Understanding Vision Benefits Within Defined Contribution Plans

Employees traditionally have received health insurance and, in some cases, vision benefits through a system set up by employers known as defined benefits plans. In these plans, the employer sponsors a usually limited selection of group health benefits. The employer then pays fully or in part for these benefits.

But in recent years, a few U.S. employers have begun to offer their employees defined contribution health benefit plans — also called consumer-directed or self-directed health plans — instead of traditional defined benefit health plans. These plans may be funded through tax-free dollars that are deposited in lieu of additional salary into special accounts.

In defined contribution plans, employees are given a "menu" of choices for healthcare. Vision benefits including at least partial payments for eye exams and vision correction often are listed among these choices.

With a defined benefit plan, your employer sponsors a limited selection of group health benefits. These include a health insurance policy and, perhaps, a prescription drug, dental, and/or vision plan. In exchange for these health benefits, you pay a premium that is withheld from your paycheck monthly and treated as a taxable, payroll deduction.

In contrast, a defined contribution plan provides you (through your employer) a certain amount of tax-free dollars to purchase your own health insurance and pay for other out-of-pocket medical expenses.

Types of defined contribution plans:

• Cafeteria plan: In this type of plan, your employer takes a portion of your salary and deposits it into a non-taxable account to be used for healthcare spending. You can choose from a "menu" of health coverage options that can include vision benefits. [Read more about cafeteria plans.]
   
• Flexible Spending Account (FSA) plan: With an FSA, the portion of your salary deposited by your employer for tax-free healthcare spending must be used within a 12-month period or it reverts back to your employer. You cannot use an FSA to pay for health insurance premiums or preventive care such as eye exams. [Read more about Flexible Spending Accounts (FSAs).]
   
• Health Reimbursement Arrangement (HRA) program: An HRA is similar to an FSA (see above), except that you don't lose the money if it isn't spent within a certain time period. Unlike an FSA, you can use money from this fund to pay for preventive care such as eye exams and health insurance premiums. [Read more about Health Reimbursement Arrangement (HRA) programs.]

• Health Savings Account (HSA): An HSA may be funded directly by your employer or through payments in lieu of extra salary that ordinarily would be paid directly to you. You must be covered under a high-deductible health insurance plan to participate. The amount of money deposited in this account cannot exceed the annual deductible of your regular health insurance plan. If these conditions are met, you can use your HSA to pay for preventive care such as eye exams. [Read more about Health Savings Accounts (HSAs).]

Your employer-sponsored health benefit plan may be managed by your employer or by a third-party administrator (TPA), such as a health insurance company.

Page 2 of 3: Details about cafeteria plans and Flexible Spending Accounts (FSAs)

Page 3 of 3: Details about Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs)