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Ten years from now, health plans could be a big source of mutual fund assets.
Entrepreneurs are promoting a new type of health plan, the "defined contribution health plan."
Members of defined contribution retirement plans accounted for $1.2 trillion in mutual fund assets in 2000, up from $67 billion in 1990, according to the Investment Company Institute, Washington.
Regulatory resistance and stock market slumps could could keep defined contribution health plans from copying that success. But, if they succeed, they could put $1 trillion in benefits assets in play. The shift would "represent a tidal wave of consumer changeand opportunity," health care consultants at Booz-Allen Hamilton Inc., New York, predict in a recent report.
Letting consumers invest health plan assets in mutual funds "would scare me to death," says Alan Vitberg, a Fairport, N.Y., health marketing consultant.
An employee who invested cash intended for appendectomies in mutual funds would be assuming investment market risk as well as insurance risk, Vitberg says.
But many experts are more comfortable with the idea of employees diversifying into mutual funds once health account assets exceed $10,000, or some other preset limit.
Brokers who now sell Medical Savings Accounts, a type of defined contribution health plan, say some MSA holders are already putting assets in mutual funds.
Often, an MSA "is a long-term investment program," says Harvey Randecker, president of the National Association of Alternative Benefits Consultants Inc., Glen Ellyn, Ill. "Almost as long-term as an individual Social Security account would be."
Traditionally, employers have "defined" health benefits, then paid what was necessary to meet that definition. Now, some are trying to hold down costs and give employees more control by promising a set amount of cash, then giving workers some responsibility for managing coverage.
In theory, an employer could hand employees cash and wish them luck.
In practice, many companies setting up the plans, such as Definity Health Corp., Minneapolis, and MyHealthBank Inc., Portland, combine a high-deductible catastrophic health insurance program with individual "health accounts" or "care accounts" that employees can use to cover routine expenses.
Employers feed a few thousand dollars into the individual accounts each year.
Employees with high expenses may end up with high out-of-pocket expenses, but program organizers say they will also have the freedom to pick the best doctors.
Employees with low expenses could accumulate several thousand dollars a year in unspent health account assets.
For now, enrollment in defined health programs is negligible, but Definity Health says employers will be offering its program to 100,000 U.S. workers in 2002.
Watson Wyatt Worldwide, Washington, says many defined contribution health programs that incorporate individual health accounts are set up under Internal Revenue Code Section 105, which governs employer-sponsored medical reimbursement programs.
The Internal Revenue Service has not yet given clear signals about how it will treat employees who carry over substantial amounts of Section 105 assets from year to year, or try to roll health account assets into 401(k) plans, according to Greg Scandlen, a senior fellow with the National Center for Policy Analysis, Washington.
Internal Revenue Code Section 220, which governs the MSA pilot program, does give participants an explicit right to carry over assets at the end of the year.
An MSA combines a high-deductible major medical policy with a savings account.
MSA holders can deduct account contributions from their taxable income.
