With defined contribution health insurance, an employer could contribute pre-tax funds toward employees’ insurance.(This amount should remain deductible to the employer.) Employees could then purchase their own insurance policies.
The A central idea behind DC health insurance is to promote competition among insurers.
DC allows employees to vote with their feet – to change insurers when they find a better price or are dissatisfied with the service they are receiving.
Among firms with 1-199 workers, 86 percent of those who offer coverage can only offer one plan.
DC would introduce a new element of contribution into this market.
Since employer-sponsored insurance (ESI) became common in the 1940s, DB plans have dominated the market.
With a DB plan, the employer offers employees an insurance policy (or several policies) with a specific range of healthcare benefits.Employees would no longer be limited to their employer’s one-size-fits-all insurance choice.The portability of DC plans removes a source of tension between employers and employees.DC health insurance could benefit employers significantly.DC can free employers from a heavy load of administrative time.A common argument for DB health insurance is that a business can use its size to negotiate better rates and better coverage for its employees. If an employee moves from one employer to another, he can keep his current policy.Small businesses are by definition small, and they have little capacity to exert such market power. This reduces the likelihood that the employee will have to change doctors, will be stuck in an undesirable job, or will be left uninsured during transition periods.The time burden of comparing policies, talking with brokers, dealing with complaints, and managing the plan fall on the business owner.The owner’s time is diverted away from the business and into something in which he has no special expertise.Later tax and labor regulations cemented this scheme into place.Employers have little bargaining power in the small-group market and usually have a narrow range of plans from which to choose.