As the health insurance world shifts rapidly, brokers must deal with updates, changes and the exciting new possibilities of online benefits administration. One of the forthcoming alterations to the health care system is the rollout of defined contribution.
Historically, employers would select plans they wanted to offer and let employees know the cost. Under this old model, an employer would state the plans and the cost. For example, the employer would say, “we offer plans x and y. The cost for plan x is $24 per pay period and the cost for plan y is $18 per pay period. You can choose either plan x or y or choose not to buy health insurance through us.”
With the new defined contribution strategy, your employer client will decide on a monthly amount to pay toward employee benefits. Their employees will then be responsible for selecting the plan that works best for their family.
Why should you encourage your employer clients to pursue a defined contribution strategy?
1. Employees enjoy a customizable approach. Instead of the old system where employees only had a handful of options—likely not the best ones for their family—employees will now be able to select from lots of options. If you have 10 employees, it is likely they will all choose differently. Bottom line? More control, more individuality.
2. The employer has a set cost for each employee and complete control over whether it increases and by how much. Prior to health care reform, when the annual health insurance renewal came around, employers always struggled with whether to absorb the cost themselves or charge the employees more. Employers had to take their profit margin into account as well as employee satisfaction. Now, there is not an annual renewal anymore. The employer can raise how much its defined contribution amount is if it wants, but there is not an insurance renewal forcing things.
3. Employees have an increased perceived value of their benefits package. Lots of options coupled with spending the employer’s dollars, instead of their own, produces an increased perceived value of benefits from the employees’ perspective. Employees appreciate being able to have more choices, and having money from their employer to help cover health care costs.
4. The employer is no longer the middleman, absorbing the frustration between employees and the health care system. Defined contribution allows the employer to step out of the middle and take the side of the employees. In the past, when prices increased, employees would often blame their employer, rather than the health care system. Now with defined contribution, the employer can be on the same side as their employees.
5. Moving your employer clients to this strategy allows lower-income employees to receive federal subsidies for health care they would otherwise not be able to get. If an employer offers a qualified group health plan, its employees can’t get health care reform’s federal subsidies.
Defined contribution is a brilliant concept but, previously, employers struggled with administering the process. Can you administer defined contributions on paper?
Not very well. As a broker, if your employer client decides to adopt the defined contribution strategy, you will have more success using an online administration platform. How do you determine which platform is best?
Here’s a checklist of things to look for when helping your client find an online administration platform to administer defined contribution:
- Usability – will employees find it easy to use?
- Minimum number of employees – what is the minimum number of employees the online system starts at?
- Set up time – the majority of employers do not have six to eight weeks for a system to be set up. How long is the set up process?
- Fees – how much does it cost? Are there add-on fees beyond the headline numbers?
Helping your employer clients adopt a defined contribution strategy will set you apart as a broker. Having the right online administration platform backing you up can really make you soar above the competition.
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Brent Whitaker has more than a decade of insurance industry experience. He is a member of the BerniePortal sales team, which has helped more than 250 employers and 10,000 employees use BerniePortal to manage benefits online.