New Booz & Co. White Paper Examines Potential Impacts of Private Insurance Exchanges

For decades, U.S. companies that offer health care benefits to employees have stuck to a defined benefits model, in which the company offers a standard set of health benefits and shoulders most of the financial burden and risk of health care cost. Over the past decade, this model has come under increasing strain as health care costs have more than doubled, creating an affordability crisis for employers. Now the problem has reached a tipping point. Some employers are considering a paradigm shift to their health benefits strategy that's akin to the transition from pension plans to 401(k) accounts: switching from a defined benefits toward a defined contribution model. Instead of designing and offering defined health benefits, companies make cash contributions to savings accounts that employees use to purchase insurance products of their choice. This model allows the company to cap its health care cost at a desired threshold, improving control of current expenses and future liabilities.

This white paper, part of an ongoing series of Booz & Company Perspectives on the shift to consumerism in health insurance, considers the impact of this change on the payor industry and the strategic approach that leading companies may consider taking.