- Phase 1: Employers, burdened by excess administrative costs, will logically deem their annual health-benefits budget as essentially a defined contribution. This will become more prevalent as employers realize that funding a benefit need not require them to go into the market, find appropriate products, run through an annual selection process, and operate ongoing expediter and ombudsman functions.
- Phase 2: Today's health-care benefits Web sites can and will evolve into e-tailers of health-care plans. Although a few sites currently offer individual plan sales in select states, most first serve as platforms for employees to select from among a limited set of pre-approved plan options, and then provide enrollment and other front-end services. True e-tailing, however, is likely to resemble the early days of Charles Schwab & Company's online efforts in the investment world, with Web-based retailers offering a wide variety of their own and other companies' products, lots of information, and low-cost transactions.
Let's look in detail at the employer side of the equation, since the first shots are likely to be fired from that direction.
Employer-sponsored major medical coverage became commonplace in the 1950s and 1960s. By the 1980s, however, crippling health-care cost increases propelled much of the country to look for a new approach to managing health care. The solution was managed care, with its utilization controls, preferred providers, and increased emphasis on prevention. Managed care seemed to be an answer that worked, resulting in several years of significant reductions in the rate of cost increases. However, it came at the price of consumer choice and with overtones of Big Brother interfering in the patient–provider relationship.
Enter the new managed care of the mid-1990s with its opt-outs, point-of-service features, state-mandated minimum stays, and other expensive variants. Suddenly, this new managed care looked an awful lot like the old indemnity system. Costs went up to fund new features, and complexity now threatens to overwhelm us all. Much of this renascent dynamic has been disguised by the United States' unprecedentedly buoyant economy. Yet we are only a bump in the road away from overcoming these vexing issues.
A Booz-Allen & Hamilton survey of one-third of Fortune magazine's "100 best companies to work for" found all anticipating health-care cost increases of 5 to 9 percent during the coming year, well above the rate of inflation. However, most of these companies (which ranged in size from 60 employees to over 200,000, and included not-for-profits, manufacturing firms, service companies, and high-tech players) characterized this growth as "modest."
Where do they stand on defined contributions? All but a few of the very largest, most paternalistic respondents were anticipating a shift to defined-contribution systems. Fully two-thirds were convinced that defined-contribution health plans were in the offing, but were unwilling to be first movers because they feared alienating employees whom they believed had ample alternative employment opportunities. Ten percent, all large employers, could be characterized as champing at the bit to make the transition to defined contribution, but hesitant to move first until something changes.
Such hesitance argues against a scenario of gradual evolution into a new, defined-contribution system. The risk of alienating employees in a high-employment economy is just too high. The status quo is further reinforced by an entrenched employee-benefits bureaucracy, which will fight to maintain its primacy within the current system. However, our survey indicated that any one of several changes could send the clear majority of the companies we polled in search of new approaches to health-care benefits provision.
First and foremost, a general recession in the economy could quickly and decisively change employers' attitudes toward their work forces from "we're lucky to have these folks" to "these folks are lucky to have jobs." In an environment of layoffs and limited re-employment opportunities, companies would be much more willing to entertain changes and even reductions in their benefits plans.