Defined Contribution Health Plans

[Guest kerryb]

Can anyone provide some insight into their experience with defined contribution health plans? Is this a "fad of the year", or are employees really better managers of health care dollars under this environment? Does anyone have any long term experience with this type plan?

Thanks

[mroberts]

There was a post on consumer driven health plans a couple months back that went into some detail. Take a look for it and this should provide you with plenty of information.

Unfortunately, these plans are very new. They have been around since the early 90's, however, managed care was actually working back then and up to 1999. Therefore, there was no real need for employers to flock to these since it is a different philosophy than offering an HMO or PPO.

Cosumer driven plans are here to stay. They probably will go through many revisions from what we have today, but BCBS, UHC and Aetna are rolling out some form of consumer driven health plans, so if it was simply a fad, I don't think these carriers would be allocating so many resources to creating them.

[SLuskin]

The key seems to be whether to put some of the employer contributions to the employee accounts inside of the Cafeteria Plan or outside. Since our company specializes in Cafeteria plans, the ones that we design are inside the plan. I have a number of employers doing some funding of health care accounts, and have recently done alot with plan design to help other employers who are being squeezed by escalating premiums.

[Guest PDDeBoy]

Unless the underlying insurance companies that provide your actual insurance plans (even reinsurers for self-funded plans) allow for "voluntary" language, you can create a problem by trying to design this type of funding approach in-house.

Depending on your company's size, there are some insurance company's who have created actual "products", but all I have seen are very new. Aetna has a new product for 300 employees and above. I've not found a packaged approach to the medical portion of defined contribution, which I think is the hardest part to address, for smaller employers yet.

[Guest Halbogie]

Are they a fad, no however they are not for everyone and employers should be careful as to how they approach this new aproach at providing health benefits. The idea centers on that if an employee has something at risk (in this case benefit dollars or ultimately dollars out of their pockets), that they will approach health care in the same fashion as they approach other consumer spending. However, the general concern is that employees who are healthier will have the most to benefit and employees who are less healthy will have the most at risk. The question that an employer must ask, is that how they want to approach their health plan or do they take the approach that "this is insurance and that the risk should be shared by all".

This is a MAJOR decision for employers and should be looked at carefully. It is possible to get at some of the features of this approach without going as far as most of the plans by the various "Consumer Focused" providers or Aetna, Humana, BCBSFL, etc. and still keep a managed care program. These programs are NOT managed care, rather they for the most part revert back to fee for service (most using various PPO networks to set the fee reimbursement).

If you would like to discuss this further, let me know. I recently left one of the carriers involved in this new industry segment.

[Ron Snyder]

NOTE TO ALL (AND THIS SHOULD MAYBE BE A NEW THREAD):

IRS has finally issued its initial guidance with respect to appropriate tax treatment of "health reimbursement arrangements". Notice 2002-45 and RR 2002-41 give examples and clarification relative to such situations. They're already up on www.benefitslink.com.

In a nutshell those rulings permit HRAs to be excluded from employees’ income under certain limited circum-stances: (1) The HRA may be used to reimburse only IRC section 213(d) medical expenses; (2) No other related benefits may be pro-vided directly or indirectly (such as paying a severance bonus to the employee where the amount is re-lated to the unused HRA); (3) Amounts in the HRA must be ex-hausted prior to amounts in an flexible spending account (or “FSA”) under an IRC section 125 plan; (4) Long-term care benefits may not be provided if the HRA is an FSA; (5) The arrangement may not permit employees to use salary reductions directly or indirectly to fund the HRA; (6) Any violation of the requirements will result in the entire HRA contribution’s be-coming taxable to the employee whether or not spent for medical expenses.