Rather than paying the costs to provide a specific group health plan benefit (a “defined benefit”), employers can fix their costs on a monthly basis by establishing a defined contribution health plan.
The general concept of a defined contribution health plan is that a company gives each employee a fixed dollar amount (a “defined contribution”) that the employees choose how to spend. The employer can offer several health plan options with premiums based on cost sharing, network, plan design, etc. The employee then chooses a plan that best meets their individual needs. With a defined contribution health plan, the employees could also be allowed to select an individual health insurance plan and making payments out of their own finances.
Things to consider when the employer is selecting plan options:
- Choose from a variety of medical plans, including HMO, PPO, high-deductible, and tiered options.
- Select a dental coverage option, with or without orthodontic services.
- Opt for protection such as life insurance, short- or long-term disability, critical illness, and accident coverage.
- Choose whether or not you’d like to offer a Health Savings Account, Health Reimbursement Arrangement, or Flexible Spending Account with compatible medical plans.
Decide how you’d like to handle leftover funds:
- If you elect the Defined Contribution funding strategy, you decide if leftover funds are forfeited or added to employee pay. If the cost of benefits selected by an employee exceeds your contribution, employees make up the difference through a payroll deduction.
Defined Contribution moves away from the traditional structure of company-paid employee benefits. It offers a healthy way to control health care costs, while still giving your employees the peace of mind of knowing they have access to high-quality affordable care—every day.