Employers Interested, But Not Yet Embracing DC Healthcare

October 13, 2000 (PLANSPONSOR.com) - While "defined contribution" structures for healthcare are a hot topic among employers, most are not in a hurry to implement the approach, according to a new survey.

The study by consultant William M. Mercer shows that employers find themselves pressured to consider alternatives due to:

  • the proliferation of new Internet-based technologies
  • rising health care costs
  • growing dissatisfaction with health plan management

About half (45%) of employers are “interested” or “moderately interested” in the strategy generally, but just 8% have a high level of interest – and only half of those are highly likely to actually implement such a program.

Still, employers remain wary about the gap between the anticipated financial benefits of making such changes and the very real challenge of ensuring that employees and their families are not negatively affected.

At least some of the hesitation might be attributed to a lack of consistent understanding about the approach. In fact, Mercer’s survey identified three prevalent, yet differing, definitions of the defined contribution approach:

  • an Internet-based health plan that includes an employer-funded savings account and catastrophic coverage, similar to medical savings accounts;
  • a contribution strategy that gives employees a flat-dollar amount they can use either to purchase coverage from a plan sponsored by their employer or as a voucher to buy coverage from an independent health plan;
  • an employer’s decision to restrict its efforts to managing and administering plans, letting employees purchase care through the market or a third-party purchasing organization.
    Changes Coming

An overwhelming 70% of large employers flatly state they are unlikely to quit offering health benefits in the next 2-3 years, despite these trends and overall dissatisfaction with these programs.

While 84% say they spend too much time managing day-to-day benefit issues (despite the fact that they now outsource a great deal of the work), just 5% report a high interest in developing an “exit strategy” and only 4% report a high likelihood of implementing such a strategy.

Change is in the offing however, with some employers indicating they may begin modifying their plans as early as next year.

Nearly all (91%) of employers surveyed are interested in using the Internet for plan enrollment and choosing a physician group. Seventy-nine percent are interested in “plan engineering” built around the preferred provider organization (PPO) design, while 25% are seeking “aggregated purchasing” alternatives.

The survey of 276 major employers was conducted by Mercer Management Consulting, a sibling firm.