Step 2: Set Up a Defined Contribution Health Plan

Defined contribution empowers your business to set, control, and predict all health benefits costs. This is revolutionary for many businesses.

To set up a defined contribution health plan:

Define your budget by setting any contribution amount to employees’ health insurance expenses.
Give employees monthly health insurance allowances. Work with a defined contribution software provider to set up a formal plan; typically a Section 105 Healthcare Reimbursement Plan.
Employees purchase individual health insurance policies and submit a request for reimbursement. The business reimburses employees on payroll.

The business only reimburses employees for eligible premiums up to the amount of their defined contribution allowance. Without annual renewal increases or minimum contribution amounts, the business is free to set and control all benefit costs.

Step 3: Educate Employees

The last step is to educate employees about how defined contribution works, and how it benefits them
and their families.

Educate Employees About…

How defined contribution works.
Why the company has decided to offer health benefits in this way (remember, it is great 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.

Access to the Best Health Care

Because employees choose which individual health insurance policy to purchase with their allowance, they can pick the health coverage that best meets their needs.

All employees are different, and employees say they no longer want a one-size fits all health insurance plan. Rather, they want health plan options to customize their benefits.

With their health insurance allowances, employees select:

Any type of plan, from any insurance carrier.
The network of providers and doctors they want to see.
The coverage level they want (the deductibles, co-pays, co-insurance, etc.).

Introduction
For businesses to thrive in today’s economy, finding and retaining the best employees is a top priority. This means offering competitive wages and competitive benefits.

In the past, group health insurance was the primary way to offer competitive health benefits. However, continual increases in healthcare costs have made offering traditional health benefits untenable.

Smaller businesses have been particularly challenged, and are canceling group plans because they have become too expensive. Other businesses are canceling group plans simply because employees can purchase less expensive coverage on the individual health insurance market.

Reinventing Employee Health Benefits

How to Offer a Defined Contribution Health Benefit Employees Love

Step 1: Cancel Group Health Insurance

The first step is to cancel group health insurance, if you offer it. Call a customer representative with the insurance company to confirm the exact steps required to cancel your policy. Your health insurance agent or broker will be able to assist you, however your business needs to call your insurance company directly.

But this doesn’t mean businesses are canceling health benefits altogether. Instead, businesses are looking for new ways to offer benefits at an affordable cost.

The solution is to adopt “pure” defined contribution health benefits.

What is “Pure” Defined Contribution?

Instead of offering group health insurance (a “defined benefit”), businesses offer a monthly healthcare allowance (a “defined contribution”) employees use on individual health insurance.

Tip: Because some employees may not be comfortable selecting an individual health insurance policy on their own, designate an insurance professional to help each employee select the right plan. This also shows employees you care about them and want to improve their health benefits.

Coverage for All Employees

All employees (regardless of health conditions) are now able to purchase an individual health insurance policy that is equal or better for them than existing group health insurance options.

Access to Health Insurance Tax Credits

Employees can use their health insurance allowance to purchase policies from the new health insurance marketplaces. This gives employees access to federal health insurance tax credits to lower the cost of their premium. Eligibility for the tax credits is based on income and household size. Households with income up to 400% above the federal poverty line (FPL) are eligible (up to $46,680 for an individual in 2014, or $95,400 for a family of four in 2014).

Predictable Costs for Employees

Employees have a clear budget to spend on health insurance. Individual plans are, on average, 20% less expensive than the same group coverage and rates cannot change each year because of a medical condition.

Easy to Understand & Use
Lastly, employees value health benefits that are easy to understand, and easy to use. Similar to the transition
from pensions to 401(k) retirement plans, the defined contribution approach requires employees to take more control of their health benefits. Defined contribution administration software provides employees easy 24/7 access through an online portal where they can see benefit information and submit requests for premium reimbursement (“claims”). See an example from of the employee portal <image>.

REQUEST A FREE CONSULTATION

Serviced by:

Ready to get started? Here is a timeline of simple steps to transition to a defined contribution
health plan.

60 days prior to your group health insurance plan renewal date, ask your broker to deliver the renewal rates as early as possible. Ask for a comparison to equivalent individual insurance policies.
45 days prior to your group health insurance plan renewal date, request a group versus individual insurance cost analysis from your broker and your defined contribution provider. Review cost savings and any changes in benefits.
30 days prior to your group health insurance plan renewal date:
- Send a termination letter to your insurance carrier.
- Schedule an employee transition meeting with your broker.
- Set up a Healthcare Reimbursement Plan with a defined contribution provider.
- Notify employees of their monthly healthcare allowance amount.
- Schedule 1-on-1 sessions for employees to meet with your broker to start shopping for individual plans.
Start seeing the savings and business results!

Conclusion
By offering a defined contribution health plan, your business is able to offer quality health benefits at a controllable cost, with less administrative time.

The Result? Employees love their health benefits again!

DROP THE GROUP

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