Consumers have the freedom to select their own car and homeowners insurance, but when it comes to health care, employers usually do the choosing.
However, with the first round of Affordable Care Act employer mandates kicking in next month, experts are predicting a fundamental shift in the way companies pay for health care.
In fact, an estimated 20 percent or less of private-sector workers will get their health insurance directly from their employer by 2025, according to Ezekiel Emanuel, a former White House advisor who helped craft the ACA. That’s dramatically down from roughly 60 percent today.
Instead, businesses will turn to an alternative method called "defined contribution."
It essentially means employees find their own health care plans and get reimbursed for the premiums by their employer with a fixed amount of money each year.
Defined contribution has been around for years, but it’s expected to rise in popularity as Obamacare mandates roll out next year and in 2016.
By January, large companies with 100 or more full-time employees must offer health benefits or some reimbursement for health benefits to at least 70 percent of its workforce. By 2016, the mandates will apply to nearly all employees of large companies and also smaller companies with 50 or more full-time workers.
Melissa DiGianfilippo, owner of Phoenix-based Serendipit Consulting, a public relations and marketing firm, said she adopted the defined contribution model earlier this year.
DiGianfilippo previously didn’t offer any health benefits, and with only 18 employees, she still won’t have to under Obamacare. But she said it's absolutely necessary to stay competitive, and helps prepare for the future.
“I think at some point we might be a bigger agency, so I think it’s important to kind of look at it now because we may someday have to do this anyway,” said DiGianfilippo, who gives each employee a $200 reimbursement check, separate from payroll checks, every month to help cover premiums.
Defined contribution is seen as a way to give employees the freedom to choose their health insurance, while allowing employers more control over their expenses at a time when costs of company-sponsored group plans have risen substantially.
But there are some potential downsides, said Nate Plett, owner of Local Enrollment Services, which operates health insurance kiosks in Arizona that help consumers sign up for ACA plans.
“Employees don’t really pay a lot of attention to the health insurance, the health plan that they’re getting, they could end up with a lot of the wrong plans, like a lot of people do when they find their own health insurance,” Plett said.
Additionally, employees could end up paying more for health care because there’s no minimum amount employers are required to reimburse them under Obamacare.
Unlike company group plans, those reimbursements count as taxable income to the employee.
