Highmark Expands Defined-Contribution Plans

Oct. 25--Highmark Inc. has opened the defined-contribution pool. But are small Pittsburgh-area employers ready to take the plunge?

The region's biggest health insurer is expanding its "defined contribution" health insurance exchange product line, saying that the future of health insurance is one that moves away from employer-provided plans and toward consumer-selected health benefits.

Partnering with Array Health Solutions, a Seattle health software company, Highmark is pitching employers and brokers on "private exchanges," through which employees can choose from a menu of health, dental and vision plans at a price that's fixed for the employer.

The pilot version launched in November 2011 and was available to just a few companies.

Come January, the company will be pitching the product to 500 or so groups, said Steve Nelson, Highmark's senior vice president of health services strategy, product and marketing. The new versions are being called "myBenefits," the product for small businesses employing 10 to 99 people, and "myRetireeBenefits," targeted to employers and unions that provide for post-retirement medical and Medicaid care.

"It's almost like going to Giant Eagle with a gift card," Mr. Nelson said. Those employees who want to spend above and beyond their gift-card allotment can do so out of pocket, for a better plan.

"Is it for everybody? We don't know."

But small businesses, which often struggle to afford employee health care benefits, may be willing to take that chance, as the product is geared to provide health cost predictability.

Many experts believe that the era of the "defined-benefit" health plan -- the one you probably have now, under which an employer selects your health coverage, pays for the bulk of it and assumes much of the risk for providing that care -- is giving way to "defined-contribution" plans, under which an employer gives you a fixed amount of cash and lets you buy your own plan.

"The fundamental driver of this shift is the effort by American businesses to reduce their exposure to health-care costs," explained Peter Orszag, vice chairman of global banking at Citigroup Inc. and a former director of the U.S. Office of Management and Budget, in a column for Bloomberg News.

Already, he said, companies are test driving high-deductible plans, health savings accounts and other medical insurance products that limit a company's payout, and risk exposure.

"The natural next step will be for employers to strictly limit their health-insurance contributions to a set amount of money that workers could use to buy insurance. Companies will thus eliminate their exposure to unexpectedly high health-care costs."

The shift from defined health care benefits to capped contribution in many ways mirrors the shift that has already happened away from defined pension payouts to 401(k) contributions, as companies sought to get out of the pension business.

Highmark considers itself first to the market locally with a defined-contribution product linked to a private exchange from which employees or retirees can choose from among 20 or so different plans.

But other insurers are working on similar products. Minnesota Bloom Health Corp. rolled out its own defined-contribution exchange this year, in partnership with Blue Cross Blue Shield of Michigan and WellPoint Inc., which bought a majority of Bloom's equity.

Also this year, United HealthCare launched its own "Multi-Choice" product, which allows employers with 50 or fewer workers to access a menu of 30 coverage options. The product is available in Pittsburgh.

Just this week, Blue Cross and Blue Shield of Kansas City announced that it is partnering with Benefitfocus to set up a defined-contribution private insurance exchange for its large-group clients.

On the employer side, Orlando-based Darden Restaurants Inc. -- which owns Red Lobster, Olive Garden, the Capital Grille and more -- announced this month that it would be building its own defined-contribution corporate health insurance exchange.

Bill Toland: btoland@post-gazette.com or 412-263-2625.

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