What is a defined contribution plan?

Rather than paying the costs to provide a specific group health plan benefit (a “defined benefit”), employers can fix their costs on a monthly basis by establishing a defined contribution health plan. Defined contribution health plans are an affordable alternative to employer-sponsored group health insurance plans. Defined contribution health plans by themselves are not health insurance plans.

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Why can’t an employer just pay directly for employees’ medical expenses without an HRA?

Federal regulations prohibit employers from paying directly for employee’s medical expenses, including health insurance premiums, outside of an HRA or other ERISA-qualified group health benefits plan (e.g. Section 125). GroupHRA automatically makes employers HIPAA and ERISA compliant with these regulations.

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Recruiting and retaining key employees is important to every company and a company’s health benefit program is a key part of the compensation they offer to their employees. Due to the rising costs of traditional employer-sponsored health insurance, defined contribution health plans are gaining popularity in the U.S.

Defined contribution health plans are programs that allow employees to be more involved in their health care choices. With a defined contribution health plan, employees are responsible for selecting an individual health insurance plan and making payments out of their own finances. When combined with an HRA properly, employer contributions towards these premium payments remain tax free and can be seamless.

FAQ’s on Defined Contribution Plans

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