Piggy bank

By David Urbaniak, Product Manager, Evolution1

With 2013 behind us, we can now look at what the year brought as related to the ever-changing world of defined contribution. Let’s first take a look at a couple key learnings and trends from 2013:

Proven Solutions – and Public Rollout – Aren’t Necessarily Easy – The experiences at both the federal and state marketplace levels illustrated the need to leverage proven partners and solutions. Investing in the right technology, services, and program management is essential. A marketplace will fail if you don’t focus on all three. This is equally true for private marketplaces. Marketplace processes were far from hassle-free, and the need for focusing on the consumer experience became painfully apparent. Marketplace consumer experiences are the tip of the icebergs in terms of the overall programs that sit underneath them, but the experience is the benchmark by how your marketplace will be judged and whether or not you will be successful.

Benefit Model Shift Gained Momentum, Plan Selection Evolved – Employers continued to move from a consumer-driven health care (CDHC) model to a defined contribution model, and all signs indicate that will continue in 2014. Just weeks ago, Target Corporation announced that it was moving its part-time employees to a defined contribution plan offering $500.

There are opportunities to provide value to the consumers impacted by this model change. Newer data, published by Aon, further illustrates the value of using a third-party administrator (TPA) as well as the need to offer CDHC accounts on the same platform as the defined contribution accounts.

The amount of employees who chose to enroll in a CDHC plan when given that choice in an exchange model tripled from 12 percent to 39 percent. This means that nearly 40 percent of employees will be looking for additional savings mechanisms – whether through a flexible spending account (FSA) or health savings account (HSA) – to help them budget and save for current and future out-of-pocket health care expenses. There is tremendous value to the employee (and savings to the employer!) when employees are given the opportunity to enroll in CDHC accounts through an exchange.

With 2014 underway, what change can we expect to see for defined contribution in the months ahead?

Continued and Accelerated Shift in Model – Employers will keep moving from traditional defined group benefit models to defined contribution models with consumer-directed health plans. That is, employers will fix the amount they are willing to contribute by giving each employee a defined contribution amount. Additionally they will provide employees with more insurance options to select through an exchange. Expect to see a deeper product extension beyond medical and ancillary plans and into gym memberships, pet insurance, organic food delivery services and more.

A recent study published by Accenture shows that by 2018 the number of employees expected to use a private marketplace to make their insurance plan decisions and purchases will surpass the number of individuals expected to use a public exchange by nearly 40 million consumers. That’s an incredible shift and one that is going to impact everyone involved in supporting and providing solutions related to employee benefits. Companies that provide solutions to employers today – whether directly or indirectly through brokers or health plans – need to seriously consider this shift and determine the role they want to play in this evolving ecosystem. Businesses that are positioned to provide defined contribution private exchange solutions or partner with another organization to do so will be in a great position to take advantage of new opportunities, and perhaps more importantly, protect their existing market share.

Continued – and Increasing – Employee Education and Communications – The ongoing fracturing of the group market will provide new opportunities for employees to potentially find benefits outside of their employer, but the process will continue to prove challenging for the foreseeable future until consumer understanding and more seamless solutions fill the void. The announcement by Target Corporation to move its part-time employees to a defined contribution model led to some confusion in both media perception and in responses from Target’s human resources team. It is crucial that benefit decision makers, HR staff, and employees understand the model.

There is a critical difference between dropping coverage altogether, and changing from group coverage to an individual defined contribution plan with opportunities to shop on a competitive marketplace. This distinction is important as more companies look to migrate from group to individual plans and ultimately the success these new benefit offerings have. Consumer engagement, along with clear and consistent communication are requirements for any defined contribution program. Employers can help facilitate this by providing:
An enrollment solution that is easy to use with decision support that meaningfully informs consumers as to what they can expect for their health care financial responsibility and how much they will need to save.
Education on insurance plan choices and self-service resources to help empower consumers to be in control of their health through personalized health insights and messaging, including utilizing the previous years’ consumer claim data.
A consumer experience that provides a holistic view of a consumer’s health care benefit financial picture with budgeting tools and payment solutions that address the consumer’s year-round needs of managing health care and related financial expenses.
Visibility during enrollment and throughout the year as related to employer funding/defined contribution amounts, price transparency for services and savings opportunities.

Continued Shift of Financial Responsibility to Employees – Regardless of the benefit model being supported – CDHC defined benefit programs, defined contribution programs, or even situations where employers are getting out of health insurance altogether – CDHC accounts that support employers to assist in funding their employee health care costs and provide employees with tax-advantaged ways to pay for their out-of-pocket health care expenses have a large role to play. The more financial responsibility employees are asked to take on, the more critical these accounts become.

Analytics – Analytics has been a trend topic for years; however, analytics for analytics’ sake does not provide value to downstream stakeholders. What does? The meaningful and applicable presentment of analytics to consumers and other stakeholders of the healthcare financial services ecosystem. We are coming (thankfully) into an age where we are not only aggregating the data, but also presenting it in ways that are meaningful, consumable and actionable. In the next six to 18 months, expect to see stronger integration between consumers’ health care financial benefit picture and their existing employee benefits such as their 401(k), tuition reimbursement, and more, presenting an even greater picture of an employee’s overall health, and wealth, picture. This is where we expect solutions to start to drive real behavioral change and reduce the upward trajectory of the healthcare cost trends in the U.S.

Increased Role and Need of Wellness Tools – As mentioned, the adoption of plans with additional consumer exposure as well as lower premium health plan designs are not the only things affecting cost; it extends to consumer tolerance to accept lower cost, narrow networks, and willingness to try new plans that are based on innovations in payment reform such as reference pricing models (see “The Sleeper in Health Care Payment Reform” by Uwe E. Reinhardt). Coupled with wellness incentives and greater transparency on provider costs, defined contribution offers promise for longer term favorable effects on the health care cost trend.

Cliché as it may be, the only thing we know for certain in 2014 is change. As Bill Gates said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” Be informed and take necessary action today rather than tomorrow.

David Urbaniak is a product manager at Evolution1. He can be reached at or 952-908-9096.

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