Increased adoption of defined-contribution health care plans leading to convergence of health care benefits and financial services industries
August 14, 2001, New York – According to a newly-published report from
Booz Allen & Hamilton, an emerging revolution in how companies provide healthcare
benefits could spark a convergence of healthcare benefits and traditional banking and
investment services, and create an annual flow of up to $1 trillion into individually-held
accounts, an unprecedented opportunity for U.S. financial services providers.
The key to this radical shift is the growing popularity of
defined-contribution health plans, which are consumer-directed accounts that operate in a
similar way to 401 (k) plans for retirement benefits. Employees are given a specific
amount of pre-tax employer dollars, and then shop online for healthcare coverage by
choosing among options that range in price and benefits.
No new money is created, but defined-contribution health
plans have the potential to create 50 to 100 million new individual accounts over the next
ten years, to manage as an investment portfolio for maximum value and future security. The
shift of $1 trillion a year from corporate checking accounts and institutional (insurance)
pools to individual accounts (needing some type of professional management) would
represent a tidal wave of change, destruction, and opportunity.
“The defined contribution model offers several
advantages,” said Gary Ahlquist, senior vice president at Booz Allen & Hamilton:
“Out-of-control health benefits costs, a move toward healthcare consumerism, and
improvements in e-commerce and insurance infrastructures are driving employers to consider
defined-contribution models.” In fact, several major employers, including Medtronic
and Motorola, have already started offering defined-contribution plans as a health benefit option.
Healthcare benefit dollars have historically been managed
outside the confines of the traditional consumer banking and investment system.
Defined-contribution programs and innovative funding approaches can change all that by
putting these sums into individual accounts with both short-term and longer term financial management needs.
According to the report, the convergence of healthcare
benefits and traditional banking and investments services created by defined-contribution
health plans also will lead to significant opportunities for aggregation and cross-selling.
According to David Knott, vice president at Booz Allen
& Hamilton, “Super-convergence raises a number of new business opportunities
– who will provide the advisory services that individuals will need to manage these
funds, who will take the lead in the innovation of new insurance and financial services
products, and who will distribute these new offerings to consumers?”
“The key to the success of such an organization is its
potential to simplify and improve consumer service from where financial and healthcare
institutions are today.”
About Booz Allen & Hamilton
Founded in 1914, Booz Allen & Hamilton pioneered the
business of management consulting. Today, it is one of the world’s leading international
management and technology consulting firms, with more than 10,000 employees in over 100
offices worldwide and sales in excess of $1.8 billion. Booz Allen & Hamilton
corporate headquarters are located in McLean, Virginia.
Booz Allen’s client base includes many of the world’s
largest industrial and service corporations, as well as major institutions and government
bodies around the world, including most U.S. departments and agencies. Booz Allen
provides services in strategy, systems, operations and technology to clients on six
continents. The firm delivers a powerful combination of strategy, e-business expertise,
industry knowledge, functional capabilities, implementation expertise and technical
know-how to organizations facing the challenges of the new economy. Consistent with its
position as a business thought leader, Booz Allen sponsors strategy+business, a quarterly
journal containing the best ideas in business. Visit the Booz Allen Web site at
www.boozallen.com or the strategy+business Web site at