The Affordable Care Acts ongoing rollout continues to plague employers as many look for alternative benefit structures to help with rising costs. The defined contribution benefit model touted as a way to lower costs for employers and increase choice for employees could be a feasible option for companies that expect the landmark health care law to be a negative burden come 2015.
Nearly half of employers expect they will transition or have already moved their health insurance program to a DC model, according to research from Prudential. Top reasons cited for the change include offering employees more options, as well as the possibility of lowering costs.
Health care reform has kind of been an impetus to action [to DC health plans], Bob Patience, vice president of voluntary benefits at Prudential Group Insurance, tells EBN. The other impetus is the presence of technology that facilitates and makes it easier. Patience notes that employers are now looking to bend the costs curve more than ever before.
Also, the ACA has created increased demand for private exchanges, which in turn, has pushed forward demand for the DC approach, Patience says.
And yet increased talk has not necessarily led to increased action. Among larger employers with more than 1,000 employees, Towers Watson has seen more chatter among benefit plan sponsors and decision-makers about the DC model, says Randall Abbott, senior consultant and North American leader for the consulting firms health & group benefits. He has yet to see, however, much active transitioning of plan participants to DC health plans.
Defined contribution in the more absolute sense is definitely a huge topic of conversation and its being accelerated by this interest in the private health exchanges for active employees, where employees are being offered a range of plan options, says Abbott. Is there a lot of conversation of it? Absolutely. Have we seen a rapid rate of adoption in the most absolute sense? No.
According to Abbott, the DC model does little to address the requirements of the excise tax. Mandated for rollout in 2018, the excise tax, or Cadillac tax, is expected to tax employers 40% on the value of coverage exceeding $10,200 for individuals and $27,500 for families.
The excise tax calculation is based on the employer [share] and employee share of premium costs, so simply adopting a defined contribution approach to avoid the excise tax is not going to solve the issue, Abbott explains to EBN. The area we see the most interest in terms of managing for the excise tax, in terms of increasing the employees share of costs, is at the point of care. Thats why you are seeing so many employers looking at the high deductible plans, and increasing their deductibles and out-of-pocket limits because that pay trajectory helps them from an excise tax point of view.
Employees, however, say they will allocate 75% of their benefit dollars to health, dental and vision coverage, says the Prudential research, with the remainder likely to be directed to voluntary life, disability, accident and critical illness insurance. Voluntary options will likely receive additional attention as the ACA unwinds. Patience says that health care reform has pushed voluntary options front and center.
This gives [voluntary benefits] a greater spotlight, Patience explains. Most of the private exchanges and benefit administration platforms are actually taking voluntary products and putting them in what we call the core of benefits. So just by the fact are in the core of what the employer is offering, they get more attention.
For more on employee satisfaction with voluntary benefits: Are employees more satisfied than ever with their benefits?
The Prudential report, Eighth Annual Study of Employee Benefits Today & Beyond, was compiled from surveys of three separate groups: 1,000 employee benefits decision-makers, 318 benefits brokers and 1,000 plan participants.
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