Employers Gravitate Toward DC Health And Benefits Model

By Cyril Tuohy

InsuranceNewsNet

A new survey by Prudential finds that employers favor the lump sum defined contribution (DC) model for their health and benefits program now that the Affordable Care Act is here to stay.

The survey found that 47 percent of employers report having moved to a DC model or are implementing such a model for health and benefits. The DC model has been in use for retirement benefits for more than 30 years.

Prudential’s survey also found that 62 percent of employers who say they are likely to move to a benefits exchange, as well as employers participating in an exchange now, believe they will adopt a DC model in the next two years, according to the 8th Annual Study of Employee Benefits Today & Beyond.

Under a DC model, employers give employees a lump sum to fund their benefits. The employee shops for a benefits package on an insurance exchange where health and benefits carriers offer a number of health plans.

Last year, the U.S. Supreme Court narrowly upheld the ACA. Employers began enrolling employees under the new parameters in October. The law took effect Jan. 1, although portions of it have been delayed to give some companies more time.

The Prudential survey found that when asked how they would use $100 across their benefits, employees said that on average they would spend $56 on health insurance, $12 on dental insurance, $7 on a vision plan, $6 on group life, $5 on group disability, $5 on accident insurance, $5 on critical illness insurance and $4 on accidental death and dismemberment coverage.

The Internet-based survey, conducted last August and September, queried employers, employees and group benefits brokers and consultants. The responses are compiled from 1,000 employee benefits decision-makers, and the margin of error is plus or minus 3 percent.

The survey also found that 47 percent of benefits brokers think DC benefits plans will mean more dollars allocated to funding health care benefits, while only 22 percent of brokers expect fewer dollars to be allocated to health care.

The survey found that 42 percent of brokers believe DC benefits plans will lead to more sales of voluntary benefits. Voluntary benefits, typically paid for 100 percent by the employee, offer choices beyond the basic health benefits package offered by employers.

More than four in 10 brokers (43 percent) say DC benefit plans will make no difference to funds allocated to life insurance, and 28 percent of brokers think the model will cause employees to allocate more dollars to life insurance.

The survey also found that 40 percent of brokers believe DC plans will mean no change in the allocations to disability coverage.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.