Extend Health raises $15M for “defined contribution” health plans

extendhealth-logo.jpgExtend Health, a Burlingame, Calif., provider of “defined contribution” health plans designed to cut costs for business, raised $15 million in a second funding round. Investors included Psilos Group Partners and Revolution Health Group.

Although it’s not all that obvious from its release or its Web site exactly what Extend Health does, the phrase “defined contribution” is a big clue. Most health-insurance plans today are “defined benefit” plans — you or your employer (or both) pay premiums, and in turn you get a set level of coverage. Defined-contribution plans, however, are like 401(k) retirement plans — your employer simply determines how much they’ll contribute to a health-coverage plan, whether or not that’s enough to cover your medical bills. (This is the main notion behind “health savings plans” and the like.)

This page from Extend Health’s Web site, for instance, is particularly telling. Each of the company’s three programs are explicitly designed to save companies money by shifting healthcare costs and risks to their current and former employees or the government. That’s certainly an understandable business model, even if it seems likely to make the country’s healthcare crisis worse rather than better. There’s also growing evidence that these sorts of plans are highly unpopular with employees, and that few people choose them unless they have no other choice.

Extend Health, which used to be called Extend Benefits, also announced a new advisory board filled with luminaries including former Medicare chief Mark McClellan and former House majority leader Dick Gephardt. The company was founded by Steve Case’s Revolution Health group.