A Consumer-Driven Health Plan (CDHP) is supposed to encourage employees to make informed decisions and spend healthcare dollars wisely.
In the consumer-driven model, consumers occupy the primary decision-making role regarding the health care they receive.
Consumer-driven health care is badly named. It is not driven by consumers. It is just an inventive way to shift more healthcare costs to employees.
What is a CDHP?
A Consumer-Driven Health Plan (CDHP) is usually a High Deductible Health Plan (HDHP) tied together with a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA).
There can be many different types of Consumer-Driven Health Plans. Plan benefits vary depending upon the insurance company and even the market area.
♦ The most common CDHP only pays for covered services after you meet your annual deductible.
This plan might work for you if you had it along with a Health Savings Account (HSA) or received funds from your employer in the form of a Health Reimbursement Arrangement (HRA) to help cover the deductible.
• There are no typical copays for office visits.
• The charges for office visits, tests and procedures are applied to the deductible.
After you meet your deductible, you pay a coinsurance for any more services or procedures.
♦ You continue paying a coinsurance until you meet your out-of-pocket maximum.
Once you satisfy your out-of-pocket maximum, expenses are paid 100% by the plan.
This type of plan offers lower monthly premiums and higher yearly deductibles.
A HDHP may be a plan type like: PPO, POS, HMO or EPO but with a high deductible.
With these types of plans you usually have to pay more health care costs yourself before the insurance company starts to pay its share.
• A HDHP may provide preventive care benefits without requiring a deductible first be met.
A high deductible plan can be combined with a health savings account or a health reimbursement arrangement. This allows you to pay for certain medical expenses with untaxed dollars.
♦ For 2021, the IRS defines a High Deductible Health Plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family.
These amounts are unchanged for 2022 plan year.
♦ For 2021, the IRS says out-of-pocket maximum cannot be higher than $7,000 for an individual and $14,000 for a family.
These amounts will be increased in 2022 to $7,050 and $14,100.
The trend has been an increase in HDHP plans being offered by employers as they attempt to cut back on health care spending.
HDHP plans are not for everyone
If you are taking several expensive prescriptions this type of plan usually is not a good fit since most HDHP plans do not cover prescriptions until the deductible is met.
Read your plan’s description of benefits carefully before deciding.
♦ The high deductible can be a major burden for people with health problems.
Their illnesses can keep them from working and as a result they may have a tough time paying the deductible.
A Health Savings Account is savings account available to taxpayers who are enrolled in a High Deductible Health Plan.
The funds contributed to the account aren't subject to federal income tax at the time of deposit.
Both the employer and employee can contribute to the account. The employee would deduct contributions from their tax returns.
Funds must be used to pay for qualified medical expenses.
♦ Unlike a Flexible Spending Account (FSA), funds roll over year to year if you don't spend them.
The funds in a HSA belong to you.
How does an HSA work? Read more ... Health Savings Accounts.
A Health Reimbursement Arrangement (HRA) must be funded solely by an employer.
The contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee.
♦ The funds are tax-deductible for the employer.
There is no limit on the amount of money your employer can contribute to the accounts. However, the plan may impose a ceiling on the value of the HRA.
Employees are not taxed on these contributions since they are considered excluded from wages. There are no reporting requirements for HRAs on your income tax return.
Employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period.
♦ An HRA may be offered with other health plans. Often times an employer will offer an HRA in combination with a High Deductible Health Plan (HDHP) or Consumer Driven Health Plan (CDHP).
In this way, should an employee use a lot of health benefits more health costs can be shifted toward the employee.
Any unused amounts in the HRA can be carried forward for reimbursements in later years.
The funds in the account belong to the employer, so should the employee leave the company any funds in the account do not move with the employee.
Why would an employer offer this?
An employer may offer a plan with a high deductible so they can save money on the premium.
To keep employees happy the employer will offer an HRA together with these high deductible plans.
The HRA account is to cover the additional costs the high deductible plan may cause the employee.
The employer saves money because on average only 30-50% of employees use the HRA funds.
♦ The employer controls their cost while potentially shifting more responsibility to the employee.
The employee benefits most if they are healthy and do not incur a lot of health related expenses.
The employee may need to take a more active role in deciding what health services to receive and from whom to receive it.
What other types of CDHP are there?
A CDHP could involve many twists to traditional plans:
• Modifications to traditional HMO, PPO, and POS plans so that they shift to higher deductibles, larger co-insurance, and larger copays.
• Tiered Networks within an HMO, PPO, or POS plan where employees pay different amounts depending on the network used. These usual become too confusing.
• Combine a HDHP with FSA, HRA or HSA.
• A less common CDHP is where the employer has a plan that offers reimbursement for individual health insurance premiums and the employer then does not offer any group health plan.
What to ask yourself first
- Can you pay for all medical expenses until the deductible is met?
- Can you afford the out-of-pocket maximum?
- Will your employer offer an HSA or HRA?
- Will your employer make any contributions or match your contributions to the HSA?
- How much health care do you and your family members expect to need during the year?
Do CDHPs save money?
The companies that sponsor them obviously believe they save them money.
Benefits manager will sight studies that say that employees using CDHPs spent less money on health care than employees using traditional plans.
The savings comes from being better consumers they say. That tends to be a one eyed view.
♦ Studies by the Rand Corporation have shown that it is the younger and healthier employees that tend to enroll in CDHPs.
The very group that is not expected to use a lot of health care in the first place. The older employees or the ones with serious health concerns tend to stay with traditional plans.
♦ The whole theory behind CDHP is that the employee or consumer is educated enough to know the difference between what is a necessary or unnecessary medical service.
He or she is also expected to know what the appropriate cost for a service should be. This is all far from true.
Consumers do not always have the training or experience to understand when to seek medical professional help or when to wait.
It is difficult to find accurate information about the cost and quality of a particular service. So how can the consumer know they are making the right choices?
♦ The question now being asked by healthcare professionals is whether high deductibles could actually result in adverse consequences in the long run due to avoidance of necessary care in the short term.
Still, the popularity of CDHPs is growing. Or one should say, the number of major companies offering CDHPs is growing.
Nearly half of all major companies offer some form of CDHP.
The driving factor is that CDHP are seen as a means for the company to hold down healthcare expenditures.