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Small Business Employee Benefits and HR Blog

Who is Adopting Pure Defined Contribution Healthcare?

June 5, 2014
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A common question from employers, health insurance brokers, and CPA's is: Who is adopting Defined Contribution Healthcare?Adopting Defined Contribution

Companies of all shapes and sizes are adopting "Pure" Defined Contribution Healthcare.

From our experience, however, we've learned there are three main groups of employers that have been the "early adopters" of "Pure" Defined Contribution.

  1. Earliest Adopters - Small Businesses (< 50 Employees) Without Health Benefits

  2. Early AdopterSmall Businesses (< 50 Employees) With Health Benefits

  3. Early Adopter - Medium Businesses (50-99 Employees) With Health Benefits

1. Small Businesses (< 50 Employees) Without Health Benefits

Small businesses without health benefits, who want to start offering health benefits for recruiting and retention, have been the earliest adopters of "Pure" Defined Contribution Healthcare. 

This market wants to offer health benefits, but they have been most impacted by the increases in health insurance premiums and/or cannot meet minimum participation requirements. Defined Contribution helps small businesses solve these challenges, and allows them a way to offer health benefits.

Additionally, small businesses with these characteristics are choosing Defined Contribution over traditional group health insurance:

  • They want to offer health benefits (i.e. they want to contribute toward employees’ health care)

  • They’re worried about losing employees because they don’t offer health benefits

  • They fear losing new hires because they don’t offer health benefits

  • They’re looking to grow the business and increase or maintain staff size

  • Group health insurance is too expensive, or they don’t qualify

  • They have an automated payroll system in place (payroll software, or through a payroll vendor)

Defined Contribution is also an ideal solution for this market because they are not subject to the ACA employer mandate, set to begin in 2015 for larger employers.

2. Small Businesses (< 50 Employees) With Health Benefits

Small businesses with health benefits, who are struggling with the cost of group health insurance, have also been early adopters of Defined Contribution.

A recent survey found that small business health insurance costs nearly doubled since 2009. While some small businesses have absorbed the costs, others have shifted costs to employees and dependents.

Defined Contribution addresses cost challenges by allowing the employer to fully control the cost of the health benefits. The employer can contribute any amount (there's no minimum contribution amount), and there are no annual renewal fees or increases. Costs are predictable and controllable year to year.

Additionally, small businesses with these characteristics are canceling group health insurance and transitioning to Defined Contribution:

  • Group health insurance is becoming too expensive, or they cannot afford their renewal

  • Employees can get better and cheaper coverage through their state's Marketplace or on the private market
  • They can no longer meet minimum participation requirements

  • They have employees in multiple states

  • They are looking to grow the business and increase or maintain staff size

  • They have an automated payroll system in place (payroll software, or through a payroll vendor)

Defined Contribution is also an ideal solution for small businesses (<50 employees) because they are not subject to the ACA employer mandate, set to begin in 2015 for larger employers.

3. Medium Businesses (50-99 Employees) With Health Benefits

Medium businesses with health benefits, who are struggling with the cost of group health insurance, have also been early adopters of Defined Contribution.

Similar to small businesses offering health benefits, Defined Contribution addresses cost challenges by allowing the employer to fully control the cost of the health benefits. The employer can contribute any amount (there's no minimum contribution amount), and there are no annual renewal fees or increases. 

Additionally, medium businesses with the following characteristics are canceling group health insurance and transitioning to Defined Contribution:

  • Group health insurance is too expensive

  • They’ve experienced reduced employee happiness due to reduced benefits

  • Group health insurance is too time consuming to administer

  • Employees can get better and cheaper coverage through their state's Marketplace on the private market

A consideration for businesses with 50+ employees is that the ACA “play or pay” employer mandate will apply to them -- but not until 2016. Read more: Affordable Care Act -- Play or Pay?

Questions about Pure Defined Contribution Healthcare? Leave a comment below.


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