John Marcille

There are things to be said in favor of defined contribution (DC) financing of personal heath care, and writer Tom Reinke rounds them up neatly in his cover story. Chief among these are (1) that getting rid of the defined benefit plan would allow employers to know exactly what their costs would be, since they set their own costs that don’t depend on providers and insurers, and (2) that the giant base of consumers would do a better job of keeping costs down than the present system has done.

If I were working at an insurer, I’d really perk up. The implication is that companies, by switching to DC plans, would be giving up their self-funded plans, letting employees loose to buy insurance on the much-heralded individual-market exchanges. I said insurance: a giant shift from self-funded plans back to insurance for practically everyone. Insurance companies would again take the risk — and take the premium they would get for doing that. And they’d be selling to individuals. No volume discounts necessary, no negotiating on what’s covered and what isn’t.

There is little doubt that DC plans would be a godsend to many employers. Still to be discussed is what role the employer would have if it had no negotiating and financing role, since it still has an interest in keeping workers healthy. If its workforce were susceptible to certain diseases because of environmental or selection factors, crafting programs to prevent or control those diseases might be tricky when the workers are members of dozens or scores or even hundreds of health plans.

And don’t forget that the National Institute for Retirement Security found that defined contribution pension plans are much less efficient than defined benefit retirement plans in increasing wealth. Extended to health care, does this mean that, instead of controlling costs, they would increase even faster (not counting the other factors of technology creep, etc)?