization of American health insurance may already be upon us.
No, Paul Ryan has not gotten his proposed "premium support" system for Medicare enacted. But increasing numbers of employers are adopting or considering a shift from "defined benefit" to "defined contribution" insurance plans -- a shift that mirrors the transformation of pension benefits over the past twenty years (as Peter Orzag pointed out in a Dec. 2011
column).
Under a defined contribution model, as described in a recent Booz & Co.
report, "instead of designing and offering defined health benefits, companies make cash contributions to savings accounts that employees use to purchase insurance products of their choice. This model allows the company to cap its healthcare cost at a desired threshold" (p. 4).
To meet the nascent and anticipated demand for this model, health insurers and benefits consultants are rolling out private healthcare exchanges enabling employers to outsource the benefits management. these exchanges provide a menu of health insurance options to the employees of companies that buy in. Such exchanges have been a feature of health plans for retirees for some time; companies are now
beginning to offer them to current employees.
Adoption of this system may be accelerated by the coverage mandates the ACA imposes on employers that provide health insurance -- e.g., the ban on annual and lifetime benefit caps, the requirement to offer coverage to employees' children up to age 26, the free provision of preventive care, and other mandates.
Question: given the ACA requirement that employer
plans cover a minimum 60% of participants' average medical costs, and cap participants' annual out-of-pocket expenses at $6250 per individual/$12500 per family, and meet the minimum essential benefit requirements that govern the ACA exchanges or potentially pay a penalty,* how can an employer control its costs by capping its "defined contribution"?