Daily News Updates - Health Insurance News

Critical Choices:  McCain vs. Obama, Pt.2 – Defined plans, are they good?

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The common pensions back in the 60’s and 70’s worked something like this. After employees worked long enough for a company to retire, those people would receive the promise of, what the Health Care Policy and Marketplace Review referred to as a “defined benefit pension plan.” With this, the employer would promise to continue paying those retirees a percentage of their average pay for all their remaining lives. This would be delivered in the form of a monthly check. All the benefits were predefined. Health insurance was very seldom a problem. Those without health insurance could still afford to get medical care. But big problems started in the 80’s. In the destabilized economy, which followed, those companies found themselves squeezed for profit margin. One thing they went after was these costly pension plans. They started finding ways to diminish or eliminate future enrollees from securing such plans. New employees were deemed ineligible, others were terminated just before retirement and even those who had been secured had their benefits frozen. So begins the popularity of the 401(k) plan. As an answer to both sides, this new scheme unloaded most of the burden on the employers, but still provided a safety net against “losing it all” to the retiree. Instead of being employer-sponsored, it became employee contributed, tax-free. Some employers would match some percentage of the employee contributions. Health Care Policy and Marketplace Review refers to this as a “defined contribution plan.” The success of these is because individuals own them and control them, usually without giving up the employer contributions. With private health insurance, individuals get more control, but without the employer contribution they get from employer-based health insurance or the shared risk pool.

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