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Defined-Contribution Health Care Explained

Defined-Contribution Health Care Explained

Defined Contribution Plan

Defined Contribution Plan

Defined-contribution health care is becoming more popular, according to many experts and economists. This is the future of how certain employers are going to offer their health-care benefits. The trend is not exactly brand new, but it has been used more throughout the past few years. However, with the new advantages out there in the market, the new year is going to be a good year for the defined-contribution health-care system.

What is It?

Defined-contribution health care is a plan that offers various health benefits. Instead of defined benefits for employees, these plans offer a fixed health-care allowance for employees to spend on either a group or individual plan. This can be done in two different ways.

A pure defined approach is when employees purchase their own policies from any carrier that they find. The employer does not have a specific carrier for its employees to use. As long as the policy fits company requirements, employees can purchase the policy.

The second option is a group-based decision. This allows employees to use the allowance they are given to choose a plan in the health-insurance exchange privately. With larger businesses, this is a very common way to go about choosing insurance plans. Employees can choose the coverage they want, but the employer determines the company they will get it from.

The Future of Defined Contributions

Many reports and studies have been done concerning defined-contribution health care. It’s been determined that these types of plans will eventually take over the market during the next decade even though the market is currently dominated by the defined-benefit choice instead of the defined-contribution choice. Defined contributions can also eliminate the need for employees to spend more money to cover the cost of health insurance.

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