The Evolution of Employer-Sponsored Health Plans

Many employer-sponsored health benefit programs are typically financed and structured according to different employee lifestyles and individual needs. Lifestyle issues vary from employer to employer, and employee to employee. For example, one employee may work out at the local gym, eat healthy, and schedule routine checkups and preventive tests. Conversely, a fellow employee in the next cubicle may be overweight or obese, smoke, drink alcohol in excess, and does not follow a preventive care regimen.

When based on varying lifestyle issues (i.e. the being 'all things to all people' theory), health plan costs can be prohibitive and unstable. Employer-sponsored health benefits can no longer be a ‘one size fits all’ or ‘off the shelf’ proposition. The time has come to seriously consider the merits of changing employee health and welfare programs from a ‘defined benefit’ format to a ‘defined contribution’ format. This concept levels the playing field for all lifestyles, and sets the tone for the future - long-term, stable insurance costs coupled with the establishment of a ‘defined contribution’ health saving fund for employees to utilize and manage according to the specific needs of themselves and their families.

This new approach to insuring and financing healthcare involves the implementation of a high deductible health plan, preferably with 100% first-dollar coverage for wellness and preventive care expenses as well as 100% post-deductible coinsurance. Under this concept, there would be no more ‘defined benefit’ office visit and emergency room co-payments and no more ‘defined benefit’ prescription drug co-payments. Instead, there is an introduction to a high deductible health plan to protect employees against unforeseen catastrophic injuries or illnesses. Health plan premium savings that are realized from the conversion to a lower cost health plan are redirected in part or in full by the employer and employee into a tax-favored expense fund to be used by employees for smaller healthcare expenses. These allocations can be in the form of an employer allocation to a Health Reimbursement Arranagement (HRA) or a Health Savings Account (HSA) funded by the employer and/or employee, or in an HSA matching contribution format based on the employee’s own personal funding decisions.

In summary, employers should seriously consider the merits of ceasing the financing of health benefits currently structured like the old ‘defined benefit’ retirement plans, and instead, adopting a health care plan of a more ‘defined contribution’ nature, similar to the way 401K plans are currently structured and funded.