How States Can Revive Defined Contribution Health Plans

Key Points:

  • Many employers and their employees could benefit from a defined contribution (DC) health plan in which employers give employees a defined (fixed) pre-tax contribution to purchase individual market health coverage.
  • The arrangement gives employees choice and ownership over a health plan they can keep when they leave their job.  Employers gain better control over their health care spending.  And both employees and the employer receive substantial savings because contributions are made pre-tax.
  • The ACA appeared to expand opportunities for employers to offer these DC health plans to their employees.
  • Federal agencies, however, issued guidance in September 2013 which generally prohibits employers from making contributions to fund individual insurance coverage through a DC health plan.
  • Though regulatory rulings issued by the federal government generally preempt, or preclude action by a state, there is an opportunity for states to change how they regulate and structure insurance markets to revive DC health plans.
  • States can create a new category of group insurance coverage called “portable group” coverage that can integrate with a DC health plan and deliver the same choice, ownership, portability, and security as contributing to traditional individual coverage.