Things to Watch For in 2001

A New Definition of ‘Health Plan’

In health care, some employers are expected to start replacing traditional insurance benefits with what policy wonks call defined-contribution benefit plans.

These plans work in a variety of ways. The simplest--and most controversial--is this: An employer decides to spend a set amount, say $5,000, on each worker’s health care. At the beginning of the year, employees get a voucher for that amount and are instructed to buy themselves a health insurance policy.

In another version, a company would offer employees a variety of health plans but limit the firm’s contribution to the plan to a set amount--again, typically estimated to be $5,000 per year. That money would go far enough to pay for the cheapest HMO plan to cover a family, but would not cover the cost of richer plans, such as preferred-provider organizations or even loosely regulated HMOs. Employees who opted for the higher-end plans would have to absorb the extra cost.

Finally, there is a version of the defined-contribution plan that works something like an old-fashioned insurance policy. Under that scenario, the employer would buy catastrophic-care policies, which have huge deductibles, sometimes as high as $4,000 per year for a family. The employer would then offer each employee a set amount of money, say $3,000 or $4,000 toward the deductible.

These new plans make employees and consumers nervous because they essentially mean that workers, rather than companies, would have to absorb inflationary increases in the cost of health care.

It is unclear whether companies would really move toward such programs, but most experts say that if the economy tanks in 2001, defined-contribution health plans could begin to take hold.