To learn what will happen to healthcare, look at your 401(k)
October 11, 2013
Those of us of a certain age remember the day sometime in the early 1980s that pensions largely ended in the private sector.
Our employers began coming to us with the news that they were discontinuing our pensions and creating a wonderful new way to help us save for retirement "“ a 401(k) plan. And to incentivize us to participate in our golden future, the companies would "contribute" to our plans, usually on some sort of matching basis with our own contributions. The move from defined benefit plans (pensions) to defined contribution plans accelerated, eventually taking over the private sector.
Driving this shift away from pensions was stock market volatility (which resulted in unpredictable funding requirements and earnings). Furthermore, companies admitted that they were not particularly good at making retirement investments "“ plus they were required by 401(k) rules to hand investment administration over to a third party. Thus was born a new industry, giving rise to the likes of Charles Schwab, Fidelity and E*Trade, the places where we employees were sent to invest our savings.
Because our employers no longer made the investments, and because third party administrators weren't making the actual investment decisions, the investment decisions devolved to us as individual employees. We now had to plan for retirement. We had to invest in a variety of select mutual funds that reflected our "investment risk profile," retirement needs, etc.
Turning decisions about retirement investment planning over to individuals has resulted in something between mediocre and disastrous results. Let's face it: Retirement is a long way off and most of us are completely ill equipped and/or disinterested in making investment decisions And so in the great stock market meltdown of 2008-2009 many of us lost up to 40 percent of our retirement funds. If we were close to retirement and had not adjusted our risk portfolio, it was a real mess. Even if we weren't close to retirement and decided the pain was too great and moved our money out of equities (which have now come back to above pre-2008 levels), it was a disaster.
Is the same going to happen with healthcare, where there is a similar move afoot to move healthcare decisions from employers to employees? I think not. In fact, it may be the only thing that saves the corrupt, opaque and decrepit economics of healthcare in America.
As employers grapple with the many decisions of the Affordable Care Act, popularly and unpopularly referred to as Obamacare, many are realizing that requiring employers to choose healthcare plans for their employees may not get the best results.
Some employers have already experimented with providing money to employees and sending them to exchanges, which may soon resemble some thing more like a bazaar. While most of these marketplaces did not open until October, some "“ like the one run by Aon Hewitt "“ opened earlier. They are instructive.
Employees, given the equivalent of cash to spend in the exchange, were allowed to buy plans and benefits that suited their needs. One thing that happened in the Aon Hewitt exchange was that the relatively small number of employees using high deductible plans "“ such as health savings accounts (HSA) "“ prior to the exchange expanded nearly four-fold, from 12 percent to 39 percent. Because HSA plans are less expensive, employees could spend their money on supplemental benefits such as dental and vision.
Lest you think I am disinterested in this development, I am not. Some of that extra cash will, we at First stop health hope, go toward buying our telehealth plans that provide 24/7/365 access to physicians by phone, email or video, along with patient advocacy services.
Will turning employees into healthcare shoppers happen over night? Hardly. Stalling the shift are confusion among employers and employees, carrier antipathy, slow development of exchanges and lack of real choice in some exchanges. Employers, especially those that empower employees to make decisions for their businesses, will find it appealing to empower employees to make their own decisions about buying healthcare.
In the long run we will all be buying healthcare like we buy cars. Yes, it will be a bit painful and, certainly, we will not look forward to it. But it will be necessary. Healthcare will be consumer-centric, driven by individually-made decisions that meet our individual needs. And because it affects us immediately, I suspect we will be more thoughtful and careful about the process than we have been with our retirement benefits.