A Consumer Driven Health Plan, or CDHP, is several things rolled into one term. The term came about because these plans are meant to essentially give the control back to the consumer. Whether they actually do this or not is another thing. These plans also have one element in common; they all begin with a High Deductible Health Plan, or HDHP. The other element they have in common is they have means of using savings dollars toward medical expenses. The difference is that each has a different owner of the “savings" account.
The most popular CDHP is the Health Savings Account, or HSA. In order to have a Health Savings Account, you must first buy a High Deductible Health Plan (HDHP). What is a high deductible? Well, these CDHPs are governed by the IRS (of course; because they offer tax savings) and the IRS defines a HDHP as having at least a $1,200 deductible for an individual and $2,400 deductible for a family. Once you have a HDHP, you may open a Health Savings Account (HSA). A HSA works very much like any other savings account. It is essentially a savings account with tax saving capabilities. You may put up to $3050 per calendar year as a single person and up to $6,150 for a family (this is defined by having a main subscriber and a spouse or a main subscriber and a child/ren or a main subscriber and a spouse and child/ren). I usually refer people to www.hsabank.com. This is a wonderful resource. The money that a person puts into a HSA is tax deductible. You can use the money in your HSA toward qualified medical expenses. Qualified Medical Expenses are defined by the IRS. You can get a list of these expenses by visiting www.hsabank.com or the IRS website (http://www.irs.gov/pub/irs-pdf/p502.pdf ). The great thing about a HSA is it is owned by the individual. If you change jobs, you take it with you! You can also use this money for retirement.
There was another type of CDHP that was owned by the individual. This is call a MSA or Medical Savings Account. This plan has been replaced by HSAs. Legislation was updated by the Bush Administration and improved to incentivize people to participate in a tax saving vehicle in relation to health care expenses.
The second type of CDHP is a HIA, or Health Incentive Account. The difference between this and a HSA is that the savings account is held by the insurance carrier. On the day you start coverage, you have access to a pre-designated amount per calendar year. For example, let’s say you enroll on a $750 HIA and you start your coverage 2/1/10. This plan also has a $1500 deductible (as it must have a HDHP in order to be a Consumer Driven Product). You start out with $750 first dollar coverage. The insurance company is giving you this money and it is included in your monthly premium. Once you use all of the $750, you have to meet the remainder of the $1500 deductible, which is $750, before the insurance will begin paying on your claims again. Once that deductible is met, the insurance will start paying for services again on a coinsurance level/percentage basis (most of these plans pay out 80%). So, why are these plans cheaper than a traditional PPO? Because insurance actuaries have determined that people pay more attention to their benefit dollars when they are given a designated amount of first dollar coverage. When insureds are looking at their Explanation of Benefits (item you receive in the mail from your insurance company once a claim is processed) it is more likely that people will:
The third type of CDHC can be administered thru a HRA, or Health Reimbursement Account. HRAs are owned by the employer. This doesn’t mean that employers cannot use the other two types of CDHCs. The point is that the account is owned by the employer and NOT the individual or employee(s) and the account is NOT owned by your insurance company. HRAs give the control to the employer. It is the employer’s money; they can design a plan that works for their company and their employees. In short, the employer purchases a HDHP for all of their employees, and then the employer chooses how they would like to fund that deductible. If you want a $100 deductible with 100% coverage, you can do that. If you want a $0 deductible with 50% coverage you can do that as well. It is completely up to the employer on how they want to design the coverage. The money that is distributed from a HRA is tax deductible to the employer. The reason why HRAs work is there is usually about a 20%+ savings in premium between a traditional plan and a HDHP. With that savings, the employer can then use that money to fund the deductible for its employees. If the employees do not use the plan, the employer keeps the money. The risk is minimal in comparison to a fully self-funded plan. These HRAs are also referred to as a Partially Self-Funded Plan. This is because the employer is only funding the deductible of $1500 to $5000 usually and with a Self-Funded plan, the deductible will be between $30,000 (with plans like Great West) to $100K+. HRAs are a great solution for employers who are smaller in size and need smaller amount of risk than a self-funded plan.
Consumer Driven Health Plans are not for everyone. However, when it is appropriate it can be a wonderful solution to rising health care costs.
