Booz-Allen Consultants Predict Future Healthcare System Will Use Defined Contribution Models
Employee benefits managers and HR directors who are waiting for the day when employees have complete control over their healthcare programs may like the prediction three consultants with Booz-Allen & Hamilton are making about how employee healthcare plans will be administered within the next 10 years.
In an article, "When Consumers Rule: The Next Revolution in U.S. Healthcare," co-authored by Gary Ahlquist, David Knott and Philip Lathrop, the authors say employee health plans will be modeled after employee retirement plans by using a defined-contribution model. That model, they say, gives employees more choice and control over their healthcare, and could save U.S. employers millions of dollars.
Moreover, under a defined contribution healthcare system, employees will shop for and purchase healthcare plans through Internet superstores, using employer-provided defined-contribution dollars, the consultants predict.
Consumers will pick the plans that fit their specific needs and allows them to decide what they want to pay in premiums, deductibles and co-pays. The more risk consumers take on themselves, the smaller their premiums will be.
"We believe the defined-contribution system is the wave of the future for several reasons," said Ahlquist, a senior vice president and managing partner of Booz-Allen & Hamilton's Health and Insurance Group. "First, it recognizes that different employees have different needs. A single male in his 20s doesn't want the same health plan as a married woman in her late 50s. The defined-contribution model allows people to spend their money as they see fit. Second, by allowing employees to pick their own health providers and design their own plans, the system will foster intense competition, leading to increased offerings and higher levels of customer service."
Evidently employers are already preparing for a change in healthcare plan administration. According to a Booz-Allen & Hamilton survey of Fortune magazine's 100 best companies to work for, all respondents anticipate healthcare cost increases above the rate of inflation during the coming year. All but a few of those employers said they anticipate a shift to defined-contribution systems, which would save them millions of dollars in administrative costs by taking them out of the selection and retailing process. Fully two-thirds of employers said they were convinced defined-contribution plans were in the offing, but were unwilling to be the first to make the change because of the risk of alienating employees in a tight labor market.
"Our survey found that defined-contribution plans are coming and soon," said Knott, a vice president with Booz-Allen & Hamilton's Health and Insurance Group. "The change will occur quickly...A change in the job market, additional medical inflation, or additional government mandates could be all it takes. We believe the move to defined-contribution health plans is no more than three to five years away. Within ten years, the defined-contribution system will be as common in healthcare as it is in retirement planning."