Trends in Defined Contribution – Infographic


The Healthcare Trends Institute recently conducted a national survey regarding trends in employee healthcare benefits, including the shift from defined benefit to defined contribution health plans. Polling more than 300 human resources (HR) executives, benefit specialists, and other benefit decision-makers across the country, the survey explored the current state of employee healthcare benefits as well as how they are expected to develop in response to sweeping healthcare reform legislation

Defined Contribution Plans

Defined contribution plans (DCPs) began as retirement accounts for retiring employees. Throughout the years, large companies began to adopt the DCP model to allow all employees to pick and choose the benefits most important to them.

The 2013 Healthcare Benefits Trends Study details the awareness and adoption of defined contribution health plans as they relate to the emergence of consumer-driven healthcare. The following Infographic visually represents some key highlights from the study regarding trends in defined contribution for 2014 and beyond.  Download the complete report for free here

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“<div style=”clear:both”><a href=””><img src=”” title=”Trends in Defined Contribution Health Plans Infographic” alt=”Defined Contribution Trends Infographic” width=”562″ height=”1213″ border=”0″ /></a></div><div>Courtesy of: <a href=””>The Healthcare Trends Institute</a></div>”

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  1. The Defined Contribution model and Private Exchanges’ cost impact is deceptive.
    The basic rules of insurance are straight forward. If you have enough people covered in a plan you can spread the risk around. Some people get a lot more benefit than premium paid, but some will get very little benefit vs premium. But by doing this, everyone is insured and it’s hopefully affordable (certainly better than being uninsured – the leading cause of personal bankruptcy).
    Usually, group insurance is less expensive (apples to apples) than individual insurance. Just think of how much more it cost an insurance company to market and sign up every individual vs a whole group at once.
    So given these truths, and all the tax benefits, most larger employers voluntarily offer healthcare plans to their workers. But most only offered a few plans to choose from. If you offer too many plans, adverse selection occurs. That is, when someone can fine-tune their selection so well, the plan gets more expensive (healthy participants choose high deductible plans and pay lower premiums, less healthy participants choose the low deductible yet still a reasonably priced plan).
    Why does all this matter and how does it relate to Private Exchanges?
    There is a lot of buzz going around saying that this may be the new model of healthcare. But small, and big insurance brokers alike, are spinning this to make it seem like it’s a great new savings strategy (but really its only to protect their business).
    First, most larger employers self-fund their healthcare plans. That means they pay every legitimate healthcare claim and may only have insurance protection for very large claims. This saves them a significant amount of money by not paying all the fees, taxes, and profits to insurance carriers. They also have a huge incentive to help employees get healthy because it will directly hit their bottom line (both in lower healthcare claims and with a more productive and happier workforce). Smaller employers should also care about wellness for these reasons, especially if they take a HRA funded high deductible plan strategy.
    If the larger employer converts to a Private Exchange (or public) this would likely mean multiple carriers and no way to continue their self-funded group arrangement. So every plan option will cost more for employees. Plus, the ability to communicate and service 15 or more plans will prove very challenging to the employer – regardless of what service vendor they use.
    There is also the issue of too many choices for participants. It’s much like the 401(k) world. Studies show that once you have more than a couple of dozen choices, people freeze up and get overwhelmed. It’s much harder to choose the right plan from 30 choices than from 5.
    The only cost savings that employers may gain from the private exchange strategy are when they also used the “defined contribution strategy”. But note, this can be used today so it’s nothing new. And by an employer saying I’ll just give you $500/month and spend it as you like, if they don’t increase this amount each year then they are just shifting more cost to employees. Anybody can save money that way…