Frequently Asked Questions

/Frequently Asked Questions

Health Insurance Marketplaces (also known as Exchanges) are a way for consumers to shop for coverage if they need to buy health insurance on their own.

Defined contribution allows employers to establish a healthcare budget based on how much they can afford to spend, while giving their employees the opportunity to choose a benefit plan. The employer makes available a predetermined amount of money in an account for each employee. Employees then use that money to purchase benefits that are personalized to their needs.

As with traditional group benefits, the employer determines the types of coverage to offer and which specific plans to include in the options available to employees. The primary difference with a defined contribution approach is that rather than covering a different dollar amount depending on what plan or plans the employee chooses, the employer determines one fixed contribution amount for each employee class, and the employees then choose which types of coverage to select. With defined contribution, employees choose and enroll in their selected coverage, with guaranteed issue (for group benefits only), and make their contribution toward their benefits through a payroll deduction.

No. There are no minimum participation requirements. Employers of all sizes can offer a defined contribution plan.

That’s up to the employer. Employees may choose a health insurance policy from any health insurance company that an employer offers to them through their benefits marketplace.

The employer still determines which benefit options to make available to their employees. However, rather than having to just choose one or two plans for employees to select from, in a defined contribution model an employer can offer a broader range of choices. The wider range of choices allows employees to select the coverage that best meet their own needs and preferences.

Yes. With a defined contribution health plan, an employer can give employees different contributions based on classes of employees. Federal regulations require that “a plan or issuer may treat participants as two or more distinct groups of similarly situated individuals if the distinction between or among the groups of participants is based on a bona fide employment-based classification consistent with the employer’s usual business practices.”

With the defined contribution approach to employees, employers are able to set their contributions to cover the employer mandate ruling, which states that an employee-only health premium cannot exceed 9.5% of his/her gross
income. We make it simple. Since the rule is based on the lowest cost premium, an employer can offer minimum essential coverage plans to cover low income employees around the rule, and with the defined contribution, they can always “buy up” to personalize their benefits if they need different coverage. This creates a fully compliant health plan offering with little effort on the part of the employer. In addition, the employees can have increased choice in their benefit while also meeting their individual requirements of having health insurance throughout the year. It’s a win for everyone.

Yes, although this minimum requirement varies by state and by carrier, employers generally must contribute a minimum of 50% of the employee-only rate for the lowest cost plan offered on the private marketplace.