Defined Contribution Health Plans: What Are They, and the Impact of Health Care Reform on Those Plans

HR Resource
July 16, 2013 — 2,301 views  
Become a Bronze Member for monthly eNewsletter, articles, and white papers.

Many organizations provide a contribution of a fixed amount to their employees for purchasing health insurance coverage of their choice. The contribution that the employer gives to his employees is in accordance with a defined contribution health plan. Employees can use this amount to pay their health insurance or to buy a new one. Defined contribution heath plan is not a new concept. Still not many employees get to know about it at an earlier stage of their job. Lately, an increase in the interest of the employees toward defined contribution health plans has been seen.


This approach helps the employees by giving them many options in choosing their health coverage plan. It also enables the employer to limit the payment to a fixed amount that he pays to the employees as contribution for their health coverage. This takes away the risk of rise in premium. On the other hand, some employees can be a little apprehensive about this defined approach. They may prefer the traditional health coverage model itself. But it has been estimated that these defined contribution health plans are likely to take up a considerable share of the market in next few years.

This approach has been adopted by businesses to decrease their cost exposure in the employee’s heath care coverage. But the latest reforms in the health care law are likely to accelerate the shift.

Challenges due to the Health Care Reform

This unavoidable transition in the health insurance sector may get a push with the new laws in the health care reform. The Affordable Care Act, popularly called ‘Obamacare’ or PPACA was enforced in 2010. But some of the features of the reform are not going to come into effect till 2014. Obamacare has been facing a lot of criticism and opposition ever since it was first suggested.

The heath care system in the US is very strong. One of the most prominent features of its health care system is its advanced level of medical innovation. Also, it has a large network of hospitals and clinics that offer advanced health care in the world.

In spite of these strengths, it also faces some serious issues. One of them is an increase in the cost at a rapid rate. The rise in health costs is faster than the growth in the national income. It has made insurance costlier and in some cases even unaffordable to many citizens. This in turn has resulted in problems in the budget for the government.

Another challenge is the lack of security in insurance cover. This challenge also is somehow related to increase in the cost of care, making it difficult to give an affordable healthcare cover to the people.

To make the heath care cover credible, these issues must be addressed in a plausible way. One way to do that is by controlling the rise in cost. It can also be addressed by managing the increasing number of uninsured people.

HR Resource