When considering defined contribution health benefits, one of the first questions employers and employees ask is about the health insurance coverage they'll have access to. Will I have my same doctors? Will it cover my health conditions? Can I afford it? This article answers the top four health insurance related questions from employers on pure defined contribution health benefits.
Overview of Pure Defined Contribution Health Benefits
To understand these FAQs, it's first helpful to understand what pure defined contribution health benefits are, and how they work.
Pure defined contribution health benefits are an emerging employee health benefits solution, gaining popularity with small and medium sized businesses in the US. The basic concept is that the company offers employees health insurance allowances as an alternative group health insurance, which is often unaffordable to small and mid-size companies. This strategy works well because it offers predictable costs while giving employees access to quality health insurance. (See this overview of defined contribution health benefits for a more comprehensive overview.)
Top 4 FAQs on Pure Defined Contribution and Health Insurance
Here are the four most common health insurance questions from employers and employees when considering or setting up defined contribution health benefits.
FAQ #1: Are Defined Contribution Health Benefits Health Insurance?
No. Pure defined contribution health benefits by themselves are not health insurance. What the company offers is a healthcare reimbursement plan (a "defined contribution" amount) rather than specific health insurance benefits (a "defined benefit").
FAQ #2: What is Individual Health Insurance?
Individual health insurance is a type of policy that an employee purchases for himself and/or his family - just like car insurance. Employees own the policy and can take it with them if they leave the company. Employees pay for their policy, and can use their defined contribution health benefits to reimburse themselves for the premium (or a portion of the premium).
FAQ #3: Where do Employees Purchase Health Insurance?
Employees can purchase health insurance from any insurance company in their state. Because of new health reform changes, buying an individual health insurance policy has gotten easier. Employees are no longer asked medical history information on the application, and cannot be denied or charged more because of a pre-existing condition. Employees can purchase insurance through a licensed health insurance agent (who is appointed to represent the insurance carriers), online, or through the Health Insurance Marketplace in their state.
FAQ #4: Selecting and Purchasing Health Insurance is New to Many Employees. How Can our Company Help Them?
When setting up the defined contribution health benefits program, look for a defined contribution software provider who will provide a custom implementation process. For example, the implementation process should include customization of materials to educate employees, including information on health insurance. Many companies also find it helpful to have a licensed health insurance agent assist employees navigate plan choices. Wondering what else to ask a defined contribution software provider? See these 10 tips.
What questions do you have about defined contribution health benefits and health insurance? Leave a comment below.