Defined Contribution Heath Plans Wave Of The Future For Employer Based Health Care, Expert Predicts

Washington, D.C. (June 12, 2000) - Amid a growing anxiety over their liability in health coverage decisions, companies of all sizes are increasingly wanting to end their role as the middle-man between their employees and the insurance companies they contract with to provide health benefits.

This anxiety is spurring a growing trend away from the current system where employers contract with insurance companies directly to one where employers give employees funds to purchase their own insurance.

"Employers are tired of being the monkey in the middle in disputes between employees and health plans," according to Greg Scandlen, a senior fellow with the National Center for Policy Analysis (NCPA) and the nation's leading health policy expert on defined contributions.

As a sign of how much interest this issue is generating among the business community, Scandlen has addressed how these "defined contribution plans" could be administered, to three of the nation's largest business groups, including the National Federation of Independent Business (NFIB), the U.S. Business and Industrial Council and the employee benefits committee of the U.S. Chamber of Commerce, this month alone.

"The concept of defined contribution plans is one of the hottest topics in health care financing today," Scandlen said. "And benefit consulting firms like KPMG, Booz-Allen Hamilton, and PricewaterhouseCoopers are all discussing with their clients how to make the transition possible."

In recent surveys, both employers and employees have shown enthusiasm for defined contribution plans:

  • A 1999 survey of 14,000 employees of Fortune 1000 companies conducted by KPMG showed that 73 percent of employees said they would be interested in a defined contribution system.
  • PricewaterhouseCoopers survey showed that 60 percent of employers expect to move to a defined benefits system by 2010.

Scandlen, who also founded the Council on Affordable Health Insurance and worked in the Blue Cross Blue Shield system for twelve years, added: "Shifting the health insurance purchasing power from employers to employees will transform the health insurance industry. Free market competition will benefit the health care consumer by providing employees with the ability to comparison shop for health care providers and the power to leave a provider with whom he becomes dissatisfied."