As health care costs continue to rise, Americans are looking for alternatives to traditional insurance. Consumer driven health plans (CDHPs) have been on the rise as one possible solution. These plans try to control expenses by giving policyholders more responsibility for their health insurance spending. How do they compare to traditional insurance? Let’s take a look.
What are Consumer Driven Health Plans?
CDHPs are a combination of a high-deductible health insurance plan with savings accounts for health care like a health savings account (HSA), health reimbursement account (HRA) or flexible spending account (FSA). You or your employer add money throughout the year and when routine medical expenses come up, you pay them out of your account. When you add money to your account, you’ll receive a tax deduction so you can save more.
If you don’t spend all the money in your savings account during the year, you could transfer the balance over to the next year. This is possible with HSAs and HRAs, but not with FSAs. Check your account to see whether you need to spend everything by the end of the year.
If you ever need any serious, expensive care that pushes you past your deductible, the high-deductible health insurance plan will kick in and cover the rest of your expenses.
How Do They Compare to Traditional Plans?
Traditional health insurance plans charge more upfront with a higher premium that you pay every month. CDHPs give you more flexibility because the monthly premium on the high-deductible plan is lower. This allows you to fund your savings account at your convenience.
Traditional plans also keep your costs roughly the same regardless of how you use your health care. CDHPs cost less if you don’t use much health care but can be more expensive in years when you need a lot of care.
Finally, CDHPs give you more motivation to save money. For example, you call your free nursing hotline for a consultation before taking an expensive trip to the emergency room. With traditional plans, you don’t have the same motivation to save money because you’re paying more of a flat rate that doesn’t reward you enough for making smart decisions.
Are CDHPs Becoming More Popular?
Consumer driven health plans look like they’ll become more popular going forward. According to CNBC, the new administration wants to increase the contribution limits on HSAs, which would make it more effective for people to use CDHPs. In addition, these are attractive solutions for employers trying to control costs. CDHPs encourage employees to become smarter users of their health care benefits, which saves money for everyone. With traditional plans, it’s easy to go on auto-pilot because there’s no incentive to not overuse care.
As CDHPs become more popular, you’ll want to watch to see how their results match up against traditional plans. Hopefully, by giving consumers more control and responsibility, these plans can slow the rise in health care expenses.
David Rodeck is a professional freelance writer based out of Delaware. Before writing full-time, he worked as a health- and life-insurance agent. He specializes in making insurance, investing and financial planning understandable.