The landmark Supreme Court decision upholding the federal Affordable Care Act (ACA) will encourage more employers to replace direct payment of their workers' health care premiums under a company-sponsored plan with a lump sum that employees would use to buy the coverage of their choice.
A growing number of smaller and medium-sized businesses have been offering this "defined-contribution" option - similar to 401(k) programs financed by employers making a single tax-deferred payment into a retirement savings account - for years. An employee health benefit plan financed by a lump sum payment can save employers as much as 15%-25%, compared with the cost of a conventional benefit program; that's a significant advantage, given that the average health care premium for covering workers and their families has skyrocketed by 113% during the past 10 years.
What's more, defined-contribution plans shift the responsibility for selecting a plan from the business to individual employees, which frees them up to tailor a program to the providers and benefits they prefer, rather than being stuck with employer-controlled, one-size-fits-all coverage (employees can also retain their plan if they move to a new job).
The ACA will simplify employees' health care choices by setting benchmarks for coverage and creating insurance exchanges on the state level that offer a variety of programs.
The act gives businesses a powerful incentive to offer workers the "choose-it-yourself" health care option by funding high-risk coverage pools in individual states for workers with previously existing medical conditions. As of January 1, 2014, all Health insurers will be required to guarantee coverage for every private-sector employee.
To learn how you, and your employees, can take advantage of these new programs, please get in touch with our employee benefits professionals.