Like the defined benefit pension plan before it, the defined benefit health plan seems likely to be replaced by most employers with defined contribution plans.
Years ago most large corporations (and many mid-sized and smaller firms) offered defined benefit pension plans. These plans promise an organization's employees a specified retirement benefit that's determined by a formula based on some combination of an employee's earnings, length of time with the firm and age.
Defined benefit retirement plans have almost disappeared in the private sector due to their overall costs and the unpredictable nature of their costs. In their place, companies offer defined contribution plans like 401Ks. These plans reduce costs and limit company risk.
A similar shift is happening with health care plans. Firms are increasingly dropping their traditional health insurance plans and replacing them with fixed payments to employees.
Recent examples include Walgreens, Sears, Darden Restaurants and others.
These firms are providing their employees a health care stipend and access to private health care exchanges. These are similar to the public exchanges mandated under Obamacare, but are private and only available to member companies and their employees.
Many companies are looking to shift their employees to private exchanges. According to a recent study by the consulting firm Booz and Company as many as 20 million Americans will get their health insurance from private exchanges by 2018.
In addition to using private exchanges, firms are also planning to move employees - and especially part-time employees - to the public exchanges mandated by Obamacare. Part-time employees are being moved because firms can drop traditional healthcare coverage for them without incurring Obamacare related penalties.
A good example is Trader Joe's. They are moving their part-time employees from their health care plan to public exchanges. As part of this shift, they will provide their part-time employees $500 a year towards their health insurance costs.
Home Depot has also announced they will be moving their part-time workers to public exchanges.
Over the next year there will be a growing number of defined contribution health care programs, plans and exchanges available to small businesses.
We encourage small businesses to explore and evaluate these health care options and exchanges. Not only can they reduce health care costs and risks, in many cases they will also provide better benefits for employees.
The shift to defined contribution health care plans is not surprising - it's part of a broader, long term trend of risk being shifted from institutions to individuals.