Employers seeking cost cutting measures for retirement and benefit plans is not particularly new; the shuttering of defined benefit plans and continued creation of defined contribution plans has been one of the more noticeable cost-cutting measures in the tool box of HR professionals. Now it appears companies are moving towards a DC-style model for their employee health care plans.
According to Group Benefits and the Defined Contribution Model a recent report by Prudential Group Insurance 47% of employers have already moved to or are currently implementing this type of program. Sixty-two percent are likely to move to an exchange and those that are considering participating in an exchange believe they will adopt this model in the next two years.
[Employers] are moving to the defined contribution approach for two reasons, says Bob Patience, vice-president voluntary benefits with Prudential. One is cost. They think it will help them cap or reduce costs and the biggest piece of that puzzle has been health care. The second reason is to provide more employee choice. Patience says that products offered through the employer can be valuable to the employees financial wellness. He adds that the model allows employers to provide choice that employees might not otherwise get.
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Besides the trends of higher cost and availability of choice, employers have recently been given a more immediate issue to contend with when thinking about costs The Affordable Care Act.
Patience says employers might already be thinking of the so-called "Cadillac Tax" within the ACA (which will be implemented in 2018), a 40% excise tax placed on the most generous health care plans. Its purpose is to bring down overall health costs by making employers and employees more cost-conscious. The focus on health care and health care costs probably is another impact of The Affordable Care Act, says Patience.
Technology and the ability to enroll and provide useful experiences for users of health care plans now exists and has also been on the rise. This too has influenced the rise of DC-style health care plans as it has made the experience easier and more accessible (much like DC retirement plans).
Beyond costs and technology, the face of the workplace has changed. Multi-generational and diverse employees work side-by-side with diverse health care needs and wants.
Increasingly the workplace is not just age and generationally diverse but it is ethnically and socio-economically diverse in a variety of other ways, notes Patience. I think the offering of voluntary benefits is, to some degree, an acknowledgment that we need to serve a variety of needs. Offering a greater array of choice and allowing people to select what meets their unique needs is of significant value and I think thats kind of the thinking behind voluntary benefits and to some degree a defined contribution approach.
As employees and employers take stalk of health care plans, financial wellness plays an important role in the overall picture. Mitigating risk, ensuring gaps in coverage are filled and providing options that are affordable are part of the overall thinking behind these new plans.
What [financial wellness] requires, and I think with all the changes going on in the employee benefits landscape, is education and communication, explains Patience. Not unlike conventional DC retirement plans, Patience says helping people on an individual level (not just the plan level) will be the key to a successful transition into the DC-style plans.
Joel Kranc is Director of KRANC COMMUNICATIONS in Toronto, focusing on business communications, content delivery and marketing strategies.
