The Change to Defined Contribution Can Be Hard - What HR Can Do About It

Written by: Christina Merhar
Originally published on June 18, 2013. Last updated July 16, 2014.

Change is hard. Any Human Resources department who has implemented a new benefits program knows this first hand. And yet, the landscape of employee health benefits is changing as organizations find new ways to combat the increasing costs of health benefits, while continuing to recruit and retain key employees.Dont_Panic_Flickr_Johan_Larsson

And yet, change is inevitable.

According to the 2013 Aflac WorkForces Report, 53% of employers have implemented a high-deductible health plan (HDHP) over the past three years, considered by some experts to be the "first step" toward a defined contribution health plan.

In fact, 47% of employers say they “definitely will” or “probably will” switch to a defined contribution health plan in the coming years. 

Many of these employers will go even one step further and provide a pure defined contribution plan, where the employer simply gives employees a healthcare allowance for individual health insurance, and employees shop for any plan they choose.

Are Employees Ready to Change to Defined Contribution?

So, with organizations of all shapes and sizes changing to defined contribution health plans, what about the employees? Are employees ready for this shift? According to the 2013 Aflac WorkForces Report, change for employees can be hard. And, this change is especially hard if the organization is under-prepared. Therefore, HR departments have a vital role in strategically managing this transition from traditional health benefits to consumer-driven health care and defined contribution plans.

According to the report:

  • While business leaders are embracing cost-friendly consumer-driven models and defined contribution health plans, employees are largely unequipped and unprepared.

  • An organization’s degree of health care benefits engagement and knowledge relates directly to HR metrics: attraction, satisfaction, productivity, and retention of talent. And, even amongst change in the delivery model, health benefits will continue to be essential to employee satisfaction.

  • Controlling health and medical insurance costs was named the most important HR objective for organizations in 2013.

  • Generally speaking, employees are not knowledgeable about new trends in consumer-driven and defined contribution employee health benefits, including Federal & State Exchanges (76% of employees unaware), Health Reimbursement Arrangements (49% of employees unaware), Health Savings Accounts (32% of employees unaware), and High Deductable Health Plans (31% of employees unaware).

Source: Click here to read the full 2013 Aflac WorkForces report.

When Changing to Defined Contribution Prepare, Educate & Engage with Employees

So, given these trends and statistics, how can HR departments facilitate this inevitable shift to consumer-driven models and defined contribution health plans? Here are four quick tips, focused on the shift to pure defined contribution health plans.

1. Understand and Prepare for Health Care Reform: Understand your organization's obligations, and opportunities, with health care reform. There are numerous resources available on health care reform compliance. For example, see health care reform checklist for employers.

2. Educate Employees on the Benefits of Defined Contribution: Take the time to educate employees on how defined contribution health plans work, and how they will benefit. This will contribute to their understanding and happiness with the defined contribution health plan. Work with your defined contribution software provider to offer employees tailored resources, such as webinar training sessions, online account access, and help and support tutorials. 

3. Communicate with Employees Early-On & Frequently: Keep the communication open between HR and employees, and check in frequently. Many organizations make assumptions about what employees prefer or understand when it comes to benefits. By keeping communication open, you can address questions early-on in the transition, and measure their overall satisfaction in the long-term.

4. Provide a Health Insurance Broker or Consultant to Help Employees: With pure defined contribution, employees purchase their own individual health insurance. This is a new experience for many employees. Make a health insurance broker available to employees to help them select and purchase plans. This will help them choose plans that best fit their individual needs, and help them see the value in the change to a defined contribution plan.

Photo credit: Flickr, Johan Larsson

Originally published on June 18, 2013. Last updated July 16, 2014.


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