Texas Tech University Health Sciences Center
The Future of Health Insurance

The Future of Health Insurance

the-future-of-health-insurance- image0One can read a variety of opinions on most any topic and, indeed, it is a positive thing to read widely — a sign of an open mind. (We certainly do not have to agree with all that we read.) An opinion piece that I read recently in The New York Times on health insurance funding by Neil Irwin was particularly interesting. I think it might be of interest to you, too.

The question he asks is, “Are the days of Americans getting health insurance through their employers numbered?”

The reason the author thinks this might happen is that employers could call for and workers accept the practice of buying health insurance through government exchanges. If this should happen, it will be a giant reversal of a pattern that has existed since early experiments with it going back to the 1920s. Most historians note that employer-sponsored health insurance truly began during World War II when the federal government capped wages, so employers needed another incentive to recruit and retain employees. These health benefits packages were not (and are not to this day) considered a part of employees’ wages and the employers could deduct what they spent on these benefits packages from their corporate taxes. So, our tax policy drove much of how we got to where we are and would be a factor in any change, as well.

Our country is currently experiencing the concept of acquiring health insurance via an exchange--and while problems have been well documented, some of that is behind us. We have, no doubt, learned a great deal about how exchanges work — on both sides of the computer. Here is the thought: employers might provide money for employees to purchase insurance or make what is called a “defined contribution” — the employee would be left to purchase insurance on his or her own. Think of it like this—it is the difference between a defined-benefit pension plan and a 401(k) type approach to purchasing health insurance. Employees would be more autonomous and manage their own health care coverage, yet bear more responsibility. We have experienced some of this with health savings accounts (HSAs), health reimbursement arrangements (HRAs) or flexible spending accounts (FSAs) — all of which are funded with pretax dollars and provide workers with financial incentives to be cost-conscious when selecting health care services.

I remember when defined contribution 401(k) plans appeared on the retirement planning scene in the early 1980s (yes, I am old), employers embraced it as a way to replace or supplement traditional defined benefit pensions which often had high and unpredictable costs.

Some are seeing the same possibility with health insurance funding — Irwin is hardly the first. The thinking is that employers want to understand and predict what their health benefits costs are likely to be and are therefore looking at new models. I am not talking about tomorrow and I am talking about American business, in general; but it is a trend worth watching. It is fun/stimulating to think about where we might be headed. Of course, no one knows for certain what the actual system of the future will be.