Say goodbye to employer micromanagement of healthcare benefits. For many Americans, selecting a health plan will become a point-and-click decision unencumbered by the biases of human resources departments.
In the coming decades, individual consumers will be the ones directing much of the multibillion-dollar market for health insurance.
Do-it-yourself health insurance investing isn't really as foreign as it sounds. Many workers already have a hand in managing billions of dollars in pension benefits as a result of corporate America's movement toward defined contribution 401(k) plans. Employees receive a set amount of retirement money to invest as they see fit among a variety of savings options, such as mutual funds and guaranteed investment contracts.
"I think that's a good parallel to what we can see in healthcare," says Steve Richter, group and healthcare practice leader in the Sherman Oaks, Calif., office of Watson Wyatt Worldwide.
Employed individuals will be given a fixed sum of money with which to purchase health plans that meet their own healthcare requirements and budgetary constraints. A middle-aged manager with a family history of heart disease might select an expensive plan featuring a network of cardiologists and a top-notch heart hospital. An athletic 25-year-old might opt for a bare-bones plan.
To baby boomers accustomed to having things their way, the movement toward a consumer-choice model of healthcare coverage is just what the doctor ordered. And given the 1990s backlash against managed-care constrictions, it is inevitable.
Healthcare prognosticators offer varying opinions about the future degree of employers' financial and operational involvement in the health insurance arena. Much of the debate centers on where the tax benefit ought to rest -- with the individual consumer or the employer, says Ray Werntz, president of the Consumer Health Education Council, a new arm of the Employee Benefit Research Institute in Washington.
More choice for the consumer
How the tax debate will shake out is unclear. But clearly there is momentum for more consumer choice, and presumably consumers would be more price- and quality-sensitive if they were in charge of their own healthcare spending, he says.
While the so-called single-payer system of healthcare coverage still has its devoted fans, most people agree it's not in the cards. More plausible is a shift of power to consumers from employers, coupled with some tax credits for the employed uninsured or underinsured.
"Employer-based healthcare will still remain, but it's going to be very different," offers Regina Herzlinger, a Harvard Business School professor who has written and lectured extensively about the emerging role of the consumer in healthcare. Employers will retain the tax benefit of funding health insurance premiums, she says. But instead of purchasing healthcare directly, employers will be involved in educating workers and otherwise facilitating the process.
A consumer-driven healthcare system will moderate costs by driving out provider inefficiencies and shifting purchasing power to the ultimate user of health benefits, says Herzlinger. As healthcare inflation slows, Congress may be willing to loosen its purse strings to cover the poor uninsured, she says.
Dwight McNeill, a health policy fellow at Brandeis University, Waltham, Mass., and a consultant with WayPoint Health in Barrington, R.I., anticipates greater consumer choice. "But I don't think defined contribution is enough," he says. "I think that's a short-term solution." McNeill predicts several coinciding pressures will alter the health insurance landscape and employer behavior by 2020. Those forces include:
* Rising insurance premiums.
* A growing uninsured population.
* Baby boomer outrage over the $125 billion federal tax deduction employers enjoy for footing the healthcare tab.
* Increased employer exposure to consumer litigation under the Employee Retirement Income Security Act, a 1974 federal law governing employer-sponsored health plans.
"Nobody's going to force employers out," McNeill says. "Employers will make the decision to stay or not stay based on a business decision. My bet is that they'll get out."
Ultimately, healthcare benefits will be folded into a "total compensation" package, along with salary, pension and other perks. Individuals will have complete control over how that money gets divvied up and invested. However, he cautions that as employers bow out of providing coverage, policymakers will need to ensure that the money pulled out of workers' wages for healthcare premiums -- now roughly $265 billion a year -- gets passed along.
One group of employers that's less likely to exit the market? Large companies with strong union connections, such as General Motors Corp. McNeill says that for those companies and their workers, progression to defined contribution plans is unlikely because of multiyear contracts locking companies into providing specified benefits.
But for many Americans, the choice will be theirs.