Defined Contribution

Learn more about this full-service solution for individuals to purchase health coverage through an online marketplace.

Defined Benefit vs. Defined Contribution

Defined Benefit

Traditional group plans are commonly referred to as Defined Benefit plans. In this model, employees are presented with pre-selected coverage plans, chosen by the employer. Annual costs associated with defined benefit plans are uncertain for employers due to rising premium costs and claims.

  • Coverage plans are determined and set by employer

  • Employees have limited choice on their coverage

  • Employer costs are unpredictable

Defined Contribution

In a defined contribution model, employers can select a determined amount of pre-tax allowance to provide employees to spend on healthcare. Employers utilize this plan type to reimburse employees for their own health insurance policy premiums or out-of-pocket medical expenses, such as prescription drug coverage and doctor visits.

  • Fixed, pre-tax dollar amount to spend towards health coverage

  • Employees have a choice on how to spend the contribution

  • Dollars can accrue over time to plan for higher expenses, i.e. surgery, procedures, etc

Employer Benefits of Defined Contribution Plans

  • Employers currently offering insurance benefits
    • No longer have to administer health benefits

    • Potentially see gains from employees (young, healthy, etc.) that don’t utilize the full contribution

    • No longer forced to increase contributions with the rising costs of healthcare

  • Employers not currently offering insurance benefits
    • Provide additional compensation in a tax advantaged way (i.e., provide pre-tax HRA benefits instead of a post-tax salary increase)

    • Ability to offer some benefits previously not available due to affordability, minimum participation requirements, etc.