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Defined Contribution Plans
Rather than paying the costs to provide a specific group health plan benefit (a "defined benefit"), employers can fix their costs on a monthly basis by establishing a defined contribution health plan.
Defined contribution health plans are an affordable alternative to employer-sponsored group health insurance plans. Defined contribution health plans by themselves are not health insurance plans.
Recruiting and retaining key employees is important to every company and a company's health benefit program is a key part of the compensation they offer to their employees. Due to the rising costs of traditional employer-sponsored health insurance, defined contribution health plans are gaining popularity in the U.S.
The general concept of a defined contribution health plan is that a company gives each employee a fixed dollar amount (a "defined contribution") that the employees choose how to spend. Typically, employees are allowed to use their defined contribution to reimburse themselves for individual health insurance costs or other medical expenses such as doctor visits and prescription drugs.
Defined contribution health plans are programs that allow employees to be more involved in their health care choices. With a defined contribution health plan, employees are responsible for selecting an individual health insurance plan and making payments out of their own finances.