For years, industry experts have been predicting a wholesale shift away from defined benefit health insurance plans to defined contribution. The reality, however, has been more complicated and nuanced.
With skyrocketing healthcare costs, it seemed almost a foregone conclusion that the DC model, where employers establish a fixed contribution amount per employee each month and employees shop and enroll in the plans that best meet their needs, would surpass the traditional defined benefit paradigm.
Rather than seeing a clear shift from one to another, mixed models have proliferated. Some employers continue to take a "wait and see" approach regarding how direct contribution (DC) plays out in the market. DC continues to be a new model, and many employers who are still able to afford their defined benefit plans don't want to make any changes unless they have to, particularly in cases where there are complications resulting from grandfathered and grandmothered plans. Instead, employers are considering and implementing all kinds of combinations of defined benefit and DC approaches, and insurers are being asked to accommodate a complex set of options.
Private exchanges, which were once seen as tightly coupled to the DC model, are now expected to handle both models. Insurers are no longer looking to implement private exchanges with just DC. They want their private exchanges to offer a wide variety of funding models, for the same employer groups at the same time.
The good news for supporters of DC is that the model has lived up to its promise as an effective cost stabilization tool for employers, and the trend in this direction, while somewhat slower than some expected, continues. Adopters of DC – frequently small and medium-sized businesses – now have the control and cost predictability they need in order to remain competitive. Many employers who were on the verge of dropping employee benefits because they could no longer afford them are now able to consider alternatives, including offering more options or even covering more employees.
For employees, private health insurance exchanges have opened up choices previously unavailable, allowing them to pick from several health plans and also buy ancillary insurance such as vision, dental and life insurance all in one seamless shopping experience. Given the growing trend of healthcare consumerism and the reality that consumers are taking more proactive steps in managing their health-related costs and outcomes, having more control and choices can increase employee satisfaction and loyalty.
What does this all mean? Employers will continue to fine-tune their contribution strategies over the coming years in order to strike the right balance between controlling costs and offering their employees competitive and comprehensive benefits packages. It means that more employers will join private health insurance exchanges because an exchange is no longer synonymous with moving all employees to DC.
The industry continues to move away from "one-size-fits-all" health insurance toward greater personalization. The evolution of these contribution models and new strategies are critical steps along this path of tailoring benefits packages and empowering healthcare consumers to meet their needs.
Jonathan Rickert is the CEO of Array Health.