Private Sector Leads the Way for Defined Contributions

Published June 1, 2001

The Charlotte Business Journal recently reported the founding of Empowered Benefits, a Charlotte, North Carolina firm headed by Robert Dawson, formerly with Aetna and Advica Health Resources.

The new firm, specializing in defined contribution plans, is targeting mid-sized employers in the Southeast. It will allow employees to choose among a variety of health plans and benefit structures, using electronic enrollment. Dawson claims employers representing 150,000 employees already have expressed interest in the product, though clients won’t be announced until the second quarter.

Sageo, created by Hewitt Associates, a global management consulting firm, is teaming up with HealthMarket to offer both a “Consumer Choice” option and a “Self Directed Plan” option to its customers. Consumer Choice enables consumers to choose their own co-payment levels, prescription drug coverage, and provider network size. Self Directed plans feature a savings account for routine services and a “bundled package” of services for common medical conditions. Sageo currently has 16 client companies with 400,000 employees.

HealthAllies, another firm offering D-C products, was recently the subject of an article in Investor’s Business Daily. The company negotiates discounts on behalf of its members, who then pay cash for the service received. HealthAllies is targeting the uninsured and employed people who on average spend $1,300 annually on out-of-pocket services. According to the article, employers will sometimes pay the membership fee to help workers access lower-cost services.

The Palm Beach Post is also writing about defined contribution, though it prefers the term “vouchers.” Writing in the March 11 edition, Fran Hathaway notes, “we’ve tried managed care, but it didn’t control costs adequately. Universal health insurance? No one in Congress is proposing it. So let’s try this.”

The Blue Cross Blue Shield Association is suggesting employers might want to start offering prescription drug coverage on a defined contribution basis as a way to encourage greater price sensitivity. In an article on BestWire, the Association’s Maureen Sullivan announced the group has formed an independent organization, called RxIntelligence, to provide consumers with information on the benefits and costs of prescription drugs.

Once consumers have that information, Sullivan noted, health plan providers will need to create new benefits designs to serve the needs of more knowledgeable consumers. Along with defined contribution, Sullivan suggested reference pricing and tiered co-payments as possible approaches.

In a recent article in Business Insurance, “Technology Aids Growth of Consumer-Driven Health Plans,” Joanne Wojcik interviews representatives of several of the leading D-C providers: Sageo, Destiny Health, Choicelinx, Vivius, Definity Health, HealthAllies, and eBenX, along with consultants from Hewitt, PricewaterhouseCoopers and Towers-Perrin. Wojcik notes most of the new approaches to health benefits rely on the Internet to help consumers select benefits and providers, enroll in the plan, and gather information about costs and services. She says the Internet will also lower the cost of administering employee benefits.

Different from MSAs

One of the most interesting aspects of the “defined contribution” movement taking place in the U.S. today is that the impetus is coming from the business community. That makes defined contribution quite unlike most health care reforms, including, as an example, medical savings accounts.

With a few notable exceptions, medical savings accounts (MSAs) had their beginnings in Washington, as a Congressional proposal. In the end, Congress ended up adopting a political compromise; those who had advocated the MSA approach were left to find a market for the compromise plan.

By contrast, few in Washington are even aware of defined contribution. The politicians aren’t being asked to do anything—at least not now. Defined contribution is being developed by the health care community, and the community will take it as far as it can under current law. Eventually, defined contribution’s advocates will run aground on regulatory obstacles that prevent the proposal from moving further . . . and that’s when they’ll go to Congress and say, “this is what we need you to fix.”

Greg Scandlen, senior fellow in health policy at the National Center for Policy Analysis, is and assistant editor of Health Care News. His email address is [email protected].