It already happened to traditional pensions. Are workers now in danger of losing their company-provided health insurance, too?
About 30 years ago, companies started ditching traditional retirement programs that paid a monthly benefit based on wages and touted 401(k) plans as the new self-directed way to save for old age.
Unfortunately, people didn’t save as much as they should, didn’t invest aggressively enough and mistook the accounts as a piggybank to be raided during tough times. Self-directed investing may have sounded appealing, but the upshot is that many baby boomers won’t have enough money to retire.
Now the traditional health-care plan could go the way of those old-fashioned pensions as companies look for ways to avoid the aggravation and financial uncertainty of managing and funding health-care plans in-house.
That same self-directed concept appears to be gaining traction as companies plan for the day they will no longer sign an insurance contract, send out annual enrollment forms and log hours on the phone when their employees have payment and coverage problems.
Instead, companies would give their employees a subsidy to buy their own health care along with the responsibility of choosing their own insurance network, coverage options and risk tolerance.
Aon Hewitt, the giant human resource consulting firm, now offers client companies a private corporate exchange in which it determines the health-care options for employees. The exchange began Jan. 1 and already provides health care for 100,000 workers in industries from department stores to restaurants.
Under this plan, Aon Hewitt offers the clients’ employees a choice of six health-care carriers, three dental carriers and three vision plans, said Ken Sperling, national health exchange strategy leader in Norwalk, Conn.
Employees have a choice of four plans, from the bare-bones “bronze” plan to the high-end “platinum,” depending on how much each employee wants to pay for premiums, deductibles, co-payments, out-of-pocket costs and pharmacy benefits.
None of the companies spent less in 2013 than they spent in 2012, Sperling said. But they didn’t spend as much as they would have if they had continued with their current model, he said.
Large employers typically self-fund their health-care plans and hire a third-party administrator to handle the claims. The plans usually include a stop-loss insurance policy.
These arrangements are difficult to budget, Sperling said, because health expenses are unpredictable.
Dropping self-funded plans and going with specially designed traditional insurance will make the costs more manageable, he said.
Sperling is counting on competition to keep costs down. Insurance companies also gain efficiencies because the insurance plans are standardized, he said.
The new model — with “defined contribution” health plans, much like 401(k) “defined contribution” retirement plans — appears to be growing as a viable option with cost-conscious companies, recent surveys show.
Over the past few decades, companies didn’t waver when asked if they would continue to provide health insurance benefits, said Ania Krasniewska, senior director at the Corporate Executive Board’s human resources’ practice in Washington, D.C., But that’s changing.
Eighty-one percent of the companies it recently surveyed said they likely would not drop health insurance coverage in 2014. But that fell to 61 percent for 2016.
Krasniewska sees 2017 as the tipping point. By that time, some companies will have dropped their traditional coverage and — if it goes well, especially if it cuts costs — other companies will follow.