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Small Business Employee Benefits and HR Blog

Defined Contribution - A Health Insurance Solution for Veterinarian Clinics

Defined contribution is a popular health insurance solution for small to medium sized veterinarian clinics. This article looks at why vet clinics and animal clinics are quickly adopting defined contribution as a health insurance solution.

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Overview of Small Business Health Insurance for Veterinarian Clinics

Small business health insurance plans are a form of employer-sponsored health coverage. Costs are typically shared between the employer and the employee, and coverage may also be extended to dependents. In certain states, self-employed persons without other employees may qualify for group health insurance plans. There are several different types of small business health insurance plans available. 

However, many small and medium veterinarian clinics can’t offer small business health insurance coverage due to rising costs and restrictive minimum contribution and participation requirements. Which is why many veterinarian clinics are transitioning to, or starting offer health benefits for the first time with, a defined contribution strategy.

Overview of Defined Contribution

defined contribution health plan allows any employer to name its price for health benefits. Rather than paying the costs to provide a specific small business health insurance plan (a "defined benefit"), employers instead fix their costs by establishing a monthly dollar amount (a “defined contribution”) that employees may spend on qualified health insurance.

With the purest form of defined contribution, employers offer employees a health insurance allowance as the benefits package. Employees purchase an individual policy of their choice, often with the help of a health insurance broker, and are reimbursed as the plan allows.

Why Defined Contribution is Popular with Veterinarian Clinics

The most common benefit discussed with defined contribution is the cost savings and fiscal control. Defined contribution allows the veterinarian clinic to set and control all health benefits costs. This feature alone allows many veterinarian clinics to offer formal health benefits for the first time.

Additionally, there are other benefits of defined contribution that fit well with veterinarian clinics, such as minimal administration time and employees' choice of health plans. Here's a look at those benefits.

  1. Controllable Costs – The veterinarian clinic fixes their costs because they decide how much to contribute. There are no minimum contribution requirements, and employers can vary employee contributions based on job criteria. For veterinarian clinics, and any small business, having predictable and controllable costs year to year adds much needed stability to the budget.

  2. More Time for Serving Patients – With defined contribution software, veterinarian clinics can offer a quality health benefits program in less than 5 minute per month. Administering the health benefits program becomes a payroll function and requires minimal involvement from clinic staff. There are no annual renewals, and employees maintain the direct relationship with the insurance company. Many veterinarian clinics are adopting lean operational philosophies and defined contribution aligns with lean goals. 

For employees, the key benefits of being offered health benefits via defined contribution are:

  1. Lower Costs – In today's workforce it's not just the employer who pays part of the premium cost -- it's employees too (especially for family coverage). Individual health plans costs 20-30% less than traditional group plans and eligible employees can access the new tax credits to lower their premium costs even more.

  2. Choice of Plan – With their defined contribution allowance, each employee may choose the health plan that best fits their personal needs. This can be a plan from any insurance carrier and any type of plan coverage (deductibles, network, etc.). Employees can keep their doctor and preferred medical centers. The plan is portable and theirs to keep if they leave the company.

4 Simple Steps To Start Offering Defined Contribution Health Benefits

  • Step 1 - Set a dated to terminate your group health plan (if you have one)

  • Step 2 - Define any amount the office can afford

  • Step 3 - Select an Insurance Professional of your choice to help each employee find the right individual policy

  • Step 4 - Utilize online defined contribution admin software to reimburse employees

In addition to veterinarian clinics, what other niches or industries are you seeing to quickly adopt defined contribution? Leave a comment or question below.

Defined Contribution Plan Design Worksheets - Free Guide