Defined-Contribution Frequently Asked Questions
If Small Businesses Use a Defined-Contribution Health Plan, Do All Employees Have to Receive the Same Contribution?
No. As a small business owner, defined-contribution health plans allow you to compensate your employees differently. You do not have to contribute the same amount to every employee, which gives you a better way to tailor your reimbursements to your employees' health insurance needs. There is no such thing as a one-size-fits-all health plan, and some employees may require a greater contribution to afford coverage than others. Defined-contribution plans give you a different way to manage your health insurance costs. These frequently asked questions will give you a solid foundation when speaking with an insurance specialist. Your business could benefit significantly from a Defined-Contribution Plan. Contact us today to get expert advice about how to save money on insurance for your organization, or compare insurance plans right now to get started.
How Are Defined-Contribution Health Plans Different From Health Savings Accounts?
You should remember that is it easy to confused yourself with the difference between defined-contribution plans and health savings accounts (HSA). This confusion may stem from the fact that defined-contribution plans also go by the name health reimbursement accounts (HRA). HRAs are defined-contribution health plans that do not have the same legal restrictions as HSAs. HSAs are a special kind of tax-deductible savings account that you should only use to pay for health care expenses. In fact, the ACA places an annual cap on the maximum amount individuals can deposit into an HSA.
Do Defined-Contribution Health Plans Meet the ACA Minimum Coverage Requirement?
No. Defined-contribution health plans do not meet the minimum standards for health insurance policies set by the ACA. However, defined-contribution plans are an integral part of how many small businesses can - or will be able to - afford to offer health benefits to their employees. Your company uses the fixed contribution amount to help your employees purchase their own insurance on the private market, or through the federal health insurance marketplace. The idea is to help your employees afford health insurance and manage your company's health insurance costs. In some cases, defined-contribution insurance plans are simply a win-win situation for both employers and employees.
What Are Defined-Contribution Health Plans?
A Defined-Contribution Health Plan is not the same as Group Health Insurance for small businesses. In a defined-contribution health plan (a.k.a. health reimbursement account), your company makes a fixed contribution towards the plan, which employees can then use to pay for health care expenses. In a typical group health plan, employers absorb the majority of the cost of premiums; defined-contribution health plans are a way to share the cost of health insurance.