SEPTEMBER 18, 2014


Across the board, the health care insurance market is undergoing its most significant transformation in decades. With the creation of public exchanges, the expansion of Medicaid, and the elimination of pre-existing conditions as a reason to deny coverage, we are witnessing unprecedented innovation across the spectrum.

For employers, this new reality creates a rare opportunity to overhaul health care benefit offerings, while reducing costs and improving the overall health & wellness of their employees. Studies have proven that healthy employees are more productive and take fewer sick days than their less-healthy co-workers.

One of the best ways for employers to participate in this revolution is to switch to a defined contribution method of paying for their employees’ health benefits. That is, offering a fixed amount of money allocated to each employee for his or her health care coverage.

To make a defined contribution system work, employers provide workers with access to an online private exchange, which mimics the new public exchanges by offering a wide range of health care coverage options, including medical, dental, vision, and even weight management and fitness programs such as Retrofit.

By contrast, a traditional defined benefit program is built around a small number of insurance plans and limited options for employees. Defined benefit plans often result in higher costs and less predictable expenses for the employer.

Many employers are already switching to private exchanges and defined contribution programs. For 2014 open enrollment, Accenture estimates that more than 3 million employees were covered under private exchanges. By 2018, Accenture projects that 40 million employees will be enrolled in these exchanges under the defined contribution model. While large employers such as Sears and Petco have already made the jump, most of the growth is among mid-market employers with around 1,000 employees, according to Accenture.

Products and services are teaming up to make it simple for employers to offer such options. As consumers get accustomed to the new world of health care insurance, more of them will be looking to their employer-sponsored plans for wider choice and non-traditional benefit options such as a wellness and weight loss program.

I think it’s high time for employers of all sizes to look closely at the defined contribution/private exchange model to figure out when – and not if – it’s a change they are going to make.

Hyman is CEO at Retrofit, a weight loss wellness vendor. Reach him at [email protected]