More Employers Moving to DC Benefits Model

April 14, 2014 (PLANSPONSOR.com) – More companies are moving towards a defined contribution (DC) model for employee health benefits, a study finds.

According to the “Eight Annual Study of Employee Benefits Today and Beyond: Group Benefits and the Defined Contribution Model,” released by Prudential Group Insurance, the Patient Protection and Affordable Care Act of (or ACA) has influenced companies’ health care benefits strategy, with more employers moving toward or at least considering the use of a DC benefits model.

Specifically:

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  • Forty-seven percent of employers report having already moved to this model or are currently implementing this type of program; and
  • Sixty-two percent of those that are likely to move to an exchange and those that are currently considering participating in an exchange believe they will adopt this model in the next two years.

The study defines a DC benefits model as one in which employers give their employees a lump sum to spend on their benefits, letting the employee decide to which benefits the money is allocated. Employers say their top reasons for considering changes to their benefits model include lowering health care costs (59%) and giving employees more choice in the allocation of their benefit dollars (40%).

With the timetable for large companies (those with 50 or more employees) to fully comply with the ACA having been delayed a year, 55% of employees feel employers will need to develop new strategies for covering health care costs. An equal number of employees also believe health care costs will increase for employees.

The authors of the study point out that as employers move to a DC benefits model, employees will need to allocate their money across a range of health-related benefits. When queried about how this allocation would break down, 75% of employees say they would assign the money to health, dental and vision coverage, while 25% say they would allocate these funds to voluntary life, disability, accident of critical illness insurance.

Data for the study was obtained via three different online surveys (of employer, employees and broker/consultants), conducted during August and September 2013 by MRops and Oxygen Research on behalf of Prudential. Some 1,000 employers were surveyed, covering businesses that have at least 25 full-time employees. A total of 1,000 employees were surveyed, age 22 and older, and work full time for companies with at least 25 employees. For the broker/consultant data, 381 insurance professionals and 38 Prudential brokers were surveyed.

The study report is here.

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