As an employer, have you ever wondered, “why can’t I just give my employees money to buy their own health insurance?”
The answer is now a resounding YES!
“Defined contribution” plans allow employees to buy their own health insurance with funds that their employer provides, as opposed to signing up for a “defined benefit” plan.
This fast-growing health insurance trend is one that’s been around for decades. This newly popularized health insurance option is based on the traditional concept of defined contribution versus defined benefits.
Defined Contribution Health Plans Up 350%
With defined benefit plans, the employer chooses the health insurance plan that best suits the company, and all employees are automatically enrolled. This way of handling benefits is becoming increasingly popular among employers.
Despite obvious benefits—such as the opportunity for employees to get a plan that fits their specific needs, for employers to cap their financial exposure from ever-rising health insurance costs, and for employees to have greater control over how they spend their healthcare dollars—defined benefit plans have have been slow to gain widespread adoption.
New Laws Now Make Defined Contribution Health Plans Better Than Traditional Group Plans
Businesses can set a fixed financial contribution for their employees to use to pay health insurance expenses using ICHRA, a new form of defined contribution plan.
Employees can choose and purchase their own qualifying health insurance plan, and the employer will reimburse the employee for the approved amount. This gives employees more control over their health insurance and allows them to choose a plan that best suits their needs.
These funds can be used tax-free for qualifying expenses, such as monthly insurance premiums and copayments. This means that your workers can use these funds to cover these costs without having to pay any additional taxes on them.
ICHRA Especially Appealing To Smaller Employers
Companies of any size can offer an ICHRA, or Individual Coverage Health Reimbursement Arrangement.
They may be especially appealing to smaller companies who want to continue to offer health benefits but are challenged by large rate increases. Especially in the current tight labor market, being able to offer health benefits may help a company attract and retain employees.
The Individual Coverage Health Reimbursement Arrangement (ICHRA) helps employers attract and retain workers by providing a financially manageable and predictable way to reimburse them for their individual health insurance premiums. ICHRA also helps employees save money on their premium costs and gives them more flexibility in choosing a health plan that meets their needs.
There is no set employer contribution under ICHRA plans, meaning employers can contribute as much or as little as they want. All employees can participate in an ICHRA plan, including part-time workers who might not otherwise qualify for traditional health benefits at most companies.