Defined contribution plans are becoming a popular way for organizations to seek new ways of controlling health benefit costs while also giving members more choice and flexibility in their coverage. In the midst of economic and health uncertainty, taking this approach to benefits could make more sense for the diverse health needs and lifestyles of your members.
What Is a Defined Contribution Plan?
A defined contribution health plan is an alternative to a traditional employer-sponsored health insurance benefit. It can take various forms, but at its most basic, a defined contribution plan is when an employer gives members a monthly or annual stipend rather than purchasing a policy for them. Members, in turn, use this money to purchase their choice of health insurance plan. The organization might offer a menu of prenegotiated options, or members may be free to purchase anything on their own. The ultimate goals of such plans are to engage members in their health care and give them more choices while helping the organization better fix its benefit costs as well.
How Does It Benefit Members?
For members, perhaps the biggest benefit of this kind of plan is control. They get to make the choice that's right for them based on their own needs, overall health, general preferences and lifestyle. Members can also control their own costs, either choosing a plan that the allowance covers completely or paying out of pocket to get exactly what they want. For example, if a member has a $400 per month stipend but the plan costs $420, the member would be responsible for covering the difference in price out of their own pocket.
Is It Right For Your Organization?
This kind of plan not only gives members the flexibility to choose what makes the most sense for their needs, it offers the organization more predictability and control over its health benefit costs. There is no required minimum or maximum that the organization must provide to cover member health costs. Additionally, shifting from a traditional group health insurance plan purchased for employees to a more individualized offering gives the organization greater freedom to differentiate benefits. For example, federal regulations allow an employer to provide a larger stipend to employees in one geographic location where health care is more expensive. A consumer-driven defined contribution plan also reduces the organization's administrative responsibilities and the resources dedicated to those efforts.
If these benefits seem appealing, it may be worth rethinking your current health benefits plan and exploring a defined contribution plan.
How Should Leaders Communicate Change?
Changing health insurance providers can create uncertainty among members, and so can moving to a completely different health program. Educating members about the advantages and what it means for both their health care options and wallet should begin many months before the change goes into effect. Website updates, emails and printed communications are critical, but given the fact that many members may not have been exposed to a defined contribution plan in the past, consider scheduling face-to-face and virtual Q&A sessions to help ease the transition.
Health care is a major cost for both organizations and members. Introducing a defined contribution plan can help control health care costs while at the same time giving members more options. Just be sure to keep the lines of communication open when shifting to a new benefit structure so members know what to expect and how to make this important insurance decision.
Heather Kerrigan started her career in journalism at Governing magazine, reporting on state and local politics and policy, with a specific focus on public workforce, environment, health care, education and technology issues. Prior to co-founding River Horse Communications, Heather offered freelance editorial services to a variety of outlets, including serving as volume editor and lead author for SAGE Publications' Historic Documents series and editor-in-chief of The Kanter Journal. Heather is the author of the book Retire Rich With Your 401(k) Plan. She holds a bachelor's degree in journalism from The George Washington University.