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The ABCs of Consumer-Driven Health Plans


Health insurance continues to be a top priority among employees who count benefits as an important factor in deciding for whom to work. This leaves employers in a position of having to offer the best benefits they can while staying within a particular budget. One option is something known as the consumer-driven health plan (CDHP). Such health plans are allowed under the provisions of the Affordable Care Act (ACA).

Dallas-based BenefitMall describes a CDHP as a type of health insurance plan that combines some form of individual health savings with major medical. The health savings portion pays routine expenses like well-child visits and preventative care. The major medical portion kicks in to cover things like surgeries, emergency care, and serious illnesses like heart disease and cancer.

As an employer, a CDHP might represent an affordable way for you to offer employees a good health plan without forcing them into an expensive HMO or PPO plan.

The Health Savings Component

Covering routine healthcare costs is the purpose of the CDHP’s health savings component. This component can be covered with one of three types of accounts recognized under federal law. Those accounts are as follows:

  • Health Savings Account (HSA) Of the three, the HSA is probably the most recognized. It is a savings account into which both employers and employees can contribute pretax dollars for the purposes of covering medical expenses. Federal law limits these accounts to taxpayers with high deductible health plans.
  • Flexible Spending Account (FSA) The FSA is similar to the HSA with the exception that it is not limited to taxpayers with high deductible health plans. Both employees and employers can contribute pretax dollars to an FSA in order to cover certain qualified medical expenses.
  • Health Reimbursement Arrangement (HRA) The HRA is a separate account funded by employers. It is offered alongside a high deductible health plan in order to limit the employee’s exposure to medical costs associated with routine care.

All three types of accounts are considered tax-advantaged in the sense that they are funded with pretax money. This reduces both income and FICA taxes for employees as well as payroll taxes for employers.

Benefits of the CDHP

CDHPs were originally established in the 1990s as a way to get people more involved in their own healthcare decisions. The key here is that employees pay routine healthcare bills upfront. They are then reimbursed through whatever health savings mechanism they utilize.

How does this help? By educating consumers as to how much healthcare actually costs. When they start seeing the bills for themselves, they are more likely to shop around and compare prices. They are also more likely to forgo unnecessary treatments that they might have otherwise embraced under a traditional insurance plan.

CDHPs benefit businesses in a number of ways. The most important is employment satisfaction. Enrolling employees in a CDHP rather than forcing them into an HMO gives them more control over their healthcare decisions. In many cases, it also means they will pay less for their healthcare. CDHPs tend to be more affordable across the board, high deductibles notwithstanding.

One last point is that employers can also save money due to the fact that major medical plans associated with CDHPs involve lower premiums. They can meet all the requirements of the ACA, cover their employees with a good health plan, and spend less money doing so.

Now you know the basics of the consumer-driven health plan. If you are looking for a new and better way to provide health insurance to your employees, you might want to look into it.

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