Defined Contribution Health Plan

An Affordable Solution for your Employee Health Benefits

Are your group medical premiums too high? Do you have to raise deductibles and increase employee payroll deductions at the same time? Do you dread the renewal meeting? Would you rather let employees choose their own medical plan? Have you thought of terminating your employee group medical plan? It's not as drastic an option as you might think. EmSpring encourages employers to think about offering health benefits in a different way:

• replace traditional group medical benefits with Health Reimbursement Arrangements (HRA)
• set a fixed monthly allowance for medical expenses
• set up convenient reimbursements for individual and family health insurance premiums

Many people think of health benefits only in terms of co-pays, deductibles, and annual maximums. In reality, employer sponsored health benefits are a form of compensation. Through EmSpring's defined contribution service, you can align these critical benefits with compensation better than you can with traditional group medical plans.

Health Benefits as Compensation

All employer provided health benefits are a form of compensation. If a company pays 75% of employee health insurance premiums, and some employees elect coverage while others do not, the reality is that the company is compensating some employees more than others. Likewise, if an organization contributes to the cost of a family premium, then they are providing greater compensation to employees with families than to those without families. These unintentional inequities are based on the personal circumstances of an employee rather than on the employee's role, value or tenure at the company.

EmSpring and Defined Contribution Health Benefits

Health benefit plans can be designed to reward employee behavior, or reward an employee for their role and tenure at a company. We have helped many organizations offer employees a defined contribution benefit in the form of a monthly health benefits allowance. The company determines employee classes and decides how much money to contribute to each class. In many ways, this is a more equitable means of extending benefits to employees. Even if employees don't use their allowance for personal health insurance policies, they can still use their benefit dollars for other medical expenses.

Using Health Benefits to Reward Workers

With this employee benefits model, a company can offer different contribution amounts to different employee classes. Employee classes are often chosen based on:

• Part-time / full-time status
• Tenure
• Hours worked
• Occupation/Role

Tenure has always been a popular employee classification, but seldom applied to health benefits due to problems with discrimination and carrier compliance. With the right HRA, businesses can decide that an employee who has worked with the company for more than a decade can receive a larger monthly health benefits allowance than an employee who has been with the company for less than a year. Regardless of the selected employee classification, EmSpring can help any organization design its health benefits plan to offer many more choices to employees and their dependents without busting the budget!

Defined Contribution Helps Employees Understand Compensation

Most employees do not understand or appreciate how much money their company spends on their health benefits. It is not easy to compare the value of an insurance program with a $500 deductible and 80% coinsurance, when the same plan might cost $400 per employee per month (PEPM) for one company and $500 PEPM for another. With the Defined Contribution model, the employer can provide a fixed dollar amount and allow the employee to decide how to spend it. A bonus: No more group renewals for the employer! Employees understand money. We've found that many employees appreciate a monthly health benefits allowance more than they do a health plan to which their company contributes an equivalent amount. In essence, employees value a monthly benefits allowance of $400 more than they value eligibility in a health insurance plan with a $500 deductible and 80% coinsurance, even if the costs to the company are the same.

Designing Defined Contribution Health Benefits Requires Guidance

A traditional group medical plan can misalign incentives and is difficult for some employees to value. Defined contribution health benefits plans offer an easily understood and more equitable means of benefit compensation. Of course, defined contribution health benefits are not for every organization, and not all employees benefit from them equally. Be aware, too, that ERISA and non-discrimination rules still apply, so guidance and administrative services from EmSpring (or another benefits advisory firm with experience in defined contribution arrangements) is necessary.

If you would like to evaluate defined contribution health benefits for your organization, please give us a call! Our benefits advisors are ready to help you evaluate and design your employee health benefit plan.