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January 10, 2006


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John Lederer

"But it is not entirely clear why employees would rather bear the risk of poor investment returns."

An unenumerated possibility is that would like the benefits of good investment results.

Matt Parker

In health care, it's probably less about the long-term financial implications of defined contribution (a.k.a. consumer-directed health plans) and more about an employee's comfort with being a payor instead of a beneficiary. As with riskier, but portable and potentially more lucrative retirement accounts, thes plans should begin to be more attractive to employees as they become more comfortable with their role as health care consumers.

Defined contribution plans really became appealing after the advent of the likes of CNBC, Bloomberg, MotleyFool.com, etc., became popular sources of the kind of information professional market participants use to make relatively informed decisions about what investments to make. In other words, regardless of the tax consequences, unless an individual can ACT as an informed consumer, he/she will remain a passive recipient of a low-risk, low-yield benefit.

So too with health care. Until consumers become as proficient with -- and plan sponsors begin providing -- health care decision support tools like Rxaminer (www.rxaminer.com) and DestinationRx (www.destinationrx.com), the popularity of defined contribution health plans will remain low.

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Michael Machen

This is all part of the 'great risk shift' as discussed in the New Yorker recently by Gladwell and Surowiecki, among others. Since benefits are not something typically negotiated by employees (when was the last time your 401k match was negotiable?) there is gradual erosion of those benefits in the face of rising costs and overseas competition from companies that do not bear these costs due to government healthcare and pension systems. We see this in the shift from defined benefit to defined contribution in the pension world, and as HSA accounts (tax free flex-spending plans coupled with high-deductible health insurance) in the health care arena. All of this is heading one way: government assumption of health care and retiree benefits. The question for those who prefer individual assumption of the risk is what happens when middle and upper class retirees poorly manage their retirement and are destitute? Government will step in, and is in the best position to group the risk.

Small Businesses For Sale

"For most of our history, employees could not get the same tax benefits if they took taxable wages and paid for their own medical care or health insurance." - this is certainly true. Small business owners do not have to worry about their pension plans and health care benefits being frozen. You can become a business owner today. Take a look at GlobalBX.com - they have over 32,000 small businesses for sale.

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