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Defined Contribution Plans for Vision Care: How They Can Help Reduce Costs

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With a defined contribution plan, also called a self-directed or consumer-directed health plan, you are able to customize what health needs you want to include in your coverage. You can choose from a list of health care benefits, including vision care, that are customized to your needs directly. 

As an employee, a portion of each of your paychecks will be used to pay part of the premium for the defined contribution plan.

Employers can also set up defined contribution plans by offering employees a specific dollar amount they can then use on qualified health care expenses. This is a self-funded health plan, allowing employees more flexibility to choose how to spend their money on health care needs.

This money is deducted before federal, social security, and state taxes are deducted, meaning that it is pre-tax money. In this way, your taxable income is lowered, and the amount of taxes you will pay at the end of the year is less. As a result, a defined contribution plan can save you money on vision care in the long run.

How Are Defined Contribution Plans Different From Other Health Insurance Plans?

A defined contribution plan is different from a traditional health insurance plan in that you are able to choose and pay for exactly the benefits you are looking for. Traditional health insurance plans are benefits plans, meaning that you pay a premium for a set of predetermined benefits. You and/or your employer will pay fully or partially for these benefits as a package deal. 

With a defined contribution plan, you get to decide which benefits to pay for based on your individual needs. You can opt out of paying for things you do not need. 

With a defined contribution plan for vision care, you can put money aside from your paycheck pre-tax to pay for the vision benefits you want and need. 

How Are They Different From an HSA or FSA?

An HSA is a health savings account that is often set up through your employer where you can set money aside pre-tax to pay for health-related expenses, including vision care. An FSA is a flexible spending account that is employer-sponsored, allowing you to put aside pre-tax money to use on out-of-pocket health care expenses. With an FSA, you often cannot use these funds for costs associated with preventative care, such as routine eye exams, or for corrective lenses, such as eyeglasses or contact lenses. 

A defined contribution plan can be set up through your employer like an HSA or FSA, but they can also be self-directed. Defined contribution plans can help you set aside money before taxes to spend on vision care. The goal is to save you money while you get the coverage you want.

Types of Plans 

With a defined contribution plan, either your employer or you can set up a specialized non-taxable account to put money into before taxes are taken out of your paycheck. You can lower costs associated with vision care and only pay for the benefits and services that you need. 

There are a few different types of defined contribution plans that can commonly be used for vision care expenses, including cafeteria plans, HSAs, and HRAs.

Cafeteria Plans

With a cafeteria defined contribution plan, you will have a list of health care benefits to choose from. They can include the following:

  • Health insurance
  • Vision benefits
  • Dental insurance
  • Disability benefits
  • Deposits to HSAs and/or FSAs

This money is taken from your paycheck before taxes to be spent on the specific health care benefits you choose.

Health Savings Account (HSA)

This is a non-taxable specialized account that you can have pre-tax money deposited directly into. You are then able to use these funds to pay for qualified health care expenses, which can include vision coverage. Your employer can choose to contribute to your HSA.

Health Reimbursement Account (HRA)

With an HRA, your employer will set up the special non-taxable account, taking a set amount of your pre-tax salary either monthly or in one lump sum each year. These funds can be used to reimburse yourself for medical expenses, including vision benefits, which can include preventative care, such as routine eye exams. The funds can roll over year to year.

Where & How to Sign Up for a Defined Contribution Plan

Defined contribution plans are often set up through your employer. You will set up a defined contribution plan with your employer who will then deduct the specific amount of money from your paycheck before taxes are taken out to pay toward your chosen plan or into your specialized account, such as your HSA, FSA, or HRA. Your employer can also contribute a set dollar amount that you can then use to pay for the qualified health care and insurance plans of your choosing.

These plans can either be managed directly by your employer or set up yourself, depending on the circumstances. You will often be given a set dollar amount from your employer that you can then use to purchase your vision care plan directly from the provider itself.

Costs

Costs of a defined contribution plan will differ based on what vision care benefits you choose, which plan you have, and whether or not your employer is managing and contributing to it or if it is self-directed. 

For an HSA, you can contribute up to $3,650 a year for an individual or $7,300 for a family plan, as of 2022. These funds will roll over year to year. With an FSA, you can put in a maximum of $3,050 per year as of January 1, 2023. Employers can match that amount.

Eligibility

You are able to set up a defined contribution plan for yourself if your employer does not offer this option. Cafeteria plans and HSAs can be either employer-sponsored or self-directed. 

To be eligible for an HSA, you will need to have a qualified high-deductible health plan (HDHP) and not be covered through any other health insurance. You cannot be enrolled in Medicare or claimed as a dependent on someone else’s tax return.

Best Defined Contribution Plans

Talk to your employer first to determine if they support or contribute to defined contribution plans for vision benefits. They will often have options to set up an HSA, FSA, or HRA through them directly. 

They can also use a cafeteria plan to let you choose your own vision benefits and coverage. An example of a defined contribution plan is Vision by Design, which is underwritten by Companion Life.

References

  1. Health Savings Account (HSA). Healthcare.gov.
  2. Using a Flexible Spending Account (FSA). Healthcare.gov.
  3. Employee Benefits. (2022). Companion Life.

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