Defined Contribution Part 3- Simplifying the Employers Roles

Online, August 19, 2013 (Newswire.com) - AFFORDABLE CARE ACT:

DEFINED CONTRIBUTION Part 3: SIMPLIFYING THE EMPLOYERS ROLE

Part 3 of 4

A Defined Contribution, funded inside an FSA, is financed with employer's dollars to start. The employer can choose how to design the plan as long as it is non-discriminatory to any employee class. Employer dollars can be designated, or clearly defined by the employer, to Medical Premiums (Group or Individual), Dental, Vision, Dependent Day Care (IRC Section 129), Transit and Parking (IRC Section 132) or to the Premium Reimbursement Account (PRA) for individual policies. Employees can also contribute to the Medical FSA for health related expense, and other eligible FSA benefits, that exceed the value of the Defined Contribution.

Private Health Insurance Marketplace are evolving as a substitute or alternate to the Affordable Care Act's Public Marketplace. Employers, when using a Private Exchange Marketplace, will access the Marketplace thru their Health Insurance Broker. Employers will set a Defined Contribution, select with their broker the health insurance solutions to be offered and the employees will log into the designated insurance marketplace. The employees, using the employer contribution and their own pre-taxed contributions, will begin to select insurance plans from the solutions being offered. The types of solutions being offer will vary depending on the exchange marketplace that was chosen by the employer and their broker. Some marketplaces will be more robust than others. Some will provide group health, individual health, dental, vision, FSA's, HSA's, HRA's, disability insurance, homeowners and even pet insurance. Some will provide all of the available benefits while others will not. Of course the employees can only pre-tax IRS qualified benefits and homeowners insurance and pet insurance do not meet the requirements. Private Marketplaces can provide more flexibility than the Public Marketplace and provide a broader assortment of insurance solutions. These solutions can also be tailored for different employee needs.

Defined Contributions give the business owners controllable costs while providing the employees with choices and options pertaining to their needs and their family's needs. The employer will determine their budget for the company then determine which class of employees (employees contributions can be different based on the employee class) will receive how much of a dollar allowance. The employees will enroll in a Flexible Spending Account (FSA) that will allow for the facilitation of the employers and the employees money in a tax free manner. The employees will then chose from a menu of available pre- tax health options and pre-tax employee benefits. This could be for health insurance expenses such as premiums, co-pays and co-insurance related to the health plan, dental plan and vision plan. Also available inside the FSA would be the Premium Only Plan, Dependent Care Account, Transit and Parking Benefit and the Premium Reimbursement Account (PRA) for non-employer sponsored individual health plans. Employees can now choose how to spend their health care stipend which should create happier and hopefully healthier employees. Employers have a predictable, controllable cost by offering a Defined Contribution while at the same time streamlining their administration. The employees will save additional money as all pre-taxed benefits bypass federal and in some states state income tax. The employers will save as the required employers FICA match is also eliminated on all pre-taxed employee contributions. The end result will be employees with numerous health care choices and an employer and senior leadership team that can refocus on the business versus the business of managing the employees.

Next week's article will discuss the Private Marketplace, the allocation of the employers/employees money and consolidated billing of all the benefits.

Al Scepkowski is a Chartered Benefits Consultant (CBC) with First National Administrators in Parsippany, New Jersey. His email is [email protected]