Employers should consider a defined contribution health plan

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With the new health care law in place, the Pennsylvania health insurance marketplace we know today is going to be drastically changing Jan. 1. For all employers with 50 or fewer full-time equivalent employees, the new community rating system is scheduled to take effect, which will push employers to consider a defined contribution model for their employee benefits package.

In this new community rating system, insurance carriers are required to offer health insurance policies within a given territory at the same price to all persons without medical underwriting, regardless of health status. Additionally, rating variations will be restricted to (a) benefit coverage elected (plan and tier), (b) geographic area, (c) age, limited to a ratio of 3 to1 for adults, and (d) tobacco use, limited to a ratio of 1.5 to 1.

In Pennsylvania’s current group rate structure, insurance carriers use a composite rating method when developing a company’s group rates. This gives employers consistent rates for each coverage tier and makes it easy for them to pay a percentage of those tiers.

The law states that the new rates will be provided in single age bands broken down by family member with a smoker and nonsmoker rate chart. For example:

• Children: A single age band for children ages 0 through 20.

• Adults: One-year age bands for adults ages 21 through 63.

• Older adults: A single age band for adults ages 64 and older.

For example, if you have a 30-year-old nonsmoker working at your company, his rate would be the same rate as a 30-year-old nonsmoker who works at the company across the street if the same health insurance plan is purchased.

Conversely, a 60-year-old working at your company would have a much higher rate for the same plan … especially if he smoked.

For employees with family coverage, it gets extremely complicated. Each member of the family will be rated independently to develop his or her unique family rate. The employee’s age band will need to be combined with his or her spouse’s age band and any dependents to develop the overall family rate.

Because of this rating complexity and the potential premium increases that come with this structure, employers are turning to a defined contribution model to budget their future costs and get “out of the health insurance business.”

Through this model, employers set a defined amount they will provide their employees to spend on medical, dental, vision and other ancillary benefits. With this defined amount, employees can choose from a menu of plans and design a benefits package that meets their individual needs.

Makes sense, right? Employers can accomplish all this while still providing their employees access to quality group coverage on a pretax basis.

To implement this model correctly, a few things are needed:

A good online exchange platform is necessary to track all employee elections and provide them with a quality shopping experience to design the benefits package that best fits their needs. The technology should include decision support-making tools to help employees choose between the various plan options available to them.

Additionally, here are some common questions to ask when looking for the right technology:

• Will the system link directly to my insurance carriers?

• Will payroll deductions be easily reported?

• Will the individual rates for each employee and family be calculated correctly?

The rollout of the defined contribution model will not go smoothly unless you give your employees the individual support they may need to choose their benefits plans.

Some employees will not want to use the online shopping experience or maybe don’t have access to a computer at all. On-site enrollment support will provide one-on-one help to make sure that the employees are making the best decisions.

Additionally, the enrollers will ensure all data is compiled into the technology platform for accurate enrollment and reporting.

Employees most likely will have questions throughout the benefit year. Giving them access to a team of professionals that knows their benefits plan and can help with any issues will give them that support they need while truly keeping employers “out of the health insurance business.”

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