Companies Looking into DC Model for Health Benefits

A survey by the Healthcare Trends Institute, among 300 human resources executives across the country, found 38.4% believe the Patient Protection and Affordable Care Act (or ACA) will increase employee cost sharing, and 33.6% believe it will increase premium contributions. The survey asks employers if they are familiar with the defined contribution (DC) model for health benefits, in which an employee is offered a menu of plan options and a set dollar amount with which to purchase the most suited plan for the employee. Employers may also set up an account such as a health savings account (HSA) that employees may defer into to use for health expenses.

In the survey, 40.6% of respondents say they are not familiar with the DC model for health benefit plans, while 59.4% are somewhat to very familiar. Among those who are familiar, 54.1% say the DC model will help employees make more cost-conscious decisions, and 40.5% indicate it will help employees better understand benefit costs.

More than one-third of companies surveyed (36.1%) are considering a DC model. Meanwhile, 25.2% say they are not interested. But, during a webcast about the study, Tiffany Wirth, executive director of Healthcare Trends Institute and director of marketing for Evolution1, which commissioned the Institute, said in the future, more and more employers will be looking into the DC model.

She added that the shift to a DC model for health benefits will happen in the next three years. The survey finds 55.8% of employers are considering the DC model for 2015, 7.3% by the end of 2014, and 26.9% for 2016.

Private benefit exchanges have emerged as a solution. According to the survey, 54.5% of HR executives are somewhat to very familiar with private exchanges. Fifty-one percent believe private exchanges will help employees make more cost-conscious benefits decisions; the same percentage also believe exchanges will offer a wider array of options for benefit plans.

The top attributes respondents say they would value in an exchange environment are:

• COBRA compliance - 35.3%,
• Carrier integration - 33.6%, and
• HSAs - 33%.

If they could design a private exchange offering, respondents indicate they would include plan and cost comparison tools (84.9%), online access (76.2%) and combined benefit enrollment (61.1%). Wirth says this reveals what employers will be looking for in an offering.

Among the 300 firms respondents represent, 80.8% offer employee-plus-dependents coverage, 70.8% offer a preferred provider organization (PPO) plan and 66.8% offer a prescription plan. More than one-third of employers offer employees three or more health benefit options.

Nearly two-thirds (64.8%) of respondents say health benefits are very important for retaining and attracting quality employees. “Employees have come to expect rich benefits,” Wirth says. “The survey results tell us that most organizations find it important to at least match their competition in [health care] offerings, and will continue to do so in spite of rising health costs.

Nearly six in 10 firms (58.8%) have not implemented changes as a result of the ACA, while 41.2% have. According to Wirth, companies are in different stages in making changes. She adds that companies are recognizing wellness initiatives can be added as a tool to reduce their benefits costs.

The survey finds 43.9% of respondents’ firms are already using some kind of healthy lifestyle incentive program, and 22.6% are considering it for the future.