Defined Contributions Are the Next Big Thing in Corporate Healthcare
September 4, 2014
Across the board, the healthcare insurance market is undergoing its most significant transformation in decades. With the creation of public exchanges, the expansion of Medicaid, and the elimination of pre-existing conditions as a reason to deny coverage, we are witnessing unprecedented innovation across the spectrum.
For employers, this new reality creates a rare opportunity to overhaul healthcare benefit offerings, while reducing costs and improving the overall health & wellness of their employees. Studies have proven that healthy employees are more productive and take fewer sick days than their less-healthy co-workers.
One of the best ways for employers to participate in this revolution is to switch to a "defined contribution" method of paying for their employees' health benefits. A defined contribution is a fixed amount of money allocated to each employee for his or her healthcare coverage.
To make a defined contribution system work, employers provide workers with access to an online "private exchange," which mimics the new public exchanges by offering a wide range of healthcare coverage options, including medical, dental, vision, and even weight management and fitness programs such as Retrofit.
By contrast, a traditional "defined benefit" program is built around a small number of insurance plans and limited options for employees. Defined benefit plans often result in higher costs and less predictable expenses for the employer.
Many employers are already switching to private exchanges and defined contribution programs. For 2014 open enrollment, Accenture estimates that more than 3 million employees were covered under private exchanges. By 2018, Accenture projects that 40 million employees will be enrolled in these exchanges under the defined contribution model. While large employers such as Sears and Petco have already made the jump, most of the growth is among mid-market employers with around 1,000 employees, according to Accenture.
At Retrofit, we are ready for the challenge – and the opportunity – to provide a wellness and weight reduction benefit under the exchange model. We're happy to report that we just announced an agreement to partner with our first exchange provider, bswift, to offer our program as an option on their platform. The bswift Springboard Marketplace serves hundreds of employer clients as well as benefit brokers.
Reporting on the news of our partnership, Chicago Crain's Business noted that "the partnership is important for Retrofit, which is trying to crack the corporate market for its weight-loss program."
Crain's added that "Retrofit's program, which uses online-video consultations with nutritionists, behavior consultants and physical trainers, has been popular with executives and professionals trying to shed pounds."
As consumers get accustomed to the new world of healthcare insurance, more of them will be looking to their employer-sponsored plans for wider choice and non-traditional benefit options such as a wellness and weight loss program.
I think it's high time for employers of all sizes to look closely at the defined contribution/private exchange model to figure out when – and not if – it's a change they are going to make.
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