Health care reform will usher in a new era of how employers provide benefits to their employees. As employers continue to look for ways to control their costs and optimize their employee benefit spend, they will increasingly look to their advisors for the best strategies and opportunities to take advantage of the changing landscape. “Play or Pay”, Government subsidies, Essential benefits, Public Exchanges, Private Exchanges, Accountable Care Organizations, new and unique funding strategies as well as technologies to create efficiencies and accuracies in benefit administration will replace the old ” shop your insurance once a year” approach.
This new approach starts with understanding that Health Care Reform/PPACA will do very little for most successful, professional businesses that currently provide attractive benefits to their employees and want to continue to do so. A recent study by Aon Hewitt, a national consulting firm, interviewing hundreds of employers from a broad spectrum of industries determined that 94% of businesses were committed to continue to offering and financially supporting health benefits. With that in mind, the federal tax subsidy is only available to employees with incomes below 400% of the federal poverty level and who are not provided a minimum standard of coverage at a reasonable payroll deduction. The reality is that most employers pay for and provide benefits that meet the new standards thus eliminating any free lunch under reform. The vast majority of employers now have no silver bullet in sight from the new health care reform law. So how is a business to move forward with offering the right benefits and control their health care costs?
Over the past 15 years most employers moved their pension plans from defined benefit to defined contribution or 401(k) s. This change allowed employers to create a budgetable line item for their pension expense. Today, many employers are taking the same approach to their health care spend by employing a defined contribution health plan financing strategy. This concept has been around for many years but is getting real traction now. 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 their benefits expense at either the current level or a level that is agreeable with their business goals.
Health Care Reform has prompted the development of a new benefits technology and distribution model called a Private Exchange. A Private Exchange is nothing more than an online store that allows employers of all sizes to offer Fortune 500 benefits to their staff. Ten or more health plan options, three 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 for their current financial situation, risk tolerance and health status. Benefit education and communication is done better than it has ever been done before with the addition of videos on demand as well as live chat and phone call support. This new technology provides employees and their families the best opportunity to fully understand their benefits and the options that are available to them. They begin to become better consumers of insurance and healthcare 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.
JD Power queried over 6500 employers of all sizes in May of 2012 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 fit their needs.”
Yes, 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 approach 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.
By understanding how your business may be impacted (or not) by PPACA, combined with a forward thinking strategy, employers can continue to offer attractive benefits to attract and retain valued employees. Take advantage of these new opportunities and have more control over your benefit spend while providing employees with more benefit choices.
Written by: B. Michael Haffey, CLU
Michael has over 25 years of employee benefits experience and is a Senior Vice President with Brown and Brown. He is a broker of private exchanges and is helping employers control their employee benefits cost while navigating the new benefits landscape. You may contact Michael at firstname.lastname@example.org.