Defined Contribution Health Plans in Ohio
Due to the annual cost increases associated with traditional employee health benefits, a new form of health benefits, called a defined contribution health plan, is quickly gaining popularity in Ohio. Defined contribution health plans allow Ohio employers to offer health benefits to employees without offering a traditional group health insurance plan.
Rather than paying the costs to provide a specific group health plan (a “defined benefit”), Ohio employers are instead fixing their costs by establishing a monthly dollar amount (a “defined contribution”) that employees choose how to spend. Employees participating in the defined contribution health plan can then request tax free reimbursement for their out-of-pocket medical costs and personal health insurance expenses.
The general concept of a defined contribution health plan is that a company gives each employee a fixed dollar amount that the employees choose how to spend. Typically, employees are allowed to use their defined contribution to reimburse themselves for individual health insurance costs or other medical expenses such as doctor visits and prescription drugs. Defined contribution health plans allow employees to be more involved in their health care choices.
How Defined Contribution Health Plans Work in Ohio
In Ohio, employers must use an ERISA and HIPAA-compliant platform to administer a defined contribution health plan to avoid compliance issues. The federal government has guidelines for Ohio employers who want to contribute to an employee’s individual health insurance costs. Specifically, the employer must take special steps to avoid “employer endorsement” of the individual plans.
To avoid endorsement of individual health insurance plans, Ohio employers:
1. Must not be involved in an employee’s decision to purchase individual health insurance. They must not get involved in any negotiations with an Ohio insurance carrier over price or benefits of individual health insurance plans, and must not provide employees with claim forms or other materials related to their individual health insurance policies.
2. May not directly pay premiums on individual health insurance policies and they must not receive any compensation from an insurance carrier in connection with an employee’s individual health insurance policy.
3. Must not become involved in any claim dispute between an employee and an insurance company; all inquiries must be directed to the insurer.
To comply with (1) above, while still making contributions to a defined contribution health plan in Ohio that can reimburse for individual health insurance premiums, employers should follow these additional guidelines:
1. Ohio employers must not pressure employees to use the defined contribution to pay for individual insurance coverage.
2. In addition to reimbursing for health insurance premiums, employers should also allow the use of funds for qualified medical expenses.
3. Ohio employers must limit their role to simply verifying that a qualified medical expense (such as an individual health insurance premium) was incurred, and then reimbursing such amount from the defined contribution. This may most easily be done by using an outside HRA administrator.
Benefits of Defined Contribution Health Plans in Ohio
Generally, the benefits of a defined contribution health plan include:
1. Employee Choice – employees choose a health insurance plan based on their personal needs.
2. Fixed Cost – employers fix their health insurance costs by defining fixed monthly contributions.
3. Savings – defined contribution health plans typically cost less than group health insurance plans, resulting in savings for the employees and employer.
With a defined contribution health plan in Ohio, an employer may choose to give employees different contributions based on classes of employees. Federal regulations state 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.” Additional employer guidelines consist of the following:
1. Bona-fide business differences may include job categories, geographic location, part-time or full-time status, date of hire, etc.
2. Treat all “similarly situated” employees equally. By creating classes based on genuine job categories, all employees within a class will be “similarly situated”.
3. Do not discriminate against unhealthy people. An employer cannot provide inferior benefits to specific individuals with adverse health conditions.
4. Spell out the requirements for classes and benefits in the plan document. If a defined contribution plan is found to not comply with these rules, then the employer must provide the same level of benefits to all employees, regardless of their class, from the time the plan was created to the date of the violation.
A Turnkey, Compliant Defined Contribution Plan Solution for Ohio Employers
Zane Benefits provides an Ohio compliant HRA platform which can be set up online and, once inplace, employees deal directly with Zane. After a one-time setup fee, Zane charges only $12 per employee per month for this. Complete information is available at www.HRAOhio.com.
Employees can select their individual benefits from any insurance carrier they choose, but if they would like a Blue Cross policy Anthem has websites and personal assistance to help them both select the plan initially and ongoing service. In addition to individual plans, Anthem also has plans available for people who might otherwise be uninsurable or are over 65 and would like a Medicare health plan, so no employee would be at risk of losing coverage once the defined benefit group health plan was dissolved.
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