QUESTION

My employer’s plan is changing and they’ll now pay a pre-set dollar amount toward my coverage. What does this mean for the coverage I buy?

Individuals with coverage | Coverage for Employees of a Small Employer
ANSWER

Your employer is shifting to a defined contribution plan, meaning that the employer defines in advance the dollar amount he or she is willing to contribute to employees’ premiums. This is different from the more traditional defined benefit approach to employer-sponsored coverage, in which the employer chooses the benefit package and agrees to pay a percentage of the premiums. With a defined benefit approach, if the plan’s premiums go up, so does the employer’s contribution.

If your employer is shifting to a defined contribution approach, and offers only one plan option, your coverage may not look very different to you in the first year. However, over time, your employer’s level of contribution may not keep pace with increases in the cost of health insurance – leaving you to make up the difference.

If your employer is offering more than one plan option, your employer may peg the amount of their contribution to one of the options – often referred to as a “benchmark” or “reference plan.” If you choose to purchase a more expensive plan than the “reference plan,” you may be responsible for the additional cost. If you choose to purchase a less expensive plan, you may be able to reduce your portion of premium expenses compared to what you would owe if you selected the reference plan. However, if your employer’s level of contribution does not increase at the same rate as premiums, over time, you will be responsible for a greater portion of costs regardless of your plan selection. (45 C.F.R. § 155.705).

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