The cost of health insurance continues to rise. According to the Kaiser Family Foundation (KFF), the yearly average cost of a family health insurance plan was $18,142 — 3 percent higher than 2015. The cost of single coverage grew to $6,435. Simultaneously, however, average incomes increased by only 2.5 percent, and inflation just 1.1 percent
The good news behind these numbers is that the rate of premium cost increases appears to be slowing. KFF noted that high-deductible health plans — including consumer-directed health plans (CDHP) — are growing in popularity and are a key driver of the trend.
What Are Consumer-directed Health Plans?
In the 1990s, popular support for managed care plans declined in the face of rising insurance costs. In response, major health care organizations began offering CDHPs. The driving force behind this was demand for increased health care decision-making power on the part of the consumer.
CDHPs take various forms, but the most common ones offer a high-deductible health plan paired with a spending account to cover out-of-pocket costs. The latter are usually health savings accounts (HSAs) or health reimbursement arrangements (HRAs):
- HSAs – These are savings accounts with a tax-favored status that allow employees to pay for qualified medical expenses tax-free, HSACenter.com explained. When the annual deductible is met, the health plan begins paying expenses. Most HSAs allow employees to roll over money not spent in a given year while accruing interest.
- HRAs – According to the Total Administrative Services Center, these are accounts set up and funded by employers. They can’t be created by reducing employee salaries, and the funds must be spent on qualified medical expenses. All employer contributions are tax-free, and the overall costs of premiums are lower. For employees, premiums are lower and out-of-pocket expense can be reduced.
Who Benefits the Most?
CDHPs are a good fit for young, healthy employees who don’t take a lot of prescription medications. This group is less likely to exhaust their deductible every year. Companies with large numbers of young healthy employees find CDHPs attractive based on employee demographics and cost.
One exception to the young and healthy rule would be young women who are planning to have babies. Maternity is expensive, and the same goes for childhood, particularly during the first two years of life when there are many visits to the pediatrician.
What Else Is Needed?
Conversely, businesses with older employees — especially those with chronic illnesses — may be less inclined to implement CDHPs. Employees who use health care services often, or who are prescribed expensive medications, may find the CDHP model less attractive. Employees also must consider whether they’re positioned to cover the annual deductibles that CDHPs require.
In the final analysis, CDHPs accomplish what they’re intended to do: They provide consumers more control over how health care dollars are spent. These plans compel employees to critically evaluate the necessity of the care they seek and to ask more questions of their doctors and other care providers.
As expected, some employees have been relatively slow to change their habits regarding the use of health services, but they want lower-cost health insurance options. As employees become more accustomed to shopping for low-cost, high-quality health care, they’ll likely try to take advantage of CDHPs.
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