DROP THE GROUP

Defined Contribution: Drop Group Employer Coverage and Switch to Individual Health Insurance

Serviced by:

Step #2: Educate Employees
Employees are happiest when they understand the “what”, “how”, and “why” of your health benefits program.

As such, educate employees on:

The benefits of defined contribution healthcare and how it works
The benefits of individual health insurance (e.g. compared to group health insurance)
How to request premium reimbursement
How to get questions answered, if they have them

Step #3: Provide Resources to Help Employees Select a Health Plan
With defined contribution healthcare, employees purchase their own individual health insurance. Applying for individual health insurance has never been easier. However, for some employees this is a new experience.
Work with a licensed health insurance broker or consultant to help employees select and purchase plans, and/or provide information about the Health Insurance Marketplace in your state

Providing these resources will help employees choose plans that best fit their individual or family needs, such as keeping the same network of providers and balancing their premium with out-of-pocket costs. And, it highlights that the company cares about employees’ healthcare.

Step #4: Plan for Reimbursements
Decide how your company will issue reimbursements to employees. Common ways include payroll, direct deposit, or check. Then, set up a line item in your payroll system. If using a Section 105 Healthcare Reimbursement Plan as the foundation of your defined contribution plan, the line item will be classified as a tax-free business expense reimbursement.

Your defined contribution software provider should integrate with any payroll system. Using a software platform reduces health benefits administration to 5 minutes per month-- you simply add approved reimbursements to paychecks.

How to Educate Employees about Defined Contribution

This section provides practical examples and tools for educating employees about defined contribution.

What Employees Need to Know about Defined Contribution

How defined contribution healthcare works
Why the company has decided to offer health benefits in this way (remember, it is better for them too!)
The benefits of individual health insurance and defined contribution such as plan choice, flexibility, and cost-savings
How to purchase individual health insurance for themselves and their family
How to request reimbursement and use their defined contribution employee portal

How to Educate Employees about Defined Contribution
There are various ways to educate employees, including:

All-staff presentations or trainings
One-on-one meetings with HR and/or the company’s health insurance broker
Brochures or handouts
Emails
Webinars or podcasts
Benefit packets (aka the “Welcome Kit” or “Enrollment Packet”)
Incentives tied to learning activities

Step #5: Communicate with Employees Early-On , and Frequently
How and what you communicate to employees varies by company (we’ve outlined suggestions in the next section). As a general rule, make communication between HR and employees a two-way street, and check in frequently.

Many companies make assumptions about what employees prefer or understand when it comes to health benefits. By keeping communication open, you can address questions early-on in the transition, and measure employees’ overall satisfaction in the long-term.

Is Defined Contribution Healthcare Right for My Company?

In this section, you’ll find:

An overview of defined contribution healthcare
Defined contribution readiness worksheet

Overview of Defined Contribution Healthcare

Defined contribution healthcare is a new, cost-effective approach to health benefits. Rather than purchasing a traditional group health insurance plan, you fix your costs by giving employees monthly healthcare allowances they can use on individual health insurance. On average, individual health insurance costs less than group health insurance and eligible employees can access federal premium tax credits. Using defined contribution software, you reimburse employees on payroll for approved health insurance premiums. Your company’s expense is controlled, and employees shop for policies that best meet their health and financial preferences. With a defined contribution healthcare, both employees and your company save money.

How to Plan for Defined Contribution

The following eight questions will help you identify your health benefit goals and create the roadmap for your defined contribution plan.

Tip: Work through these questions with the health benefits decision-makers at your company. These questions will help you prepare for an introductory (“discovery”) call with your defined contribution provider.

Anticipated Start Date
What date (or month) will you start offering health benefits?
Projected Health Benefits Budget (Monthly or Annually)
What is your company’s budget for health benefits? If you’ve offered health benefits in the past, what were your past annual budgets?
Which Employees You Will Offer the Benefit To?
You can offer the benefit to all employees, or by class of employee. Classes need to be based on bona-fide job criteria such as job description, hours worked weekly, location, etc. You can offer different monthly amounts by class of employee.
Number of Employees Eligible
Based on the employee classes determined above, how many employees would be eligible for the benefit?
Individual Health Insurance Quote Information (Optional)
As you are allocating monthly allowances, some companies find it helpful to research individual health insurance quotes. You can do this through a health insurance broker or your state’s Health Insurance Marketplace. Other companies base allowances solely on the budget they have available for health benefits.
Federal Tax Filing Status for the Company, and Owner Participation
How the company files federal taxes may impact owner eligibility for participation. How does the company file taxes federally, and would you like the owner to participate?
Who Will Be the Company’s Plan Administrator?
This is the person who will administer the program (enroll new employees, record reimbursements, etc.). Depending on the company this could be the HR Manager, Office Manager, Payroll Coordinator, or Owner.
Current Payroll Method and Provider
How do you process your payroll? Do you use an external vendor or software system?

REQUEST A FREE CONSULTATION

Introduction

Defined contribution paired with individual health insurance is the future of health benefits.

Defined contribution is a simple and effective approach that helps you recruit and retain top talent –without the cost and complication of traditional employer health insurance.

As you transition to defined contribution, you’re setting the foundation for health benefits your company and employees love.

This guide provides practical tips and worksheets to successfully transition to a health plan that creates happier employees, reduces costs, and frees up time for meaningful work. If you’re reading this guide, your company has likely gone through the process of researching health insurance options and selected a “pure” defined contribution approach.

Or, perhaps you’re considering defined contribution as an alternative to group health insurance.

This guide is written for owners, CEOs, CFOs, HR managers, and accountants at small and mid-sized companies – as well as for anyone at your company involved in the health benefits decision making process.

Planning to Transition to Defined Contribution

Successfully Implement Health Benefits Employess Love

Defined Contribution Readiness Worksheet
This worksheet will help you assess readiness for defined contribution. If you answer yes to all (or several) of these questions, defined contribution could be a good fit.

General Questions

Does your company have 1 or more employee(s)?
Defined contribution healthcare works for companies of any size.
Do you want to offer health benefits and contribute toward employees’ healthcare?
If you want to contribute any amount to employees’ health care, you can afford defined contribution healthcare.
Are you looking to grow your company and increase or maintain staff size?
Defined contribution can help you recruit and retain quality employees.

If You Do Not Currently Offer Health Benefits…

Do you worry about losing employees because you don’t offer health benefits?
Defined contribution is a formal benefits package that helps retain talent.
Do you fear losing new hires because you don’t offer health benefits?
Defined contribution is a formal benefits package that helps recruit new hires.
Have you shopped for group health insurance before but found it is too expensive, or that you don’t qualify?
Defined contribution allows you to set and control the cost, and there are no minimum participation requirements.
Do you have an automated payroll system (payroll software, or through a payroll vendor)?
Defined contribution integrates with your existing payroll system.

If You Currently Offer Health Benefits…

Is your group health insurance becoming too expensive, or did your annual renewal increase 20+%, again?
Defined contribution allows you to set and control the cost, and there are no renewal fees/increases.
Have you had to decrease health benefits year after year, instead of increase them?
Individual health plans cost less than group health plans, so you’re health benefits dollars go further with defined contribution.
Can you no longer meet minimum participation requirements?
There are no minimum participation requirements with defined contribution.
Do you have employees in multiple states?
Defined contribution works well with employees in one state, or with employees located in multiple states.

How to Implement Defined Contribution in 5 Steps
Once you have set up your defined contribution plan, there are five easy steps to successfully implement your employee health benefit.

These steps don't necessarily need to be completed in this order.

Step 1: Enroll Employees
Step 2: Educate Employees
Step 3: Provide Resources to Help Employees Select a Health Plan
Step 4: Plan for Reimbursements
Step 5: Communicate with Employees Early-On, and Frequently

Step #1: Enroll Employees
One of the first steps is to enroll employees online. With defined contribution software, this is a simple task of entering basic personal information and enrolling them in their employee class.