24 May 2026

DC Health Plan Affects Retirement Savings

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Whether or not they get lost in the alphabet soup of health care reform, employers are adopting the defined contribution terminology as shorthand for workplace health insurance arrangements built to give employers more control over the cost and delivery of health benefits. “DC health plan” is a pretty good label for this style of health benefits because the arrangements can closely resemble the relatively well-known concept of the 401(k) plan.

As in the retirement plan space, the specifics of a defined contribution health plan will vary among employers and providers but the important principle is creating more levers for the employer to pull on the pricing and delivery of its health benefits.

It can be predicted the expanding world of DC health plans, fueled by elements of health care reform, could also represent the stirrings of a new interest in “cafeteria plans,” through which spending on health benefits and other employer-sponsored offerings—especially retirement benefits—will be brought closer together over time.

Defined contribution health arrangements and cafeteria plans generally allow employers to take a more proactive, top-line strategy view of benefits spending.

DC Plan Design as Response to ACA 

Forecasting the long-term influence of the ACA on the cost and delivery of workplace health insurance, let alone employer-spending on retirement plans, is no simple feat. Four years after the ACA was debated and signed, many important features of the law have only just been implemented. Others, including the controversial “employer mandate,” are set to take effect next year.

But even with many variables yet to play out, certain consequences of the ACA are already clear. Public and private health care exchanges are here to stay and it will not be long until more employers decide to take a defined contribution approach to health benefits, enabled and accelerated by the existence of online insurance marketplaces.

The public exchanges have already provided health insurance to many Americans but it is the private health care exchanges being launched by specialized vendors that will have a truly significant impact on workplace health insurance—and potentially other benefits as well. According to an analysis from the Kaiser Family Foundation, a bronze-level plan will cover approximately 60% of the net cost of health care. Silver plans, by the same logic, cover 70%, and gold and platinum plans cover 80% and 90%, respectively. Under current timetables, most Americans will be required to have at least a bronze-level plan by the end of 2015 and employers have a list of responsibilities to make sure their workers have access to affordable care.

The evolution in health benefits delivery will also be propelled by recordkeeping and communications technologies developed to administer defined contribution retirement plans, making it even likelier that DC health benefits could soon become the rule.

On the matter of linking retirement and health spending through a unified defined contribution system; the legal framework is already set up for the most part, vis-à-vis 26 U.S.C. Section 125. While the 401(k) really took off in the years after its introduction into U.S. law, cafeteria plans generally did not. Linking complex benefits programs together takes substantial technological sophistication, so for a long time providers struggled to create efficient cafeteria plan arrangements.

A Bronze or a Gold Plan? 

An important consideration in the defined contribution health plan conversation is how the shift to a DC arrangement will be marketed to and understood by employees. It is a similar challenge to the hurdle facing employers who freeze or terminate a defined benefit (DB) pension plan and replace it with a 401(k).

As employees are forced to take on more risk and responsibility, it is not hard to see how they could perceive the change to a defined contribution health plan as a rollback on benefits offerings.

One way to avoid this is for the employer to use the defined contribution arrangement to put a control on the corporate outlay for health benefits. Consider an employer that today has a generous gold plan, for which it covers nearly the entire annual premium for employees. Rather than actually decrease health benefits spending, many employers would be happy to just freeze the spending level or even slow down the future premium increases.

In this situation, the employer can move employees to an exchange that includes a gold plan or a comparable offering then provide a stipend that is sufficient to purchase the desired level of coverage. This minimizes the shock of the change for employees while also giving the employer far more control over health benefits spending, both now and in the future.

The employer can continue to increase the annual stipend payment to employees as the gold plan costs go up, if it so chooses or it can cap spending.

DC Health Means DC Challenges 

It is hard to predict the influence that shifting to a defined contribution health benefits model may have on other offerings at a given company, particularly the retirement plan. Some paternalistic companies could shift dollars saved on health benefits toward the retirement plan, perhaps in the form of a more generous match, but it will depend on the employer. Both experts acknowledge, however, that the conversation is an important part of bringing health and retirement concerns closer together.

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