Economic Implications of Defined Contribution Health Plans: Their Impact on Employers, Insurers, Employees, and Healthcare Providers

UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
Eric W. Ford, Professor (Creator)
The University of North Carolina at Greensboro (UNCG )
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Abstract: Employee health benefits are a major payroll expense for companies that provide them. During the 1980s and 90s, many employers moved workers into managed care programs to control costs. However, the ability of those mechanisms to contain healthcare inflation has run its course. Significant rate hikes in 2002 will cause some large employers to increase employee contributions anywhere from thirteen to twenty percent. Further, new legislation threatens to increase the pace of healthcare inflation and possibly make employers liable for the plans they offer. Therefore, some firms have already turned to Defined Contribution Health Plans (DCHPS) to control health benefit costs and limit their legal exposure. This paper describes two types of DCHPs that have emerged and analyzes their impact on employers, insurers, employees, and healthcare providers. The first type, based on individual Medical Savings Accounts (MSAs) plus group-based catastrophic health insurance, may be workable if forthcoming legislation provides appropriate tax shelter treatment for both employers and employees. The second type, which involves straightforward voucher payments, is unlikely to work because it removes all vestiges of community rating and would therefore leave many classes of workers unable to obtain affordable health coverage.

Additional Information

Business Economics. Volume 37 (1), pp. 38-45.
Language: English
Date: 2002
Defined contribution health plans, Economic impact

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