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With Law Upheld, Employers Weigh Shift To Defined Contribution Insurance Plan

By Peter Frost, Chicago Tribune
McClatchy-Tribune Information Services

July 03--Many Chicago-area employers have remained on the sidelines with their employee health plans, waiting for theU.S. Supreme Courtto determine whether the 2010 health care overhaul passed constitutional muster.

But with the court's decision last week to uphold most of the law, companies may pursue a historic change.

Many employers are quietly considering a move away from traditional defined benefit plans and toward defined contribution plans, which set aside a fixed amount of money each year for employees to use toward health care costs.

A move to defined contribution plans could cost workers more as companies, facing ever-rising expenses and declining health among those they insure, try to save money.

Under the structure of defined contribution plans, companies hand an employee a set amount -- say $9,000 -- and employees use that money to buy or help pay for a health insurance plan they choose themselves.

At the heart of the shift is a desire of companies to reduce their exposure to health care costs by shifting the risk of unpredictable expenses to their workers.

Such plans have been bandied about by larger employers for years, but they're gaining traction because of the court's decision to uphold the law, which companies say does little to contain rising health care costs.

Because the law adds certain mandates, such as dropping lifetime limits on insurance and allowing adults up to age 26 to get coverage through their parents, employers will "see material increases" in the cost of providing insurance to their workers, said Patty Cain, a partner with Neal, Gerber & Eisenberg LLP's labor and employment practice in Chicago.

The average cost to provide health care coverage per employee rose to more than $10,000 in 2012, according to a study by Aon Hewitt, a Lincolnshire-based benefits consultant.

Costs are expected to rise another 7 percent to 10 percent this year, according to the survey, which polled 562 companies and was released in March.

"Just by the mere fact that health care costs are increasing, employers are seeking other ways of providing this benefit," Cain said.

Few employers, particularly large companies, are eager to discuss their internal deliberations on the issue because they don't want to raise concerns among employees before final decisions are made, said Paul Keckley, executive director of the Deloitte Center for Health Solutions, the health care research arm of consulting firm Deloitte LLP.

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"Nobody's going to play their cards in public," Keckley said. "Employers know it, they just don't want to talk about it."

While there's little doubt a transition is afoot, companies are unlikely to make wholesale changes until a cloud of uncertainty is resolved.

Because 2012 is an election year, there's a chance that the law, or major portions of it, could be repealed if Republicans are able to gain control of Congress and the White House from Democrats.

Further, even if the law survives the general election, no one knows how well the state-based health insurance exchanges will work when they come online in 2014, Keckley said.

Those exchanges, scheduled to begin enrolling people in plans in late 2013, are being watched by companies. Employers with fewer than 100 workers could start buying insurance for employees through the exchanges as soon as 2014. In some states, larger companies will be permitted to buy plans for their workers beginning in 2017.

"The only thing that's certain right now is (companies are) doing everything that's legal to shift cost to employees," Keckley said.

Benefits consultants say the shift is similar to what happened with Americans' retirement benefits starting in the late 1980s and early 1990s.

Over the past three decades, corporate retirement programs have moved en masse away from defined benefit plans, in which workers were paid a set amount of retirement income through structures like pensions, and toward the defined contribution plans, like 401(k) plans. In effect, employers transferred their risk from fluctuations in the financial markets to workers.

With health insurance benefits, the share of companies that offer defined contribution plans remains relatively low, but two surveys by benefits consultants indicate that more than 4 in 10 companies are considering making the change in the years ahead.

For workers, the good news is that a vast majority of companies -- more than 90 percent in separate studies -- plan to continue providing some form of health care coverage to their employees.

"The bottom line is, employers are going to continue offering health care in the future," said Debra Gold, a senior partner in Mercer's health and benefits practice in Chicago. "They're going to play, but it might be in a different way."

Employees of companies that pursue the defined contribution route may be funneled into so-called corporate health care exchanges, which function in much the same way as state-run exchanges.

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Versions launched already are typically run by benefits consultants like Mercer and Aon Hewitt, which bundle together several employers and allow their employees to choose from a menu of coverage options offered by a variety of carriers at multiple prices.

"The concept of corporate exchanges is pretty new," said Paul Reiman, director of human resources at Chicago-based Morningstar, which employs 3,520 people globally. "Let's see how the market responds to them before we jump."

Some providers, including UnitedHealth Group Inc., have announced or plan to launch their own versions.

The private exchange market "is really emerging and growing, largely because of all the interest in the state exchanges," said Michael Thompson, a principal in PricewaterhouseCoopers LLC's global human resources practice.

Inside the exchanges, employees will be offered more choices on what types of coverage they desire -- and how much they're willing to pay.

"If you value broad access and you're willing to pay for it, that's fine," Thompson said. "If you're willing to live with a narrower network (of providers) and possibly a higher deductible, you would have the ability to save significant money on your premiums."

Whether the private exchanges survive the long term, however, remains an open question.

On private exchange GoHealth.com, consumers can shop and ask for advice. Michael Mahoney, GoHealth's vice president of marketing, said the company has explored a corporate health care exchange for its employees, but it will continue offering its "traditional and robust" health insurance plan for the time being.

His reason? "If you give control to the employees, they could choose to save money and possibly choose something where they're not completely covered, so they end up in a pinch. Right now, we're going to overspend on our employees and give them more than they want so they're always covered."

Tribune reporter Kristin Samuelson contributed.

pfrost@tribune.com

Twitter @peterfrost

___

(c)2012 the Chicago Tribune

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Visit the Chicago Tribune at www.chicagotribune.com

Distributed by MCT Information Services

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