The general concept of "Defined Contribution" is that an employer gives each employee a fixed dollar amount for some benefit (a "defined contribution") rather than promising to pay whatever it costs to provide specified benefits (a "defined benefit"). The most well known example of a switch from defined benefit to defined contribution was the widespread replacement of defined-benefit pension programs (in which employers promised a level of retirement income during each year of retired life) with defined contribution 401k retirement plans (in which employers contribute a dollar amount during each year of employment). This switch gave employees greater responsibility for investment strategy and also the risk of projecting their own life expectancy.

The general application of the concept of defined contribution to employer-provided health benefits is not new. Many employers offering multiple health plans contribute the premium of the lowest-cost health plan. Any employee who picks a more expensive plan pays the difference out of their own pocket. Since employees pay more for more expensive health plans, defined contribution provides cost containment incentives at the time of plan selection. These cost containment incentives may be in addition to, or in lieu of, copays or provider-side constraints at the time that individual health services are used.

Although the general application of defined contribution to health benefits is not new, the current use of the term "defined contribution" in health care increasingly refers to two relatively new applications to health care benefits. The first new application is tax-exempt individual health accounts (such as MSAs or HRAs) that can be used to purchase individual health care services. The second new twist is the use of the internet (especially internet-based ebenefits companies) to: provide consumers with information on health plan and provider quality and prices: facilitate consumer choice and selection among health care plans and providers; and provide enrollment tracking, electronic billing, capitation payment risk-adjustment, electronic medical record services, quality improvement services, and other ehealth services. When health sector futurists talk about the new wave of "defined contribution," they are generally talking about these two new applications.