By Josh Hilgers, President and Founder, Health Partners America and Health Partners Training
Private sector employers, especially small business owners, are the back bone of our economy and our country. Unfortunately they are being overly burdened by increasing operating expenses, specifically their health insurance premiums. For the last 40 years, the common expectation was health insurance would be paid by the employer. This was never the best way for people to get health insurance but a way around the wage and price controls at the end of World War II.
So what would a better system look like?
In a nutshell, it would consist of (1) completely portable policies owned and designed by the employee; (2) tax free, fixed dollar, contributions from the employer and employee; and (3) choice for each employee of which carrier and which plan design provides the best protection for their family.
Fortunately for employers and employees there is a platform existing today that accomplishes these features. It is called a defined contribution health plan (DCHP). Like defined contribution retirement plans (401k) replaced Defined Benefit (pension plans) before them, DCHPs are revolutionizing employee benefits.
Defined contribution plans offer several benefits for employers:
- Attract and Retain Good Employees – The purpose of an employer’s benefit plan is to attract and retain good employees. Unfortunately the current group benefits model makes accomplishing this and remaining profitable a difficult task. The defined contribution approach gives employees more choice, better coverage, and more affordable options, stretching the dollar for both the employer and the employees.
- Cost Control and Predictability – One of the greatest benefits of the defined contribution approach is employers can define the allowance that is affordable to them, and the employees can choose from a multitude of plans that offer them the best balance of coverage and premiums. Also, the carriers aren’t dictating participation and funding requirements or throwing in rate increases that can throw a company’s budget out of balance.
- FICA Savings – For employers who do not offer benefits to their employees, they are missing out on some huge tax advantages. For every dollar an employee sets aside for his or her premiums or for spending accounts such as health savings accounts (HSA) or a flexible spending account (FSA), the employer saves 7.65 cents or 7.65 percent – the matching FICA contribution. With the average family spending around $10,000 on premiums and HSA/FSA contributions, this would equal close to $800 a year per employee. A company with 20 employee families would look to save more $15,000 just by offering a section 125 plan.
- Greater Appreciation from Employees – Unfortunately most of the time, effort, and money spent by employers to offer benefits to their employees go unappreciated. The high premiums of group insurance plans typically require a significant share of that cost to be contributed by the employee. While this can be payroll deducted on a pretax basis, the amount required to contribute is still more than most employees can afford. The thousands of dollars employers are willing to contribute are left on the table because the employee cannot afford his or her share. To the employees in this situation, the employer might as well not offer benefits at all.
The defined contribution platform is the best solution for most businesses today. As more options become available for those with preexisting conditions and more mandates and higher costs is placed on employers with the implementation of the PPACA over the next few years, many more businesses will be looking for this solution. The platform consists of a few basic points.
- The employer setting up a cafeteria plan and/or HRA to reimburse premiums
- The employer deciding on whether or not they want to make a contribution and that amount
- Employees meeting with brokers to decide the best options in major medical, supplemental, and spending accounts for their family
- Enrolling their premiums in the cafeteria plan
- Reimbursements for individual plans made to employees
This new platform will be a big part of the employer sponsored Insurance market in the next few years, and is a proposed solution for the future solvency of Medicare and Medicaid. The smart brokers are learning about this platform and developing tools to give themselves an edge over their competition. Health Partners Training has developed a well-rounded training video on the concept and a toolbox with all of the field-tested tools an agent would need to get started.
For more information visit us at www.trainhp.com or e-mail josh@healthpartnersamerica.com.
For more information visit us at www.trainhp.com or e-mail josh@healthpartnersamerica.com.
