Businessolver Blog

Defined Contribution and Private Exchanges

Defined Contribution and Private Exchanges
Posted on Friday, January 2, 2015 by Natalie McLinden
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The pros of private exchanges–are they really exclusive to private exchanges? Let’s take a closer look at some of the selling points driving exchange hype over the year.

 

Defined contribution and private exchanges–are they mutually inclusive? The defined contribution model in benefits, where a comapny gives an employee a fixed dollar amount that the employees chose how to spend, typically gets associated automatically as a private exchange feature. However, what is lesser known is that the defined contribution model can work just as well with a traditional benefits platform, sans exchange.

How do you know if an exchange is relevant for your workforce?

 

 

While defined contribution is more commonly associated with private exchanges, it’s important to note that both exchanges and benefits administration platforms are able to support defined contribution. Of course you want your employees to be good consumers of their health, but shifting that responsibility could have intended consequences. Going from the paternalistic approach where consumers think “My employer is going to make the right decision for me” to “I am now responsible for where my benefits dollars are going,” consumers feel under pressure and become distracted knowing that they have

 

One of the most common misconceptions we hear about definined contributions is that they only work when using a private exchange.

Let’s go back and look at the roots.

So what are the pros and cons of moving to a defined contribution strategy?

Let’s compare it to a 401K.

 

According to BenefitsPro.com, employers who switch to pivate exchanges report one of the main reasons they are making the move is because the exchanges provide many decision-support tools. This too, however, is a myth. It’s important to remember again that exchanges are powered through benefit administation platforms, so their capabilities at heart are often the same (or more advanced). Our recommendation enginge, MyChoice, works the same whether on an employer direct model or a private exchange model.