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Small Business Employee Benefits and HR Blog

47% of Employers Report Moving to Defined Contribution Health Models

April 18, 2014
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Health care reform is accelerating the move to defined contribution health models. Employers are rethinking not if they will offer health benefits - but how. Employers are moving to defined contribution health models because employees have more choice over health plans and employers have more control over the cost.

There's been buzz about the shift to defined contribution in the health care industry for years. The defined contribution health model is becoming more mainstream and new research continues to validate this shift.

According to Group Benefits and the Defined Contribution Model, a research brief based on Prudential Insurance Company of America’s Eighth Annual Study of Employee Benefits, nearly half (47%) of employers report they are moving or have moved to a defined contribution health model. And, 62% of those are currently considering adopting this model in the next two years.

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Why Employers are Rapidly Moving to Defined Contribution Health Models

According to the research, employers say the top two reasons for contemplating a switch to a defined contribution health model are to:

  1. Lower health care costs (59%)

  2. Offer employees more choice in the allocation of their health benefit dollars (40%)

Employees report they would allot 75% of their benefit dollars to health, dental, and vision coverage, leaving 25% for other coverage such as voluntary life, disability, accident, and critical illness insurance.

How Do Brokers Feel About the Shift to Defined Contribution Health Models?

According to the research, brokers believe employees will spend more on health care benefits, while at the same time employers will add voluntary coverage.

  • Nearly half (47%) of brokers think defined contribution will result in more dollars being allocated to funding health care. 

  • Overall, brokers have a positive look on how voluntary sales will be affected by defined contribution with 42% believing it will lead to more voluntary sales.

Methodology

Group Benefits and the Defined Contribution Model is the second in a series of five research briefs that highlight the major findings from Prudential’s Eighth Annual Study of Employee Benefits: Today & Beyond. The research was conducted via the Internet during August and September of 2013, and consisted of three distinct surveys—one for plan sponsors, another for benefits brokers and consultants, and a third for plan participants.

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