As a state with a large number of small businesses that aren't sure they can afford healthcare, California was ripe for a new approach to health insurance.
At least that's how Blue Cross of California saw it. It launched its defined contribution plans April 1, the date insurance brokers could begin selling the product. The cornerstone of the program is a plan called Defined Contribution 100.
It's as simple as it sounds, says Deborah Lachman, senior vice president of California small group services, individual and small group division for Blue Cross.
"One half of small employers still do not provide health coverage to employees," she says. "Most employers don't think they can get (health insurance) for $100 per month per employee."
But that's exactly what Defined Contribution 100 does. Employers pay $100 per employee per month to Blue Cross. Employees then can choose their level of coverage from the products the insurer offers. If a product costs $100 a month, the employee doesn't pay anything extra. If the chosen product costs $150 a month, employees pay the additional $50 with pretax dollars, Lachman says. On average, Blue Cross officials estimate each employee will spend an additional $45 per month. She had no estimates of how many people they hope to enroll.
The concept benefits employers and employees, she says. Employers know exactly what their expenses will be each month, allowing them to budget better. Employees can choose health plans and their level of coverage.
Blue Cross covers about 800,000 enrollees in its small group plans, which are designed for companies with fewer than 50 employees.