Large employers under the ACA have a reprieve this year from providing workers with health insurance. But many large employers have been offering health plans for years and are looking for solutions to their current situation. Employers have gotten frustrated with high medical trend rates and are now doing their homework about defined contribution plans and private exchanges. With a DC strategy employers provide employees with a specific dollar amount toward health coverage. Seems easy enough, right? And it can be, but employers need to give consideration to these important aspects prior to implementing a DC strategy in their organization.
DC Strategy Employer Implications
1. Unlike today, employers would not have any “hidden benefits.” Defined Contribution plans make clear the employer’s subsidy for benefits, allowing employees and prospective employees to easily determine the value of the employer’s benefit program. This transparency may create the need for variable contribution levels based on employees statuses. It may also require national companies with locations around the U.S. to create a formula that takes into account local medical pricing to ensure an equal contribution amount is provided to employees in different locations.
2. Subsidies for dependents would also need to be considered carefully. Providing a dependent subsidy is a valued practice appreciated by employees, however it needs to be reconciled as some employees would receive a larger contribution based only on their family status.
3. The DC approach only works if the private exchange controls medical care cost trends. Based on the employer’s contribution, employees may begin to select lower cost plans and become more engaged in improving their health status. The private exchange needs to hold up their end to make sure this translates into a reduction in the overall level of health care cost trend.
4. If the private exchange is unable to control costs or fails to keep up with new health product offerings, what will be the employer’s recourse? Employers may need to move to another private exchange. Companies must continually look and be satisfied with the performance of their private exchange and be willing to do the work if a change needs to be made.
5. Employers should also consider the impact of the DC approach on their HR strategy. If management of the benefit plans is shifted to the private exchange, employers may want to devote more time to develop new ways to maintain and extend employee engagement.
The DC strategy has the ability to positively impact employers. As more private exchanges get up and running, they are likely to become the preferred approach for health care administration for many employers. Discussion and consideration of the implications as noted above can help create a smooth transition for companies as they move to a DC approach for benefit management.
For more information on how employers are using defined contribution in 2014, download our complete Healthcare Benefits Trends Benchmark Study here.