#defined-contribution

“Law of the letter” (August 8th) reported on the state of the United States Postal Service and highlighted a simple truth about financial transparency: the cost of defined-benefit retirement plans for public-sector workers is unknowable. Costs generally exceed forecasts and returns generally lag behind them, so initial estimates are often too low. Since defined-benefit plans kick the can of the liability into the future, the full cost of funding those pensions becomes someone else’s problem.

Defined-contribution plans, however, make the cost transparent today. Understanding true costs will help public-sector organisations like the post office price their services better to promote a sustainable business model.

Joining Highmark as the only carriers who are offering a "defined-contribution" model of health care to small groups in the Western PA area, John Seltzer was asked to discuss how the rollout of this new product will impact future strategy.  Between Community Blue and Multi-Choice, your next renewal will be chock full of new options.  Make sure your broker is in tune with where the market is heading and bringing these new options to your attention.

United Healthcare launching new plan for small businesses

by Steve Twedt

In a bid to increase its 5 percent share in the local health insurance market, United HealthCare is launching a program that gives small business owners more plan options to offer their employees.

United's Multi-Choice allows employers with 50 or fewer workers to select any number of plans among 30 separate options, from high-deductible to full-coverage plans.

The plans use a "defined contribution," which means that businesses pay employees a set dollar amount that, combined with some contribution from the employee, workers use to pay for the plan they want. If they want a plan with broader coverage that costs more, the employees pay the difference; if they choose a less expensive plan, the employees have lower out-of-pocket costs.

Traditionally, options for small businesses have been limited because of the administrative costs and hassles dealing with multiple plans and, from the insurer's perspective, a reluctance to offer coverage because of the greater exposure insuring a smaller risk pool.

With a plan such as Multi-Choice, businesses can offer employees more options without adding to the administrative burden. A defined contribution also gives business owners more control over managing health care costs.

"I think there is a segment of the market that this is always going to appeal to, particularly for employers who are looking for an easy way to offer health insurance without having to deal with the nuts and bolts of health insurance," said insurance broker John Seltzer of J. Seltzer Associates, in Mt. Lebanon.

Noting the similarity to the marketplace model of health insurance exchanges, he added, "I really believe that it is" the future of employer-provided health insurance plans.

Indeed, Pittsburgh-based insurer Highmark Inc. has been piloting its own "private exchange" program for several months in which employers choose from a number of different health, dental and vision plans to offer employees at a fixed price for the employer.

That program, called myBenefits, "is now available to brokers and small business customers throughout Highmark's Pennsylvania service area," spokeswoman Kristin Ash said.

And, this week, the Wall Street Journal reported that major employers Sears Holdings Corp. and Darden Restaurants Inc., which owns Olive Garden and Red Lobster restaurants, are going the defined-contribution route, giving their employees a set amount of money and then having them choose a health plan among choices from an online marketplace.

The key to defined-contribution plans succeeding, however, may rest with whether employees embrace the concept.

Just as the switch from defined-benefit pensions to defined-contribution put employees' retirement at risk, defined-contribution health insurance would seem to move at least some of the risk of high health care costs from employer to employee.

"It clearly is designed to make things easier for small businesses. The question is, are you actually getting a better deal for employees in terms of premiums and benefit diversity?" said Harold Miller, president of Future Strategies LLC management and policy consulting firm, Downtown. "I think people are going to be more reluctant if this does limit their benefit."

Mr. Seltzer wonders, too, how employees will react to being handed a menu list of plans and left to decide which choice is right for them, as senior citizens do now with Medicare Part D plans. "I think there are going to be fewer people prepared to make those decisions than we think."

It's bound to be an adjustment for workers whose employers historically have offered one or two plans and then covered all or most of the cost, with employees contributing a portion of the monthly cost.

"I think most employees like the idea that the employer is making the decision," Mr. Seltzer said. "There is a certain comfort level in knowing that the employer has vetted the product."

United officials met with about 100 local brokers at a Cranberry hotel Friday to explain its program, which launches locally Monday. The insurer says it has already sparked interest.

United's Multi-Choice plan may be new to the Pittsburgh market, but the insurer based in Minnetonka, Minn., already is offering it in 23 other states, with plans to introduce it in Rhode Island and Georgia in the next six months or so.