What is a Consumer-Directed Health Plan (CDHP)?3 min read • March 08, 2019
The way we pay for our healthcare has evolved over the years. Today, there are many options available to pay for our medical expenses.
Let’s talk about Consumer-Directed Health Plans.
A general definition of a Consumer-Directed Health Plan is one that combines a high deductible health plan with a pre-tax savings account that employees can use to pay for eligible medical expenses.
What is a High Deductible Health Plan?
Otherwise known as an HDHP, a High Deductible Health Plan simply means a health insurance plan with a high deductible. A deductible is the amount of money you have to pay before the insurance company begins paying for healthcare related expenses.
There are no hard and set rules as to what qualifies as a high deductible plan, as this is very subjective depending on the person. Normally, HDHPs come with relatively low premiums compared to traditional plans.
There are several HDHPs out there, but there is a caveat to watch for when it comes to Health Savings Accounts. The HDHP must be a Qualified High Deductible Health Plan.
What is a Qualified High Deductible Health Plan?
Qualified High Deductible Health Plans have firm definitions. The IRS annually releases the minimum deductible and maximum out-of-pocket amount limits for HDHPs. For a health plan to be combined with a Health Savings Account (HSA), it must be a Qualified HDHP.
Many people think that if a plan meets the deductible and maximum out-of-pocket limits, it’s eligible for an HSA. Unfortunately, there are several small characteristics which can disqualify a plan. Here are just a few examples:
Prescription Drugs – QHDHPs specify that only preventative care can be provided before the deductible is met, which does not include prescription drugs.
Office Visits – If the plan covers office visits with a copay before the deductible is met, it does not meet the QHDHP criteria. An exception is for preventative care, such as annual physicals or immunizations.
Emergency Care – If a plan covers emergency care with a copay before the deductible is met, it is not a QHDHP.
As you can see, there are several additional rules and regulations QHDHPs have to follow to be HSA eligible. To determine if an HDHP meets the qualifying criteria, look for the designation indicating it does, or ask the insurance carrier which plans are HSA-eligible.
Once you’ve secured a Qualified High Deductible Health Plan, the second part of a Consumer-Driven Health Plan is a Pre-tax Benefit Account. There are three types of accounts available, Health Savings Accounts, Health Reimbursement Accounts, and Medical Flexible Spending Accounts. Let’s explore each type of account.
Health Savings Account (HSA)
Health Savings Accounts (HSAs) are employee owned and employee and/or employer funded. HSAs must be combined with a Qualified HDHP. Unused funds roll over year to year with the account, and the money belongs to the employee no matter if employment changes.
Health Reimbursement Accounts (HRA)
Health Reimbursement Accounts (HRAs) are owned and funded by the employer. A group health plan is required, typically an HDHP. Employers determine when funds are available and how funds are handled at the end of the plan year.
Healthcare Flexible Spending Accounts (HCFSA)
Healthcare Flexible Spending Accounts (HCFSAs) are owned by the employer and funded by the employee, though employers can fund them too. Employers must offer insurance to their employees, but there are not specific plans required. Unused contributions do not roll over, although, for some plans, there is a grace period or up to a $500 rollover option.
For the most part, a combination of a High Deductible Health Plan and a Pre-Tax Savings Account is what Consumer Driven Health Plans entail. By having an insurance plan and a way to save pre-tax money for those inevitable healthcare costs, you have more options to pay for healthcare and keep you and your loved ones happy and healthy.