EBRI Notes

"Two Views on Defined Contribution Health Benefits"

Oct 1, 2001 12  pages


Two Views on Defined Contribution Health Benefits—More than 67 percent of Americans under age 65—or 163.4 million Americans—were covered by an employment-based health plan during 2000, up from 66.6 percent in 1999. In addition, between 1999 and 2000, the number of uninsured nonelderly Americans declined from 39 million to 38.5 million, while the percentage declined from 16.2 percent to 15.9 percent. Although the expansion occurred at a time when health insurance costs were going up much more rapidly than increases in average income, general inflation, or growth in the gross domestic product (GDP), there is only modest evidence that employers shifted costs onto workers during 2000. The article cautions that these trends could easily change in the future as data become available concerning the combined effect of the economic slowdown and rising health benefit costs.

This article presents two opposing views on DC health benefits: one by Dr. James Bentley of the American Hospital Association, and the other by Dr. Donald Palmisano of the American Medical Association. Dr. Bentley's has four major concerns: First, almost nowhere is there a healthy, stable individual insurance market. Second, if people were no longer in a group structure, some might not replace their employment-based health insurance, increasing the number of uninsured. Third, shifting to DC health benefits would increase uncompensated care if individuals make a poor selection of plans. And fourth, hospitals would end up subsidizing anyone who selects a low level of coverage. Dr. Palmisano maintains that consumer-driven health care, in the form of DC health benefits, would address today's situation of misdirected competition and dissatisfaction among patients, physicians, and even health insurers. This approach would allow patient choice and would be good for patient care; would enhance cost-consciousness on the part of both patients and physicians, thereby restraining medical cost increases; produce healthier workers, increasing their productivity; and would encourage competition for patients, leading to new insurance products that may offer advantages to patients who otherwise might be uninsured.