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(“DC”) has been utilized for years in
cafeteria and 401(k)/retirement offerings.
Defined Contribution or DC is a dynamic
change to the manner in which employee
benefits, specifically health insurance, will
be offered as a result of the Affordable
Care Act.
Defined Contribution can be best
explained as follows: The employer provides
a fixed dollar amount to their employees to
spend on their health insurance and related
employee benefits as they see fit, without
the employer making the decision for them.
This method provides the employee with
the flexibility they need to pick plans that
match their budget and lifestyle. In return,
the employer has flexibility in how they
design the plan offering with full control of
the cost. Defined contribution instills con-
sumerism amongst employees and provides
access to benefits that employees value.
In a traditional employer-provided
benefit setting, the group medical offering
is built around what best fits the employer
based on a process of selecting a plan or two
and offering it on an employer-employee cost
share (for example: 80 percent employer/20
percent employee), and the employee can
choose to elect or waive those plans offered.
The rising cost of health care has caused
employers of all sizes to re-evaluate how
much they pay for insuring their employees.
Defined Contribution plans provide
employers with a solution to the cost con-
cerns of traditional group health insurance
because it allows the employer to define and
control the costs associated with offering
health insurance and related employee
benefits. By transitioning the traditional
employer-employee cost share to a quantifi-
able [defined] contribution for an employee
to utilize towards the purchase of health
insurance and other related employee
benefits, the employer continues to offer
a competitive benefit while affording the
employee to have more consumer choice.
With a Defined Contribution approach,
the menu can be simple… or it can be a vast,
with many plan options. If an employer
currently offers plans with Health Saving
Accounts (HSAs), Health Reimbursement
Arrangements (HRAs) or Flexible Spending
Accounts (FSAs) these plans can continue
to be offered.
If an employer is currently contributing
80 percent to employee premiums regard-
less of class of coverage, they can assess if
that contribution is still acceptable and
then budget it for the current plan year
ahead. Then as each renewal approaches
and premiums increase, the employer
will continue to assess the relevance of
the defined contribution and the benefit
offerings for employees to choose from.
Employers can elect to maintain or adjust
their defined contribution based on the
dollar amount that they established in the
first year. This way they always have the
option of
increasing
the contribution to the
employee premium instead of
decreasing
the employer percentage and
increasing
the
employee percentage.
Recent data from employees using a
defined contribution through a private ben-
efits marketplace shows how more choice
and personalization through a marketplace
results in many employees selecting benefit
packages that are better aligned with their
healthcare needs, risk tolerance, and finan-
cial flexibility. The number of employers
considering offering a private benefits
marketplace for employees has tripled in
the past year to 56 percent.
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By Joseph A. Bucci Jr., gbac Inc.
EDITOR’S NOTE: The following article
is adapted from the Connecticut Energy
Marketers Association CEMA Pipeline
newsletter with the permission of the
Association and gbac.
