Policy Documents

The Real Revolution in Health Care: Defined Benefit Plans

Gary Ahlquist, David Knott and Phil Lathrop –
June 14, 2000

This document notes that the idea of employers providing support for their employees’ health insurance by way of a defined contribution toward the premium, leaving it to the employees to select their own insurance, is gaining wider attention. Yet one cannot speak for long about the idea of promoting individual ownership of health insurance without encountering the objection that people cannot be trusted to make good decisions about such complicated and important matters. 

The appearance of peoples’ passivity is largely an artifact of current practice, in which employers or the federal government provide health insurance to three-quarters of the American public. Of the people who are provided insurance as an employment benefit, sixty percent of them have only one plan offered to them, usually an HMO. Since people are so insulated from the true costs of the insurance and the care that it would purchase, they are not able personally to save money by exercising their discretion. Consequently, there is little reason for these people to concern themselves with the details of their health plans. That fact can lead to the impression that people will always prefer to have someone else choose their benefits for them.

Have you noticed anyone asking their employer to select a home mortgage for them? A homebuyer is faced with a number of options in choosing the type of mortgage that fits their financial plans. Size of the down payment, length of the loan, adjustable versus fixed rate, and lending source all have advantages and disadvantages to consider, and it can all seem pretty complicated. Yet people gather the necessary information andmake the selection without their employer having to do it for them. The same could be said in the area of retirement planning, as people increasingly control the allocation of their 401(k) assets.

The autors conclude that just as people understand the management of their portfolios via computer today, that the end of managed care will also come in the future.  People can understand health plans and how to choose them despite their apparent complication.