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Small Business Employee Benefits and HR Blog

Traditional Defined Benefit Health Insurance vs. New Defined Contribution Health Insurance

March 18, 2010
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defined contribution vs defined benefitTraditional defined health benefit plan:  A company provides its employees with a defined healthcare benefit -- doctor visits, hospitalization, pharmacy and so on -- at uncertain annual cost. The benefit is administered through an employer-sponsored group health benefits plan.

New defined contribution health benefit plan: A company provides its employees with a tax-free allowance or "contribution" to spend on their own healthcare -- at an annual cost that the company controls. Employers utilize Defined contribution health benefit plans to reimburse employees tax-free for the premiums on their own individual health insurance policies or to reimburse their out-of-pocket medical expenses.


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