Employers Consider Defined-Contribution Health Benefits

Healthcare Financial Management, May, 2001

Faced with rising healthcare costs, many employers are showing increased interest in defined-contribution health benefits, but few are adopting them, according to the Employee Benefit Research Institute (EBRI), Washington, D.C. There is no clear agreement on how defined-contribution health benefits should be defined or designed, according to the March 2001 issue of EBRI Notes. Defined-contribution health benefits shift the responsibility for payment and selection of healthcare services from employers to employees. Defined-contribution health benefits also may shift responsibility for choosing a health plan and the risks associated with choosing a plan from employers to employees.

Employers are considering defined-contribution health benefits to keep their health-related cost increases in line with inflation. They also want to distance themselves from healthcare decisions as a result of the public backlash against managed care. In addition, employers have modified labor-market practices in general by giving workers more choice, control, and flexibility.

EBRI also reported that most types of defined-contribution health benefits could be provided within the existing employment-based health insurance system and could allow employees to purchase health insurance directly from insurers. In addition, the use of the Internet would facilitate plan selection during open enrollment by providing tools and resources employees can use to make informed decisions about health plans and providers.