Defined Contribution Healthcare Benefits

The HealthCast 2010 Series SM

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Defined Contribution Terminology

Many terms in the marketplace to describe “DCHB” approaches:• consumer-driven• consumer-enabled• self-directed• and many other terms also being used

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What Employers want from DCHB:

– 3 key concerns addressed for ideal solution

– financial mechanism with predetermined investment

– additional transfer of responsibility to employee

Two Key Features:

What Is Defined Contribution?

Understanding Drivers, Enablers, Barriers, and Accelerators

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Drivers

• Escalating Healthcare Costs–Medical and pharmaceutical–Consumer insulation

• Burden of Administration and Vendor Management

–not core to business

• Potential Exposure to Liability• Experience with Defined

Contribution Retirement Plans

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Market Enablers

• Consumerism– 70% satisfaction high enough?– Changing workforce with changing

values

• E-health – dot com offerings– more info and efficient systems via

internet

• Emerging treatments/Genomics– increasing demand and availability– what is “medically necessary?”

• Growing public policy interest

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Barriers

• Employee Relations and Retention– Any change is bad change – Employer connotation of “exiting”

system

• Communications and Education– Requires an increase in resources and

cost

• Regulations and Tax Laws– Patients Bill of Rights not passed– MSA option - unclear tax regulations– ERISA

• Questions of Insurance products– cost increases and underwriting unclear

“Here's a check. Now go buy your own health

insurance.”

— USA Today, July 27, 2000

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Accelerators

• Downturn in the economic market• Adverse judicial decisions on employer liability• Passage of onerous Patient Bill of Rights or other regulations• Changes in the tax law• Structural changes to the insurance industry creating a more

favorable climate for individual insurance• A high profile employer — or Medicare — implements a DCHB

approach and has a success story to tell• Successful market penetration by a new economy company

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How an Employer Could Offer A Defined Contribution Option

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One Plan

Offered

Employer Delegation

Em

plo

yee

Re

spo

nsi

bili

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Choice of

Plans

Choice of Plans + PHA* +

Exchange

Catastrophic Plan + PHA +

Exchange

Low High

High

WagesOnly

AccountOnly

Catastrophic + PHA

*No rollover

Continuum of Defined Contribution Approaches

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Insurance100%

Personal Health Account$1,500/year/employee

Good Medicine

Corridor Deductible$2,000$1,500$1,000$500

Flexible Spending Account

High Deductible + PHA

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Regulatory and Tax Issues

Regulatory and Tax Issues

Funding Constructs

Funding Constructs

Insurance ConstructsInsurance

Constructs

AdministrationAdministration

Employee Responsibility for Healthcare Purchasing

Employee Responsibility for Healthcare Purchasing

DCHBMODELDCHB

MODEL

Employer Considerations

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Potential of DCHB

• Help employers:– Reduce administrative burden– Improve budgetability– Increase employee choice

• Reduce disruption of coverage and care• Empower consumers and increase accountability• Attract employer funding and encourage employee savings

– Uninsured– Retirees

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DCHB Does Not Make it Easier to Limit Contributions Because...

• Healthcare benefits have always been voluntary• Employers face barriers to limiting contributions

– must attract and retain employees– collective bargaining– minimum participation requirements– tax incentive– paternalism

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