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Defined Contribution - a Different Model for Employer Contributed Health Insurance

by Vanessa Jones on May 26, 2014 at 5:26 PM
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 Defined Contribution - a Different Model for Employer Contributed Health Insurance

The affordable Care Act is being implemented by employers who are choosing different models to provide health insurance to their employees -defined contributions.

Employers have always provided group health plans for their employees, though now, with the new health exchanges in the online market place which is part of Obamacare, have many employers thinking of alternative models.

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Some employers are contemplating on giving the employee a chunk of money or in other words a "defined contribution" so that the employee can shop independently for health coverage. Another option under the: defined contribution will be that the employer pays out a chunk of money to set up a private health insurance exchange for the company and its employees. Under Obamacare employers with over 50 employees have to offer health insurance for their employees or face paying a fine of $2ooo per worker. Some businesses which did not offer health coverage before Obamacare find it to their advantage to switch to defined contributions.

According to the Prudential Insurance Companies of America, 59% of the companies surveyed wanted to save costs which were a reason for defined contributions. Sometimes companies insurance health plans offered much more health coverage that a person needed, so they expected that when employees were allowed to choose individual health plans on the online marketplace place, they would choose less costly and comprehensive plans.
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Employers could drop the group insurance and pay employees a lump sum for health insurance, which would give them a choice on how they spent the funds - all on medical insurance or split the amount for dental, optical and medical insurance. Workers would then have to pay income tax on the amount and employers had to cover health insurance if they had 50 workers and more. Alternately companies could contract with a consultant to arrange for a private insurance marketplace. The employer provides fixed amount with which the employee opts for plans offered in the marketplace. In this way employees would not have to pay income tax.

Employees at companies that set up a private health care exchange would typically "have a choice of five plan levels and three to five insurers, up to 25 options in all," according to Kaiser Health News.

References:

Hannah Punitha (IRDA Licence Number: 2710062)

Danielle Restuccia, May 2014

Source: Medindia
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