Will payers in the future be individual patients?

Some believe a radical shift is coming

More businesses are actively discussing the idea of dropping their employee health insurance benefits and instead giving workers a lump sum of money — or defined contribution — to buy their own medical care directly, note a growing number of health care experts.

A recent survey of Fortune magazine’s "100 Best Companies to Work For" by Booz Allen & Hamilton, for instance, found most of those top employers plan to shift to a defined-contribution health care plan over the next decade as a way to manage rising employee medical costs and ease their way out of the business of directly buying and providing health care benefits.

"A quiet revolution in health care benefits is coming, as employees are placed in the driver’s seat for selecting their own health plans in an open market," notes Gary Ahlquist, a Booz Allen & Hamilton consultant. "Over the next 10 years, employer-sponsored health plans will evolve en masse into defined-contribution formats, finally and irrevocably creating a consumer-driven health care system in the United States," he says.

The next revolution?

If enough employers decide to get out of the business of directly buying health coverage for their workers, that decision would represent a revolution in the way health care benefits are delivered and how the current managed care system operates. The change would radically affect finances and the way providers promote their practices, say many observers. For instance, rather than competing for contracts covering large numbers of lives from employers and managed care companies, providers may have to rely more on retail marketing, gathering patients one at a time through affiliations with cyberspace-based marketing intermediaries.

A defined contribution health care plan mirrors the well-known 401K pension concept in that employers give employee participants a certain amount of money to purchase health benefits that suit their individual needs, often using on-line services to obtain information about costs and benefits.

Under this new approach, employees create their own customized network of providers who set their own fees from a Web-based menu supplied by an outside vendor.

Meanwhile, how much an employer contributes to each worker’s health account is based on accrual calculations using age and number of dependents, not unlike the way most firms currently determine their projected health care costs. The difference is that the employers’ total financial liability is set at a fixed annual amount.

Many employers like the concept because it has the potential to control costs while easing them out of the business of directly managing health care benefits. Providers, in general, are responding to the idea because it permits them to set their own reimbursement rates, be paid directly by patients, and avoid dealing with managed care paperwork and contracts.

One big issue supporters don’t like to acknowledge is that most polls show consumers prefer the current employer-based health system over a defined contribution one. Experts like Ahlquist acknowledge that consumer resistance will slow the transition to defined-contribution health plans, but he insists the shift will occur.

Oddly, one factor most likely to give defined contribution health accounts a boost will be a slowdown in the economy, which would cool the currently overheated job market, making firms less worried about alienating top talent.

"The transition to defined-contribution plans will become a tidal wave within three to five years, and eventually, employer-managed, defined-benefit health plans will be largely a memory," Ahlquist predicts.