Part 2: Defined contribution health plans: Are you up to speed on the next big thing?

In our last post, we noted that Bloomberg Businessweek and Fox Business News have reported that defined contribution health plans will become “The Next Big Thing” in health benefits gradually taking over the health insurance market.

Yet in our recent online survey of benefit decision makers at Michigan companies, more than 40% of respondents whose companies had defined benefit plans were not familiar with how defined contribution plans worked.

To help you better understand this important topic, here’s the second in our two-part primer about some of the basic concepts, benefits and planning considerations for defined contribution plans.

Defined contribution plans have been around awhile – why are they now getting so much attention?

Back in the 1990s, defined contribution plans (along with cafeteria plans) were the next big thing. But their popularity waned, in part because they were too complicated and difficult to manage and administer. The Affordable Care Act, however, has enhanced the appeal of tax-deferred defined contribution plans, which give employers better cost control while providing employees with more choices. A Booz & Company survey of employers and consumers found strong interest in private exchanges—70 to 80% of respondents indicated they would prefer a private exchange to a public one due to greater product choices, design flexibility and customer service.

And, thanks to advances in technology and new kinds of defined contribution plans, employers do not have to handle plan administration. A survey of 2,809 employers by benefits consultant Mercer found that 45% were either using or are considering a defined contribution approach.

What are the key factors in determining whether a defined contribution plan is right for us?

The key is to find a health care solution that’s predictable and sustainable for you and appealing to employees and retirees alike. Most importantly, that solution must give your people the support they need to make more informed benefit choices.

What are the most important planning considerations?

According to a report from the Employee Benefits Research Institute, the major considerations are plan design, setting the level of fixed contribution and determining the amount of plan choice. My colleague Ken Dallafior, the Senior Vice President of Group Sales and Corporate Marketing for Blue Cross Blue Shield of Michigan, also notes that providing employees with a helpful decision-support tool is essential in a defined contribution model.  This provides employees with insightful guidance to help them make optimal decisions regarding the health coverage that is best suited for their individual health needs.

We’ll be covering planning considerations and related topics in upcoming blog posts.



Rising benefit costs is a challenge for all companies. GlidePath, a new solution from Blue Cross Blue Shield of Michigan and Blue Care Network, offers your mid-size company an innovative way to manage spending and risk. It can transform the way you finance your company’s health insurance coverage. With GlidePath’s defined-contribution solution, you can determine your company’s health benefit budget and simplify the administrative work that goes along with offering health benefits.

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