Small businesses, hit with double digit health insurance increases for years, are fighting back.  In a way very similar to how defined benefit pension plans rapidly disappeared after congress passed Internal Revenue Code 401(k)  in 1978, the passing of Health Reform in the United States in 2010 marks the beginning of the end for defined benefit group health plans for small businesses.  By the mid 1980s the majority of small business pension plans in the United States were 401k, or defined contribution plans; attractive because they gave more flexibility to employees and were less costly to employers.  Just as retirement fund managers switched from group to personal (401k and IRA) plans, employers should now prepare employees for personal policy funding through Defined Contribution Employee Health Plans .   The following facts should make group health plans for small businesses obsolete in the very near future:

    Employers can now contribute to their employees individual health insurance costs.
    Employer defined contributions are 100% deductible to the company as a business expense.
    Employer contributions are 100% tax-free to employees.
    Individual health insurance plans now cost considerably less than group plans.
    Employers can contribute different amounts to different employees.
    Employers, not insurance companies, define eligibility in a defined contribution plan.
    Employers who implement a defined contribution plan are freed from annual rate increases.

Small businesses need to provide good benefits to attract and retain employees but for years have been wrestling with ever increasing health insurance costs and decreasing benefit levels.  Dumping the old group health insurance concept and implementing defined contribution health benefit plans instead not only reduces and controls business costs but also provides better benefits.  A revolution, indeed!


Contact Ronald Haines at ronald@hcibenefits.com