Some employers reboot with 401(k)-modeled health insurance plans

Even though some of the major changes of the federal health care overhaul won't kick in for more than two years, the law is already spurring experimentation in the insurance market — including how employers provide insurance to their workers.

Many employers have long argued that their employee's health insurance is really none of their business. It's a personal matter, they argue, and they'd rather not be involved — or pay for it. But there's been a tradition in this country that most people get their health insurance as a benefit through work.

For people who don't get insurance through their job, the cost of an individual health plan can be prohibitive. To help, the federal health care law requires states set up so-called health insurance exchanges by 2014. Similar to travel sites such as Expedia, the exchanges will allow consumers to compare and buy health plans online.

Paul Fronstin of the nonpartisan, nonprofit Employee Benefit Research Institute said the prospect of those exchanges has already changed the health insurance playing field.

"It takes the employer out of the role of paying for the increases in health care costs but also in helping employees organize to get the best deal in the market."

"They created an alternative to employer-based coverage," Fronstin said.

That alternative is apparently tempting employers to drop health coverage. A survey by the consulting firm McKinsey and Company found 30 percent of employers will definitely or probably drop their health plans after 2014, when health exchanges are slated to come online.

Fronstin isn't so sure.

"Many employers may be completely hesitant to go into a public exchange and drop benefits the way they've been offering them," Fronstin said.

Under a provision in the health care law, companies with the equivalent of at least 50 full-time employees could face financial penalties if they drop workers from their insurance plans. At the same time, employers say health insurance costs are rising so much they can't afford the increases.

LESSONS LEARNED FROM PENSION REFORM

That financial squeeze is prompting new approaches and some have a familiar ring to them.

Minnetonka-based Medica has developed what it calls My Plan. Medica's John Naylor said the product allows an employer to pay a fixed cost to insure each employee and allows the employee to choose among 20 different plans.

"The employer will define a contribution and that will be transparent to the employee," Naylor said. "So the employee will actually see how much the employer is putting into their account and they will use those funds ... to decide which plan design option for them is the best for their personal situation and determine what additional premium, if any, they want to spend for that coverage."

If this sounds similar to a 401(k) pension plan, it is.

"(It's) no different than if you go to a Charles Schwab or E*trade to manage your money," said Abir Sen, who runs Bloom Health, a Medica partner in the My Plan venture.

Sen said what's happening with health insurance now is what happened with many company pensions in the 1980s. Employers realized they couldn't sustain the pensions indefinitely. They decided to put in a set amount at the front end, and leave more of the decisions up to the employees.

"We see a similar dynamic playing out now where you have the same three forces converging: our Great Recession squeezing large and small employers alike, you have health care costs that keep going up and you have regulatory changes that have happened and will continue to happen," Sen said. "Employers are beginning to wonder how they're going to sustain their health care liability indefinitely into the future."

But this new approach is likely to shift more of the financial burden to the employee.

That's the take of David Delahanty, with the Human Resources consulting firm, Towers Watson.

"It can save the employer money, but it's at the expense of the employees," Delahanty said. "It's not going to reduce everybody's costs, it just reduces the amount the employer contributes."

On the other hand, Lynn Blewett, a health economist at the University of Minnesota said this kind of plan could convince more employers to provide some coverage. But she said there's another concern for consumers.

"It takes the employer out of the role of paying for the increases in health care costs but also in helping employees organize to get the best deal in the market," Blewett said. "It basically takes the employer out of the role which has been a benefit to employers and consumers who work for larger employers."

But it's worth bearing in mind that much is likely to change as 2014 approaches, and that change is likely to continue well beyond, as employers, insurers and the government react to the various changes in the health care marketplace.