NCPA - National Center for Policy Analysis

Employers Are Giving Employees the Option of Choosing their Own Health Insurance Plan

November 26, 2012

In an effort to reduce health costs, companies are turning to defined contribution health insurance plans in which they pay their workers a fixed sum and allow them to choose their own insurance based on individual needs, says the Washington Post.

Under this defined contribution plan, a worker may choose to use their employer-provided money to put toward a company offered health plan or one they find through another insurer.

  • The average annual premium for employer-sponsored family health plans has almost doubled to nearly $16,000.
  • Companies end up paying about 70 percent of it.
  • As a result, employers have turned to allowing their workers to choose benefits tailored to their own needs, which reduces overall health care costs.
  • Now, workers that choose the company's benefit may end up paying higher costs.

For many, this is seen as a step in the right direction. Employees no longer have to pay for a plan that offers services they will never use. Instead, a worker can find a tailored health insurance plan and pay as much as they are willing to on it.

To aid the employees in finding the right health insurance plan for them, many companies are turning to online exchanges to help workers in finding the right plan for them. Many health insurers such as WellPoint, Inc., and Bloom Health are beginning to provide online exchanges so that people can shop around for the best insurance plans.

Small businesses will benefit greatly from defined contribution plans. It will help provide insurance to attract and keep workers while avoiding large premiums that are typically found in traditional plans.

Moreover, proponents say that the defined contribution approach will create competition that forces insurers to lower prices in an effort to attract more people. However, critics contend that an employer may not provide enough money to keep up with rising health insurance costs, leaving the worker to pay more out of their own pocket.


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