Defined Contribution Comes to the Group Health Market
The Institute for Healthcare Consumerism (IHC) reports that the concept of defined contribution plans (similar to 401(k) plans) will soon be a major factor in the group health market because they are the next logical step after HDHPs (High Deductible Health Plans) being offered in conjunction with FSAs (Flexible Spending Accounts), HSAs (Health Savings Accounts) and HRAs (Health Reimbursement Arrangements).
The IHC believes that private exchanges will be used by most employer-sponsored defined contribution plans. Public exchanges will serve mostly the unemployed, those who qualify for government subsidies to purchase insurance and others who are currently uninsured and will purchase their mandatory insurance on the retail market.
Private exchanges can support large groups, small groups and individual plans. Multi-carrier exchanges offer comparable plans from several insurers, while single-carrier exchanges (also called "walled off exchanges") offer multiple plan types from just one insurance carrier. Exchanges will enable carriers to attract and retain subscribers, thus reducing administrative overhead and helping them to have favorable medical loss ratios, as required by the Patient Protection and Affordable Care Act.
To provide comprehensive service to their members, exchanges need the following elements:
- Plan selection/recommendation engines - to collect data and analyze the costs and benefits of multiple plan options, possibly from multiple carriers.
- On-line enrollment - eligibility, risk adjustment and payroll deductions
- Eligibility maintenance - recording and monitoring of life events that affect insurance coverage and interface with the insurance carrier(s).
- Billing and payment - including premium billing, aggregation, reconciliation, administration of contribution accounts and the capacity to administer settlements among subscribers, employers and carriers.
- Underlying operational support - in the form of call centers and recordkeeping systems
When employers implement defined contribution plans, they will determine how much they will pay for their employees' coverage and will offer their employees a variety of options, often through the use of private health insurance exchanges. Defined contribution plans will allow employers to have predictable group health expenses and leverage the increased number of options for employee satisfaction and retention, as employees choose the options that best meet their individual needs.
When more options are offered to consumers, the costs and benefits of the offerings are transparent and the consumers know they're accountable for their choices, 63% of the people in Alegeus Technologies' client base opted for HDHPs. 51% chose a different plan type from what they'd chosen under traditional employer-based health care.
"While defined contribution is an option, it is not a requirement. Services include a call center, full benefits outsourcing and online decision support. The platform allows the employers to offer more benefits options and helps them comply with upcoming ACA reporting requirements. Members have reported that the platform has helped them manage costs, offer their employees more choices and simplify benefits administration." - Jean Shaw