Health care reform will usher in a new era of how employers provide employee benefits. As they continue to look for ways to control costs and optimize employee benefit spend, they will increasingly look to their advisers for strategies to take advantage of the changing landscape. "Pay or play," government subsidies, essential health benefits, public and private exchanges, Accountable Care Organizations, new funding strategies, and technologies that ensure efficiency and accuracy in benefit administration will replace the old approach of shopping an insurance plan once a year. This new approach starts with an understanding that the Patient Protection and Affordable Care Act will do very little for most successful, professional businesses that provide attractive benefits to their employees and want to continue to do so.
Staying the course
A recent study by Aon Hewitt interviewing hundreds of employers from a broad spectrum of industries determined that 94% of businesses were committed to continuing to offer and financially supporting health benefits. With that in mind, PPACA's federal tax subsidy is only available to employees with incomes below 400% of the federal poverty level who are not provided a minimum standard of coverage for a reasonable payroll deduction. Most employers pay for and provide benefits that meet the new standards, thus eliminating any free lunch under reform. So how is a business to move forward with offering the right benefits and controlling their health care costs?
In the past 15 years most employers moved their pension plans from defined benefit to defined contribution. This change allowed employers to create a budget-traceable line item for their pension expense. Today, many employers are taking the same approach to their health care spending by employing a defined-contribution health plan financing strategy. The employer simply decides on a fixed dollar amount to provide employees in a tax-friendly way, and then allows the employees to buy from a comprehensive menu of benefits. This allows an employer to set a budget for benefits expense at a level that is agreeable with their business goals.
Health care reform has accelerated the development of a new benefits technology and distribution model called a private exchange. It is nothing more than an online store that allows employers of all sizes to offer Fortune 500-type benefits to their staff. Ten or more health plan options, several dental plans, multiple disability plans, life insurance and a variety of ancillary and voluntary plans round out the offerings.
The cornerstone of the private exchange is a decision support tool that helps guide the employee to the plans that are best suited to their current financial situation, risk tolerance and health status.
Benefit education and communication is done better than ever with the addition of videos on demand, as well as live chat and telephone support. This new technology provides employees and their families the best opportunity to fully understand their benefit options. They begin to become better consumers of insurance and health care services. They also begin to understand the real value of these benefits and the correlation between health and wellness and the cost of these plans. They can participate in wellness programs, health care advocacy and coordinated care programs.
J.D. Power queried more than 6,500 employers of all sizes in May and "almost half of the respondents, 47%, say they definitely will or probably will switch to a defined contribution model within a private exchange, allowing employees to select the coverage that best fits their needs," according to the survey.
Time for accountability
The employer-provided benefits marketplace is changing, I believe in a positive way. What has been sorely missing in our benefits delivery system is the involvement and engagement of the individual, as well as market forces to control cost. The defined-contribution approach using a private exchange will usher in a new era. A much more consumer-centric method to providing benefits will be the future, where individual employees are much more engaged with their benefit plan decisions and have more skin in the game with a set benefit allowance to buy the benefits that best fit their needs.
People spend their own money differently than when they spend someone else's money. This basic change will have a dramatic impact on the real cost of benefits over the next several years.
Haffey, CLU, is a private exchange broker and SVP with Brown and Brown. Reach him at email@example.com.
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