Lessons from the Evolution of 401(K) Retirement Plans for Increased Consumerism in Health Care: An Application of Behavioral Research

Abstract:     
This paper considers the lessons learned in the evolution of 401(k) plan design, where the objectives are a high level of participation, a high level of worker contribution, a diversified approach to investing, sufficient asset accumulation to enable retirement, and not outliving one's assets. The analysis looks specifically at lessons learned with respect to offering workers choice, financial incentives, and more information and education. This is compared with the early evolution in consumer-driven health plans (CDHPs), where the evolution is still being driven solely by the market and not by legislation or recent empirical behavioral research (the RAND empirical health behavioral research experiments of the late 1960s are still used as the touchstone today). Finally, lessons are offered about how benefit-plan design can help to optimize workers' decisions. A thoughtful analysis of this topic provides sponsors of employment-based 401(k) plans and CDHPs an opportunity to consider how these lessons may be applied to the design of these plans now.

No judgments are made about the appropriateness of CDHPs or 401(k) plans. Nor does the discussion address many of the important issues in health care, including who should make the decisions related to rationing health care - the Goliath issue that few are willing to address. This paper attempts to offer innovative thoughts, based on what is known about human behavior, for incremental improvement in benefit programs designed to balance the needs of employers and their workers, with an eye toward cost control and worker well-being.

Number of Pages in PDF File: 28

Keywords: 401(k) plans, Behavioral research, Consumer-driven health care, Employment-based benefits, Health benefits education, Pension plan design

JEL Classification: D91, I1, J32

Accepted Paper Series