A consumer-driven health plan (CDHP) is one of the most popular types of health insurance plans. In this plan, consumers bear the cost for claims until the high deductible for the plan is met. There are four main components in a CDHP: a low premium, a savings account, high-deductible medical coverage that includes 100 percent coverage for preventive care, and access to educational tools and information. Employers can choose from the following accounts to help employees pay for medical expenses before their deductibles become effective:
- HSA: In a health savings account, which is a bank account in the employee’s name, interest is accumulated tax-free and can be withdrawn for medical expenses. If withdrawals are made for non medical expenses, the employee will be taxed. Contributions to the account may come from the employee, employer or both. If the employee funds, typically employees set aside money from each paycheck on a pre-tax basis. The government does establish annual limits of how much can be contributed to an HSA annually. The money rolls over yearly and stays with the employee even if he or she leaves the company.
- FSA: In a flexible spending account, employees set aside money from each paycheck on a pre-tax basis. Accumulated money can be withdrawn tax-free to pay for covered medical expenses. Any unused funds at the end of the year are forfeited and cannot be rolled over into the next year.
- HRA: Under a health reimbursement arrangement, the employer sets aside a specified amount of money to pay for an employee’s medical expenses. The employer establishes whether money remaining in the account at the end of the year is either carried over or forfeited.
Note that many employers who offer an HSA or HRA plan choose to weave in wellness incentives. So if an employee takes healthy steps, such as getting a flu shot, completing a smoking cessation program or logging fitness minutes, the employer will fund an incentive amount into the employee’s account.
There are certain advantages to choosing a CDHP.
1. Savings for Businesses
Participating in a CDHP reduces costs to you without taking more out of your employees’ paychecks for premiums. The New York Times blog predicts that a company can save as much as 20 percent on insurance costs by opting for lower-premium health insurance plans.
Lower premiums may also keep your health plan beneath the 40 percent Cadillac tax threshold, scheduled to go into effect in 2020 as part of the Affordable Care Act.
2. Medical Cost Savings
Many predict that when employees are more directly affected by health costs, they will begin to look for lower-cost quality health services and prescriptions and start utilizing preventive services. A discerning attitude toward medical spending can reduce annual health care spending in the U.S. by $57 billion, according to American Medical News.
3. Better Health Outcomes
Almost all CDHPs exempt preventive care such as physicals, mammograms and colonoscopies from the deductible requirement. If you educate your employees about these benefits, you can help them stave off possible illnesses. Likewise, employees may become more conscious of their own health and decisions once they become more responsible for associated costs.
4. Improved Quality of Care
If you choose a CDHP for employees, Human Resource Executive Online states that you’ll find success if you arm them with health care performance metrics such as evidence-based quality measures and patient-satisfaction survey data. With this data in hand, employees are likely to make better choices about the quality of care that they receive.
A CDHP will help you reap savings in the long run as you and your employees work to save on medical costs. It is crucial to provide accurate and sufficient tools to help employees make better health care decisions and to ensure that health care dollars are well spent.
Emmie Sahlan has a graduate degree in English and has been writing professionally for the past five years. Her niche areas are insurance, credit cards, personal finance and education.