Why your health insurance may soon resemble your 401(k)

Are you ready for the 401(k)-ization of health insurance?

If not, get ready, because there’s a good chance it’s coming to your workplace soon. That was the consensus of some of the nation’s top employee benefits experts, who gathered last week for a conference in the nation’s capital.

What we’re talking about here is a shift in workplace health insurance akin to the dramatic shift in recent decades from traditional pensions to 401(k)s. Health insurance will move in the same direction in the next five years, according to experts at the annual policy forum sponsored by the Employee Benefit Research Institute (EBRI).

In pension systems, employers promise a specific, defined benefit in retirement; in a 401(k), the employer makes a specific contribution, but workers bear responsibility for making their own contributions and managing investments – and there is no guaranteed benefit in retirement. Employers like defined-contribution systems because they reduce their exposure to risk and volatility. In the case of 401(k)s, risk and volatility are shifted to the employee – and defined-benefit health insurance won’t be much different.

EBRI is a respected non-partisan research group focused mainly on retirement and health benefits. It’s funded by employers, financial services companies, pension funds, government and other organizations, and the forum attracted top-notch experts from all those areas.

While the experts agreed that defined-contribution health insurance systems are coming, many speakers conceded that the defined-contribution retirement system produces worrisome mixed outcomes when it comes to retirement security. A key problem, they said, is that many employees have a hard time managing 401(k)s. Learn more at Reuters Money.