Consumer Driven High Deductible Plans (CDHP) with Health Savings Accounts (HSA) are a newer model of medical insurance that are growing in prevalence and popularity. They now account for about 25% of all medical insurance in the U.S.
The philosophy behind a CDHP is a bit different from that of traditional PPO medical plans. In a PPO, you pay higher monthly premiums up front in return for relatively low co-pays and deductible-free care in network. Depending on how much health care you and your family utilize in a given year, the amount you pay in premiums may be higher than the cost of care you receive.
Conversely, in exchange for a much lower monthly premium, a CDHP plan features an annual deductible regardless of whether care is provided in or out of network. Instead of co-pays, subscribers are responsible for paying coinsurance, which is two-tiered, with out of network care incurring a higher percentage of coinsurance. In this case, a subscriber needs to pay more out of pocket at the time of care, but benefit from much lower monthly premiums.
Paying for Care in a CDHP
To allow CDHP subscribers to plan for potential medical expenses, subscribers set aside funds pre-tax in an individual Health Savings Account. HSA funds can be used to cover deductibles, coinsurance, prescriptions and other medical expenses that may be incurred over the course of the year. Any funds not used roll over into the next year and also earn interest.
HSA funds are portable. They belong to the subscriber. When a subscriber leaves an employer, they bring their HSA with them. Withdrawals for health care expenses are tax-free. In addition, at age 65, withdrawals for any purpose are tax-free.
CDHPs function within the laws of the Affordable Care Act. That means preventive care is covered at 100%. In addition, once a subscriber has satisfied the out of pocket maximum, 100% of care is covered as well.
Weighing the Benefits and Risks of a CDHP
As with all medical insurance plans, it’s important to weigh the benefits and risks of the coverage. A CDHP requires more legwork from the subscriber in return for cost savings and the potential to save money in a tax-advantaged account that earns interest. Only you can decide whether a CDHP/HSA combination could work for you or whether you are more comfortable with a PPO or HMO model.
As Open Enrollment for the 2017 plan year nears, we will be helping Lehigh employees better understand all of their medical insurance plan options through online and in-person education and tools.