Federal health care reform legislation and the desire of employers to limit their health insurance costs are likely to fuel interest in "defined contribution" (DC) health benefits and private health insurance exchanges, according to a recent report published in the July EBRI Issue Brief from the nonpartisan Employee Benefit Research Institute (EBRI).
The combination of insurance market reforms, especially the health exchange structure in the Patient Protection and Affordable Care Act (ACA), as well as rising health costs, have brought a renewed focus on limiting employer's health care cost exposure, the EBRI report noted.
A private health insurance exchange is the vehicle that some employers are interested in using to provide coverage, according to Paul Fronstin, director of EBRI's Health Research and Education Program and author of the report. Through these exchanges, together with a DC funding approach, employers can accelerate the drive toward an insurance market that is more mass-consumer-driven and gain more control over their health care contribution costs, capping their contributions, and shifting to workers the authority to control the terms (and to some extent, the costs) of their own health insurance.
"Ultimately, whether and how the movement to private health insurance exchanges and DC health plans will occur is still subject to various influences and remains highly uncertain," Fronstin said. "But the enactment of ACA and employers' interest in reducing the risk of their health benefit costs indicate this is a field that is likely to grow."
EBRI noted that employers have long been interested in the concept of DC health benefits, but never moved in that direction for a number of reasons, both because they were hesitant to drop group coverage in favor of individual policies, and because they were concerned that many employees would not be able to secure coverage in the individual market.
Recently, however, the combination of insurance market reforms and the embodiment of the exchange structure in ACA has brought a renewed focus on an approach that limits employers' health care cost exposure by providing fixed-dollar contributions that workers could use to purchase individual policies.
According to EBRI, there are a number of potential advantages to both employers and workers in this structure. Employers could benefit from a higher degree of cost certainty, certainly if they were able to fix their costs at the level of their contributions. Workers could benefit from competition among insurance carriers, greater choice of health plans, and portability.
Employer issues that need to be addressed in adopting a private exchange/fixed contribution approach include plan design, implications of adverse selection, setting the level of fixed contribution, the amount of plan choice, and geographic cost variation.
Issues not addressed by an exchange/fixed contribution approach include worker preference of, and satisfaction with, employment-based coverage, group purchasing efficiencies, the role of employer as advocate in coverage disputes, delivery innovation and health care quality, and health literacy issues.
The EBRI report examined issues related to private health insurance exchanges, possible structures of an exchange, the funding of this approach, as well as the pros, cons, and uncertainties to employers of adopting them. It also reviewed recent surveys on employer attitudes and some changes that employers have made to other benefits that might serve as historical precedents for a move to some type of defined contribution health benefits approach.
For more information on the report, Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?, visit http://www.ebri.org.
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