Affordable Care Act: Defined Contribution and Simplyfying the Employers Role

July 18, 2013 - PRLog -- The rising cost of healthcare combined with the use of the Health Insurance Exchanges, now officially referred to as the Health Insurance Marketplace, has made employers of all group size reconsider the idea of paying a percentage of the employee’s monthly insurance premiums.   Employers can now simply provide a bucket of money, Defined Contribution, to the employees to be used for group and individual insurance policies.

In the current health care market, currently dominated by employer sponsored health insurance, striking a balance between what employees need and want and what the employer can offer is difficult. Although not new the Defined Contribution concept, in which the employer pays a fixed amount for employees health care benefits, is being discussed as a possibility by all group sizes especially since many employees want more decision making powers. A recent survey stated that 83% of employees say they know what they need better than the employer pertaining to the employees’ health care needs.

Why Defined Contributions you ask. There are numerous reasons. The rising cost of health insurance cost for employers, employee retention and satisfaction, employee’s desire for more choices, portability of the health plan, the internet (Marketplace) to help facilitate the enrollment process and very flexible employer involvement. Defined contribution plans are different from traditional health insurance plans offered by employers or purchased separately to help cover the costs of vision care and other health and medical needs. Traditional health or medical insurance plans are defined benefits plans. In other words, the benefits of the plan are outlined, and you or your employer then pays fully or in part for this pre-determined combination of benefits.

Defined Contributions allow the employer and their Senior Leadership Team to refocus on the management of their business versus the business of managing their employees. WOW, what a concept! The employer involvement in providing health care to the employees can shifting significantly. Currently an employers health plan is an important component in attracting employees. He selects the plan for the employees, collects the money and pays the carrier while always having concerns over funding and participation requirement. With a Defined Contribution the employer will simply chose a dollar amount and offer those dollars to employees to pick and choose what benefits the employees need for themselves. The employees will be reimbursed in coordination with payroll or by direct deposit. The employer will have no minimum contribution or participation requirement with individual policies. Group health plans can be facilitated this way but funding and participation requirement will still need to be achieved. The employees benefit because they have choice of any plans being offered, portability of the plan if they leave employment and they are able to maximize every dollar of the employer contribution while being able to contribute pre-taxed dollars of their own. This would be done though a Flexible Spending Account (FSA) and the powerful suite of pre- taxed benefits a Section 125 plan allows. These benefits include the Medical FSA, Dependent Care Account, Transit and Parking, Commuter Bicycle Benefit and lastly the Premium Reimbursement Account (PRA).  Next week’s article will expand on the use of the Flexible Spending Account (FSA) and how to provide this benefit.

Al Scepkowski is a Chartered Benefits Consultant (CBC) with First National Administrators in Parsippany, New Jersey. His email is ascepkowski@fnanj.com