Healthcare reform is changing the way employers manage their employee healthcare benefits and administration. Employers are eager to find ways to offer quality health insurance to their employees that meets the requirements of the ACA, while remaining financially viable to their business. The answer, for many, is in taking a defined contribution health plan (DCHP) approach.
Below, we list the top reasons why we are seeing a trend towards defined contribution health plans.
DCHPs Address Rising Employer Healthcare Costs
One of the key reasons DCHPs are attractive to employers is because they can help them contend with the rising costs of healthcare. By offering employees a set dollar amount they can use toward paying health insurance premiums, employers can more easily predict—and control—their healthcare benefits costs from year to year. They also create more compensation transparency, which can make healthcare benefits easier for employees to understand and value.
A defined contribution approach might be a logical next step for employers who have already begun to shift a larger share of healthcare costs to their employees—by providing plans with higher annual deductibles in exchange for lower monthly premiums, for example. These employers may introduce an HSA Program to employees who can use their healthcare benefit funds to purchase the high-deductible health plan and open a health savings account.
DCHPs Promote Healthcare Consumerism
More and more, consumer choice is becoming a critical piece of today’s health insurance marketplace. Healthcare consumers expect to have options—and a defined contribution healthcare benefit structure enables employees to choose the best way to spend to meet their health needs and budgets. Employers can provide their employees with a menu of options from self-insured or fully insured health insurance plans to other benefits under a Section 125 cafeteria plan, and each employee can customize a healthcare benefits package that makes the most of their employer’s dollars.
DCHPs Simplify Healthcare Benefits Administration
DCHPs reduce the administrative workload for employers who offer them. First, the employer’s focus is in their plans’ cost (their defined contribution) rather than benefits (that’s what their employees determine when choosing their coverage options); second, technology is available to support employers and employees throughout the benefits experience. DCHP platforms provide tools to help employees assess their needs and make the best decisions.
Additionally, DCHPs fit nicely with the web-based private exchange model that’s picking up speed in the employer healthcare benefits marketplace. The exchange structure is becoming more widely understood, thanks to the launch of the public health insurance marketplace in October, and corporate exchanges have been getting more attention in the press as larger companies embrace them. Learn more about private exchanges and the companies using them in the article On Private Exchanges, Choice Drives Satisfaction.
Defined contribution health plans are not new to the marketplace, but they’re becoming more prevalent thanks to rising healthcare costs, increased healthcare consumerism, and evolving technologies. As healthcare reform continues to unfold and shape the way both employers and employees think about healthcare costs and benefits, we’re likely to see defined contribution health plans meeting the needs of more and more Americans.
Check out our Trends In Defined Contribution Infographic for more on employer implementation of DCHPs.