Thursday, July 9, 2015

Here Comes Defined Contribution: Implications for Population Health

"Here they come!"
Regular Population Health Blog readers understand that defined benefit insurance plans provide for the future coverage of services (for example, all medically necessary treatment) or income (for example, guaranteed retirement income). 

Failure to account for increasing life expectancy, growing medical demand and technology plus an unwillingness to adequately fund tomorrow's promises with today's dollars have all fueled interest in defined contribution health insurance plans.  They provide financial support before future medical demand occurs. As a result, if the ultimate cost exceeds the available funding, it's up to the beneficiary to make up the difference.

As this timely New England Journal article points out, the defined benefit plans' days are numbered, while defined contribution plans are coming. 

Economists and conservative policymakers like their twin attributes of consumer choice and "skin in the game," while transferring risk away from government and businesses. They also like to point out that employers would be helped by freeing up dollars to hire more individuals and pay them more while also investing in their businesses.  Incidentally, this would also be one solution to the U.S. government's deficit spending.

Past attempts in Congress to translate that logic into a fix for Medicare failed faster than Obama could say "middle class." While the Republicans have proposed that Uncle Sam's rate of defined contributions exceed that of general inflation, opponents pointed out that it wouldn't keep up with medical inflation.

In the meantime, more and more employers are embarking on defined contribution plans.  And as the consumer is being forced to deal with a fixed pot of money, many are finding that they can stretch their dollars by agreeing to high deductible plans or narrow networks.  According to one survey, this is now present in close to 40% of employer-sponsored insurance.

The Population Health Blog's take:

Many of the other darlings of health care reform, such as Accountable Care Organizations (ACOs), medical homes, primary care, integrated delivery systems and population health care management providers will need to adjust to the growth of defined contribution plans with a combination of

1) providing enough value that consumers will be willing to personally pay more for their wares;

2) showing once and for all that they can provide health care for a lower price i.e., save money;

3) maintaining enough geographic or niche market dominance that they can insulate themselves from being commoditized.

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