Combat rising health plan expenses with a defined contribution plan
You’ve heard it before; the cost of group health plans are on the rise. You’ve probably experienced the effects of these cost increases within your own company. Here’s how a defined contribution health plan could help you regain control over your healthcare spend.
For decades, most employers have been approaching rising costs in one of two ways:
- To change the plan design by introducing higher deductibles, copays, or out of pocket maximums.
- To increase employee payroll deductions.
This may be an appropriate way to address cost increases of two to three percent, but it could cause serious issues when your plan see’s a cost increase of fifteen-plus percent as many have in recent years.
Let’s say this years health plan costs $500 per employee per month. You, the employer, are telling your employees that you are picking up 80 percent of that expense, leaving $100 per month for your employees.
Now, let’s say the cost of your plan increases by twenty percent to $600 per employee per month (PEPM) next year. The cost to you, the employer, would rise by that same twenty percent meaning next years plan would cost you $480.
With a defined contribution plan, that same scenario would play out like this:
A defined contribution plan allows you to tackle your health plan just like you would with any other line item, with control.
In the defined contribution scenario, you, the employer are informed that your health plan will be receiving a 20 percent hike to your $500 PEPM health plan next year. Traditionally speaking, you and your employee’s would have eat that 20 percent. With a defined contribution plan you could say, “We can afford a 6.5 percent increase, therefore we will contribute an extra $25 to each employee’s health every month”. This helps you, because it keeps you away from getting locked in to 15-20 percent price increases each year.
Now, it may sound like you’re just pushing off all of the additional costs onto your employees. Obviously you want to keep costs down for them as well. You can achieve lower costs for both you and your employee’s by increasing the number of health insurance options for your employees.
Increasing number of options to your employee’s
Your employees will have varying degrees of health insurance needs. Most employers only offer their employees 2 options, a base and a buy-up plan. By offering your employees more plan options, you are allowing them to choose how much they will spend on their health plan.
An HR administration platform will make this an easy transition for your company
Setting up a defined contribution health plan is a perfect way for both you and your employees to manage health care costs. So what’s the catch?
The catch is that this is a very difficult thing to administer using a paper enrollment system. An HR administration platform, like BerniePortal, is capable of collapsing all of that paperwork into one organized, online platform. Suddenly, providing six health plan options to your employee’s will seem easier that providing two did with paper.