Rather than paying the costs to provide large and expensive group health plan benefits, employers are now controlling their costs on a monthly basis by establishing a Defined Contribution Health Plan.
What a Defined Contribution Health Plan is that a company gives each employee a fixed dollar amount (a “Defined Contribution”) that the employees themselves choose how to spend. Usually employees are allowed to use their Defined Contribution allowance to reimburse themselves for individual health insurance costs.
Defined Contribution Health Plans are a cheaper and more affordable alternative to more expensive employer-sponsored group health insurance plans. Defined Contribution Health Plans by themselves are not health insurance plans.
Defined Contribution Health Plans are programs that allow employees to be more involved and have more freedom in their healthcare choices. With a Defined Contribution Health Plan, employees will use their own finances to get their own healthcare plans.
lesson number 17 defined contribution plans overview hi it's Mike how are you doing today I hope you're doing well thanks for coming by it's good to see you again today's lesson will be a very quick one I wanted to go over health plans that are not really health plans and one of those that fits into that category quite nicely is a defined-contribution health plan a defined-contribution health plan is not really a health plan it's an approach to providing health care services for employees and a company that's basically what it is it's not a textbook definition but to keep things simple and to keep it from getting you know too confusing that's the basic idea what companies are doing to combat the ever rising cost of health care is to set up plans that have called defined-contribution health plans defined-contribution health plans are simply this once again this is not an absolute textbook definition but it will be good enough for class today companies want to do two things they won want to hire the best and brightest of course but the second thing they want to do in order to hire the best and brightest they have to offer benefit plans that will attract those people what the current philosophy is especially post Affordable Care Act companies want to use defined-contribution health plans as a basic health care strategy to help them save money attract the best and brightest and do it in such a way that it will be far less cumbersome in an administrative sense when companies want to save money the first thing they do is of course cut benefits defined-contribution health plans do exactly that that was why they are created in fact defined-contribution health plans are really picking up steam here in the United States they're really becoming popular and many many huge corporations are using them what is a defined-contribution health plan once again let's keep the deaf very simple rather than paying the cost to provide group health benefits to a group of employees what businesses are doing is they're going to give literally give their employees money to choose their own health care plan that's basically what it is that's at a nutshell level of understanding typically employees in the past you got a plan from your employer or a choice of plans and you looked at it and you said oh I'll pick you know out of a B or C i'll pick plan B well in business they're moving away from that model what it looks like and look what it looks like the future is going to hold for employee health care benefits is that they're going to give you your boss your employer it's going to give you like say three hundred fifty dollars a month or five hundred dollars a month and they're not going to tell you how to spend it what they're just going to do is give you a series of choices and you choose to opt in and you can choose to opt out of their choices what it does is what this approach will do is that it will give employers enormous enormous savings because with with group health plans you pay huge amounts of money because you're assuring people who won aren't sick to George you're incurring enormous losses you know dollar for dollar for those people who are sick defined-contribution health plans answer both those questions you give somebody some money you give them employee some money and you say look here's your money now you can go and make your choice and that's basically the way it's set up employees will be responsible for selecting an individual health insurance plan and making payments out of their own finances now of course the tax ramifications you know being what they are if you get say five hundred dollars from your employer you'll be paying tax on that money so remember this will be literal income I don't know exactly what future for defined contribution health plans how they exactly going to work out the tax ramifications for the employees or if there will anything worked out at all but you're going to get this five thousand dollars a year and what will happen is is that you choose your own plan some people will choose a plan and some people will naturally keep the money that's where the problem comes in but for employers defined-contribution how flames are going to make them a fortune now they can direct money at people and just say look here's your five hundred dollars a month six thousand dollars a year and that's it that's basically what defined contribution health plans are in future lessons we'll go over more in depth topics associated with defined contribution health plans but I wanted you to be familiar with them and understand at a very basic level what they mean because chances are you have a job you will definitely see a defined contribution health plan very very soon they're all over the place and they're spreading like weeds in the field so get ready for this one because it's definitely coming it's already here but it's going before are far more widespread as time goes along that concludes my lesson for today if you like what you've heard so far please subscribe like and comment as always thank you for your time take care and be well