Question: My employer has told me that he is changing to a defined contribution plan in July. He said that my healthcare it will cost me the same as it did this year but that I will have more choice of plans. Is it a good deal for me or am I getting screwed?
Answer: Compared to the old “defined benefit” plan where employers determined a set of health-insurance benefits, under “defined contribution” plans employers pay a fixed amount for each employee, and employees use the money to buy or help pay for insurance they choose themselves. It’s a good deal for employees in the sense that it puts you in the driver’s seat as far as selecting the plan you want, but if the defined contribution amount doesn’t go up to match the inevitable premium increases for health insurance, it will leave the employee holding the bag for more and more of the costs. It’s a better deal for employers because it puts them in control of their health benefit outlay regardless of health plan rate increases.
Health-Care Reform will push the transition to defined-contribution health insurance in 2014. If most employers do retain their health plans, the state health insurance exchanges created under the law will make the basic idea of a defined-contribution health plan more prevalent, and thus may speed its adoption. If defined-contribution plans that are sufficiently generous count as employer-based coverage — as is generally expected — the trend toward such plans will probably accelerate.