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Pure Defined Contribution Health Benefits - Top 6 FAQs

Written by: Christina Merhar
November 29, 2013 at 1:03 PM

This article answers the top six questions from employers on pure defined contribution health benefits including what is defined contribution, why 'pure', and what employees think of the health benefits solution.


FAQ #1: What are 'Pure' Defined Contribution Health Benefits?

A. Defined contribution health benefits are an employee health benefits strategy that are gaining popularity because of their affordability and accessibility.

Instead of offering a specific benefit (e.g. a specific group health insurance plan/s), companies give healthcare allowances to employees (a specific contribution). Employers - especially small and mid size employers - find this an attractive solution because:

  • Employees choose the health plan that best fits their families' needs
  • Employers fix their costs by giving employees monthly healthcare allowances
  • Once implemented, it takes less than 5 minutes per month to administer online

See this overview of defined contribution health benefits.


FAQ #2: Why 'Pure'?

The term defined contribution has become a big buzzword this year in the health insurance industry. Likewise, it can mean different things. By using the term 'pure' we're referring to a defined contribution strategy that is not integrated with group health insurance coverage. Generally, the employer does not restrict the plans employees can choose from. With a 'pure' defined contribution approach, employees can be reimbursed for any qualified health insurance plan (any carrier, any coverage level, etc.).

Read more: What is a Pure Defined Contribution Health Plan?


FAQ #3: How Do 'Pure' Defined Contribution Health Benefits Help Companies Control Costs?

A. One of the primary reasons defined contribution health benefits are taking off is because of the built-in cost controls. Companies fix their costs by utilizing a defined contribution approach. There are no minimum or maximum contribution requirements, so companies can contribute any amount that fits the health benefits budget. Companies can also vary employee allowances based on job criteria.

Read more about defined contribution and cost controls here.


FAQ #4: How Much Time Does It Take Companies to Administer 'Pure' Defined Contribution Health Benefits?

A. Because of compliance with various regulations (IRS, ERISA, HIPAA, and ACA), most companies use a defined contribution software platform to administer the health benefits. Once the health benefits are implemented, 'pure' defined contribution health benefits take less than 5 minutes per month to administer online. There are no time-consuming annual renewals, and employees maintain a direct relationship with insurance company -- all of which leaves business owners and HR staff with more time for strategic work.

Read more about defined contribution software and compliance here.


FAQ #5:  How do Companies Transition to 'Pure' Defined Contribution Health Benefits?

A. Whether the company currently offers health benefits or not, companies will want a thoughtful implementation process. For example, look for a defined contribution software platform with a dedicated implementation team to ensure a smooth and fast transition for the company and employees. The setup process should take less than 15 minutes online and can be 100% paperless. The implementation team will help you customize materials to educate employees about their new benefit.

FAQ #6: How Do 'Pure' Defined Contribution Health Benefits Work for Employees? 

A. The idea behind 'pure' defined contribution health benefits is that it gives employees the most control and choice with their health benefits. It puts employees in the driver's seat. Employees use their healthcare allowance to select the health plan that best fits their families' needs, choosing any plan, from any carrier. They can keep their same network and doctors, and pick a coverage level that fits their health needs. Individual health plans costs 20-30% less than traditional group plans, and new tax credits are available to qualifying employees. 

Read more about why employees love defined contribution here.

Have more questions about 'pure' defined contribution health benefits? See these other FAQs, or leave a comment below and we'll help answer it:

Topics: Defined Contribution Health Plans, FAQs

Additional Resources

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