Conning: Future Still Bright For Defined Contribution Health Plans

But Conning predicts the typical program will cut the red tape insurers face when they sell traditional group coverage by requiring employees to buy health benefits through the individual market.

A number of 401(k) plans have performed poorly over the past three years, but Conning says developers of defined contribution health care benefits programs are still trying to emulate the progression in the pension world to 401(k) plans, from traditional defined benefit pension plans.

Rather than promising a fixed, defined income at retirement age, the sponsor of a 401(k) plan simply makes regular contributions to an employee-directed fund, and leaves the investment options and performance up to the employee.

Similarly, sponsors of defined contribution health plans contribute a fixed amount of money, but avoid dictating how that money must be spent, Conning says.