Small Business Defined-Contribution Health Plans
As a small-business owner, you face many challenges in light of the Affordable Care Act (ACA). Group health insurance premiums and deductibles are continuing to rise, which only makes obtaining coverage for your employees more difficult to manage. To control costs over the long term, many small business owners are turning to defined-contribution health plans to manage the rising cost of health insurance.
What Are Defined-Contribution Plans?
Defined contribution health plans are an affordable alternative to employer-sponsored group health insurance plans. 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. Typically, employees are allowed to use their defined contribution to reimburse themselves for individual health insurance costs. 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.
How Do Defined-Contribution Health Plans Benefit Employers?
Defined Contribution Health Plans can free employers from a heavy load of administrative time. Employers would no longer have to choose their employees’ insurance plans. Nor would the employer have to manage the plan or at least play a large role in its management. Less red-tape means more time to build the business. With a defined contribution health plan, employees are responsible for selecting an individual health insurance plan and making payments out of their own finances. This method of controlling health insurance costs gives your employees more freedom to choose a plan that works for them.
Done correctly, Defined Contribution can improve employer-employee relations by offering employees more choices and better choices than they currently have. Employees would no longer be limited to their employer’s one-size-fits-all insurance choice. The portability of Defined Contribution plans removes a source of tension between employers and employees.
The ACA forces you to make tough decisions regarding the health insurance you provide for your employees. Given the uncertainty and confusion which still surrounds the ACA, small businesses need a custom solution provided by an insurance specialist that can provide straightforward answers. Otherwise, you may not be taking full advantage of the cost-sharing benefits of defined-contribution health plans.