IBJNews

VCs: Health benefits will be defined contribution

Back to TopCommentsE-mailPrintBookmark and Share

Increasing government involvement in the health insurance market will have the counter-intuitive effect of making the industry more consumer-driven, concludes a new report from a health care venture-capital firm.

Psilos Group, based in New York and Silicon Valley, predicts that ever-increasing cost pressures and new features in the 2010 health reform law will lead many employers to shift their approach to health insurance from a defined benefit for their workers, to a defined contribution—similar to the shift from pensions to 401(k)s.

That means millions more Americans will be buying health insurance on their own—using money given by their employer or government-provided subsidies in the state insurance exchanges the law will create.

New York-based research firm McKinsey & Co. has predicted that the percentage of Americans buying health insurance individually—as opposed to joining an employer-purchased plan—could spike to as high as 40 percent, from just 10 percent now.

In turn, health insurers will have to significantly change how they interact with customers, Psilos predicts. They’ll have to shift from a business-to-business model to a business-to-consumer model.

“A lot of times today when consumers think about their health plans, they assume their phone call won’t get answered, they’re going to get materials they don’t understand and they’re going to have providers in the network they don’t want,” Lisa Suennen, a Psilos managing member, told Healthcare Finance News. “But if you are an employee and you now are being given a chunk of change to go buy a plan on your own, you’re going to look for the kinds of things you look for when you buy a car: friendly salesperson, quality service, ‘I understand what’s happening’—the paperwork and all that.”

Psilos even predicts that some private companies—such as Wal-Mart, Amazon or Google—might create health insurance exchanges. Already, employers who were buying Medicare supplement insurance for their over-65 workers have begun sending them to a private exchange operated by California-based Extend Health Inc.

And health insurers can forget passing on 8- to 10-percent premium increases every year, as they do now with employers, Suennen said. She expects employers to link their annual health insurance contributions to wage increases, which have been rising 2 percent to 3 percent per year.

“The realities of defined contribution will drive consumers to shop for the best value,” Suennen said. She added, “Consumers are going to be forced to become educated and highly efficient buyers, just as they are with other kinds of insurance.”

Read the full report here.

ADVERTISEMENT

  • Getting the consumer involved
    THis is the problem with healthcare. When the user (patient) and provider (doctor) have no idea what the true costs of tests and procedures cost, why would they care if they did 4-5 unnecessary tests. Once the consumer has "skin" in the game, they will become more involved; asking if tests are necessary.

    Also, we as a nation must address our unhealth life styles. Taking care of yourself will lead to lower cost health care. Having company sponsored healthcare has lead us to living an unhealthy lifestyle and using medication to "feel" good.
    Heather
    www.mymedigapconsultant.com
  • Cost if individual policies
    My question would be how much more individuals will have to pay versus the group rates they currently get under their employers policies. I will be surprised if the rates will be competitive and I think most will see a sizeable increase that won't come close to employers' income increases that are set out to cover it. The meager fine imposed by the mandate will look real good to a lot of people!

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Really, taking someone managing the regulation of Alcohol and making himthe President of an IVY Tech regional campus. Does he have an education background?

  2. Jan, great rant. Now how about you review the report and offer rebuttal of the memo. This might be more conducive to civil discourse than a wild rant with no supporting facts. Perhaps some links to support your assertions would be helpful

  3. I've lived in Indianapolis my whole and been to the track 3 times. Once for a Brickyard, once last year on a practice day for Indy 500, and once when I was a high school student to pick up trash for community service. In the past 11 years, I would say while the IMS is a great venue, there are some upgrades that would show that it's changing with the times, just like the city is. First, take out the bleachers and put in individual seats. Kentucky Motor Speedway has individual seats and they look cool. Fix up the restrooms. Add wi-fi. Like others have suggested, look at bringing in concerts leading up to events. Don't just stick with the country music genre. Pop music would work well too I believe. This will attract more young celebrities to the Indy 500 like the kind that go to the Kentucky Derby. Work with Indy Go to increase the frequency of the bus route to the track during high end events. That way people have other options than worrying about where to park and paying for parking. Then after all of this, look at getting night lights. I think the aforementioned strategies are more necessary than night racing at this point in time.

  4. Talking about congestion ANYWHERE in Indianapolis is absolutely laughable. Sure you may have to wait in 5 minutes of traffic to travel down BR avenue during *peak* times. But that is absolutely nothing compared to actual big cities. Indy is way too suburban to have actual congestion problems. So please, never bring up "congestion" as an excuse to avoid development in Indianapolis. If anything, we could use a little more.

  5. Oh wait. Never mind.

ADVERTISEMENT