Big American companies have moved their employees form defined benefit pension plans to defined contributions which the workers invest 401K pension plans. The employers are off the hook for future pension costs.
Defined Contribution Health Benefits
Big business is now employing a defined contribution strategy to employee health benefits. They see it as a way to get off the hook for ever increasing health insurance costs. By making a defined contribution to the worker. it is now up to the worker to deal with rate increases. But the workers need someplace to buy healthcare coverage, a place like the 401K plan for retirement.
Yesterday, Aon Hewitt (AH) announced that they signed up Sears (90,000 employees). and Darden Restaurants (Olive Garden, Red Lobster etc. with 45,000 employees) for their private insurance exchange. AH will set up customize their exchange platform for each employer. Sears or Darden employees will go to their prospective private exchanges to shop for a plan using the defined contribution money from their employer to pay for the plan they select. Sears and Darden have effectively insulated themself from future rate increases and passed them on to the their employees. They may be generous and make fair annual increases to the defined contribution, but the point is, they are now in control of their health benefit costs.