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HR Magazine, December 2002 - Employee Communication: Potential Drawbacks

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HR Magazine, December 2002

Vol. 47, No. 1

Critics of the defined contribution approach to health care argue that such plans, by encouraging employees to curtail health care spending, in effect discourage spending on preventive care.

Most plan providers, however, are developing ways to encourage preventive care. For example, the program offered by Destiny Health of Oak Brook, Ill., gives employees reward points for getting preventive care such as childhood inoculations; the points qualify them for airline miles and discounts on vacation packages.

Another potential drawback to defined contribution coverage, critics say, is that it can encourage adverse selection: It can be selected more by younger, healthier employees who can reasonably count on rolling over sizable portions of their health reimbursement accounts each year, while it can be ruled out by older employees who think their potentially greater health care needs would be better met with traditional coverage.

But Novartis AG—a Switzerland-based pharmaceutical company with U.S. headquarters in New York—hasn’t seen that happen. It’s not just younger—and, thus, presumably healthy—employees who sign up for the defined contribution plan in the expectation that they’ll be able to use their spending accounts for such things as prescription sunglasses, says William A. Flannery, director of compensation and benefits for Novartis’ U.S. operations. “Our statistics so far show a wide variety of employees in different family situations are attracted to this plan.” 

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