Defined contribution plans are an affordable alternative to employer-sponsored group health insurance plans, including PPOs and HMOs. Rather than paying the costs—which continue to increase substantially—employers can fix monthly costs by establishing a defined contribution plan. The plan is an accompaniment to other health insurance tools.
It works like this: Employers give each employee a fixed dollar amount (defined contribution) to spend. Employees can use the contribution to reimburse themselves for health insurance costs.