US HEALTHCARE: Health benefit schemes offered by US companies to their employees are unpopular and in an expensive state of flux. Howard Berliner reports

Few people are happy with the state of employerprovided health benefits in the US. Employers, faced with increasing government regulation and higher prices, find it difficult to shift more costs on to workers, especially in the current period of low unemployment.

Employees, unhappy with the amount of costs passed on to them, are dissatisfied with the restrictions employers have imposed on plans in an effort to contain costs.

They are also dismayed by the limited choice of health plans on offer. Just over one-third of firms that provide health insurance to their workforce offer only one health plan, and 15 per cent offer two.

Moreover, 20 per cent of all insured workers find themselves in different plans each year either because they have changed jobs or because their employers have changed plans.

As employers reap fewer rewards for providing health insurance, many are looking for ways to offload the responsibility. A study of employer health benefits concluded that large firms spend $170 (£120) per employee to administer health insurance benefits, at an overall cost of over $10bn.

1It is not surprising, therefore, that many employers would like to get out of providing health insurance.

One way this could be done would be to give each employee a fixed sum of money to buy health insurance directly, without any input from the employer.

Such a system is referred to as a defined contribution model, as opposed to a defined benefits model, where the employees' health insurance is chosen by the employer. A model similar to this has worked for pension plans in which the employer pays a fixed amount but the employee can determine how to invest the money - in stocks, bonds, mutual funds and so on.

Although many human resource executives at large companies are excited by the potential from defined contributions for health benefits, none have abandoned their current plans. There are several reasons for this.

First, employer-provided health coverage is not taxable in the US, whereas if money were given to employees to buy coverage it would probably be taxed. Second, group insurance - the kind provided by employers - is considerably cheaper than individual insurance directly purchased. If workers were left to buy their own coverage, they might have to pay considerably more for it.

Workers would also have the option of spending what they wanted on health insurance: they could buy more insurance (and pay the difference between their employer's contribution and the cost of their plan out of their own pockets) or less insurance (and keep the difference between the employer's payment and the insurance costs). This would require a significant readjustment of the health insurance market, both to allow individuals to do this and provide them with the information to make such a choice.

In theory, under this model, workers would 'own' their insurance and, as long as they continued paying for it, could remain in the scheme after they left an employer. However, problems could arise if a future employer made a lower contribution than the previous one.

Most observers agree that the only way such a system could be made to work is through the Internet. An employee could look through myriad plans, choose the most suitable, get an instant rate quote and order it directly. This, of course, presumes that employees have access to the Internet and have a basic understanding of health insurance policies.

A number of firms have expressed an interest in taking this route. This could range from letting a person design their own health insurance policy that names specific doctors and hospitals to electronic claims payment and adjudication.

The shift to defined contribution is still in its infancy, and an attempt to alter Medicare policy in that direction, was defeated in Congress two years ago. Yet, with health insurance costs rising yet again, and the prospect of a less than robust economy ahead, many businesses may feel legislation should allow them to try this approach.