When a health plan, whether through a private employer or a government program such as Medicare or Medicaid, promises specified benefits regardless of costs, those are defined benefits. Even if the costs of that benefit rise, the benefits are guaranteed. Under federal law, Medicare and Medicaid must spend the funds required to provide benefits to all eligible members. Beneficiaries may be required to share some of the costs, but the benefit is not capped or limited. Most private health plans use defined benefits in which the employer pays a certain percentage of the premium, and the employee pays the rest.
Some Republicans prefer to shift toward a defined contribution model for Medicare and Medicaid benefits in which a limited, set, or fixed amount would go toward health coverage, whether through a voucher or another form of payment. Beneficiaries may have their choice of health plans, but the contribution is fixed, meaning the government or employer would have a predetermined financial liability. Employers that use a defined-contribution approach would give workers a fixed amount for their health insurance and the employee would pay any balance remaining.