Sorry for the delay this week! I’ve been busy prepping for the launch of the Health Care Transformation Academy. Stay tuned because it will be launching in January and I’m really excited about it!
Last week we talked about the different types of health insurance product offerings- such as HMO, PPO, etc. This week I want to spend more time on the Consumer Driven Health Plan (CDHP) because over 60% of large employers are now offering a CDHP plan for their employees. And let’s be honest- this stuff is confusing so I want to be sure you know what you are getting yourself into!
CDHP (Consumer Driven Health Plan), also called HDHP (High Deductible Health Plan):
- The layout of networks and PCP selection etc. will vary plan to plan.
- Incredibly high deductible of at least $1,300 for an individual or $2,600 for a family and typically lower premiums.
- Whether this is expensive or not for you and your family will depend on how many medical services you use and the structure of the plan.
- Many come with an HSA- Health Savings Account– that allows you or your employer to put pre-tax money into the HSA and use the funds tax-free for qualifying medical expenses.
Let’s me explain in more detail…
The reason it is called “Consumer Driven” is because the employer is shifting costs from the employer to the employee, i.e. the consumer of health care. Recall, the employer is always subsidizing the employee’s premiums but the deductible is always being paid by the employee. So if you lower the premium and increase the deductible, the employee becomes accountable for more upfront costs and the employer is decreasing their costs.
Recall the definition of a DEDUCTIBLE– the amount of money you must pay before your insurance kicks in. Now, this is a high deductible plan. This means that if you do use health care you will need to front that money until you have paid the total amount of your deductible, even though you have lower monthly premiums. Then your insurance will kick in.
Oftentimes an employer will help subsidize your CDHP plan by setting you up with a Health Savings Account (HSA) or Health Reimbursement Account (HRA). Let’s talk about the differences here:
Health Savings Account (HSA):
- Pre-tax money is put into an account (typically by your employer) that you as the employee own. You never pay taxes as long as you use the funds for medical expenses.
- You can’t use the money to pay your premiums- only your deductible and copayments.
- The account is yours- you can take it with you when you leave the company.
Extra Tip: Make sure you have enough $$ in the account to avoid monthly fees.
Health Reimbursement Account (HRA):
- This pre-tax money is owned by your employer.
- You can use the money to pay for all health care, including your premiums.
- If you leave the company, you lose the HRA funds.
So who benefits from a CDHP plan?
Typically it’s young, healthy adults who don’t use any health care.
Let me give an example…
I once worked for an employer that offered a CDHP plan with a very high deductible but they would also set you up with an HSA and put $1500 in it. So think about a young 24-year old who literally never uses health care. I knew for a fact (knock on wood that I wouldn’t have an emergency) that I would not come close to spending $1500 on health care or hit my high deductible so I would rather have lower monthly premiums (more $$ in my paychecks) and be given $1500. I essentially made money! And then it’s an HSA so when I left the employer I took it with me and I still have that HSA today to be used for future medical expenses should I need it.
Now who might a CDHP not be good for?
Individuals who know they are going to be utilizing health care. If you have an illness or chronic condition and you know you need continuous care or might have a hospitalization then you are going to have to pay that entire deductible. Do you have enough $$ saved up to pay the whole high deductible + monthly premiums + copayments?
It’s really important that you do the math and calculate your annual expenses for a CDHP vs another plan based on your expected health care use to see what works best for you financially. Then I recommend you go with a more cost-effective option.
Special Reminder! Tomorrow is the last day to purchase health insurance on the exchanges so be sure you have your 2018 health insurance!
Cheers to Health and Happiness!