Mr. Brennan, who said that he believes the health care world has a lot to learn by studying the evolution of the 401(k) business, said that Vanguard offers its 12,000 employees a consumer-driven health plan option, and has for several years. However, no more than 10% of the company's employees have chosen it. “I'd say there's a bit of a reluctance, but it is a start, and I'd like to see more,” he said.
Consumer Reports' Mr. Guest said his organization supports the general idea of “consumer-informed health care,” but said it is far too early to tell whether strategies like those advocated by the Bush administration will really deliver on their stated promises.
What's the Lesson From 401(k) Plans?
Health care right now is in a situation somewhat analogous to that facing the employee benefits, pension, and investment world nearly 3 decades ago, when the 401(k) concept was first developed, the Vanguard Group's Mr. Brennan said.
“Twenty-five years ago, the 401(k) industry was very fragmented. It was high cost and poorly understood by the public. Now, it has gotten to the point where 90% or more of all U.S. companies offer them. It is a $2.1 trillion market, and it's basically a story of empowering people to make decisions and choices that are good for them. It is based on one single bedrock idea: that given good information and good tools, the consumer will make smart decisions.”
Effective consumer education based on simple language and clear elucidation of benefits was the fundamental key to winning buy-in from ordinary people. “You can't have overeducated MBAs writing explanations for working people. It all needs to be very simple and straightforward.”
The benefits promised by early advocates of 401(k) investment (greater personal control over investment choices, tailored investment planning, facilitated transactions, and strong returns) were delivered via a vast powerhouse of new interactive technology.
Choice, said Mr. Brennan, is the watchword of the 401(k) industry. Previously, people had few retirement investment options. They got the plans their employers gave them, end of story. They didn't see where their money was going, and for the most part, they didn't care.
The 401(k) put a new range of investment options within reach of ordinary working people, and more important, the industry taught people how to think about investment choices in a way that really spoke to their concerns and needs.