Unlock the Benefits of Consumer-Driven Health Plans

Anthem’s Trends in Health Benefits 2018 report found that consumer-driven health plans (CDHPs) are gaining popularity among both employers and employees. But what is a consumer-driven health plan, really, and is it a good option for your business?

The Benefits of CDHPs

A consumer-driven health plan is a high-deductible health insurance plan that’s used in conjunction with a tax-advantaged savings account — either a health savings account (HSA), a flexible spending account (FSA) or a health reimbursement account (HRA).

Enrollment in high-deductible health plans with associated savings accounts has increased by 50 percent since 2013. And the average employee-only premium for a CDHP is roughly $6,459 — nearly 10 percent lower than the average premium for a traditional preferred provider organization (PPO) plan.

This makes CDHPs a more cost-effective way to offer health insurance, a crucial factor in attracting and retaining top employees. At the same time, these plans are called “consumer-driven” because they offer employees more flexibility about their health care spending and saving — and by putting that control in employees’ hands, they prompt your workforce to be smarter health care consumers.
While CDHPs are popular with young, healthy employees who are unlikely to need extensive medical care, they can also be an excellent choice for employees with high-cost medical conditions, since out-of-pocket caps tend to be similar to those of traditional plans. Combined with the lower premiums and the ability to use pretax dollars to cover out-of-pocket expenses, that can make CDHPs a good option even for employees with extensive health care needs.

Employees who opt for a CDHP get the tax advantages that go along with its associated savings account. All of the available account options allow employees to use pretax dollars to pay for out-of-pocket medical expenses.

A Look at HSAs and Other Tax-Advantaged Accounts

All these acronyms can be confusing. Here’s a quick breakdown of the three types of savings accounts associated with CDHPs.

• HSA. The flexibility of health savings accounts makes them the most popular type of CDHP savings account. With HSAs, pretax dollars are deposited into the account by the employer, the employee or both — but they belong solely to the employee. The money can earn interest or investment gains, all tax-free. Any money in the account will roll over from one year to the next. When the employee (or one of their family members) has out-of-pocket medical costs, they can withdraw money from the HSA — tax-free — to cover the bills. Because there’s no use-it-or-lose-it provision with HSAs, the money can be used to cover qualifying medical bills many years or decades in the future. It’s also possible to take out money for nonmedical expenses in a pinch, but there’ll be a 20 percent penalty.
• HRA. Health reimbursement accounts are another popular option for employees, although they lack some of the flexibility of HSAs. HRA contributions come entirely from the employer, and while unused funds can roll over from one year to the next, the employee forfeits any money in the account when they quit or retire. The IRS has limits on the total allowable contributions to HSAs and FSAs, but not to HRAs.
• FSA. A flexible spending account isn’t technically a savings account, although it allows employees to use tax-free dollars for their health care costs, and the money in the account can come from both the employer and the employee. FSAs do have a use-it-of-lose-it provision, although the IRS permits employers to offer employees options if they still have money left in the account at the end of a plan year.

Ensuring Employees Get the Most Out of Their CDHPs

Especially if they’re unfamiliar with CDHPs, some employees may fear the switch from a traditional plan to a CDHP. The following talking points can help your employees feel confident in their health plan choice, especially if you’ve just started offering CDHPs or are going to in the near future.

• Clarify that a CDHP is also a preferred provider organization (PPO), health maintenance organization (HMO), point of service (POS) or exclusive provider organization (EPO) plan. Employees tend to be at least somewhat familiar with those acronyms and generally understand how they function, but many people think that a CDHP is another type of plan altogether.
• Explain total out-of-pocket costs, rather than just focusing on the “high deductible” part. Some CDHPs actually have lower total out-of-pocket costs than traditional health plans, even when the traditional plan has a lower deductible. For 2019, the IRS requires an HSA-qualified plan to have a deductible of at least $1,350 for a single individual. But the average deductible for a single individual is nearly $1,600. CDHPs aren’t the right choice for everyone, but helping employees understand and compare total costs can make the idea of a CDHP less intimidating.
• If employer contributions to the CDHP’s savings account are part of the benefits package, ensure that employees understand how the contributions work. It is a set amount or a matching contribution? If employee contributions are allowed, help employees understand how much they can contribute. Employees may also need you to explain how the money in their account can be used and what happens to it if there’s a balance in the account at the end of the year or when the employee leaves the company.

CDHPs can help some employees save money, but making a confident health plan choice is easier said than done — and many people don’t know where to start. Before employees choose a CDHP, give them the resources to find the best value and shape their health care solutions around their health care needs. Please visit our service area to know more details about insurance.