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What is a CDHP health plan?

Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella...

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UPDATED: Mar 19, 2020

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The lowdown...
  • CDHP stands for Consumer Directed Health Plan
  • CDHP lowers costs to employers and consumers and adds spending flexibility
  • CDHPs can be employer sponsored or purchased by individuals and families
  • Consumer Directed Health Plans are part of a broader business strategy called consumer-driven plans

Consumer Directed Health Plans leave choices about health care spending to employees or insured persons. The typical structure of a consumer-directed health plan is a High Deductible Plan paired with a Health Savings Account or Health Reimbursement Arrangement. Comparison shopping is an excellent method for selecting a high-deductible policy and HSA on the Obamacare Marketplace.

Comparison shopping is an excellent method for selecting a high-deductible policy and HSA on the Obamacare Marketplace. Enter your zip code above to compare free private health insurance quotes through our site today!

Consumer Driven Health Plan Factors

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Consumer-driven plans are the broad category of health insurance that relies upon consumers to decide spending priorities. The below-listed items describe the essential elements of consumer-driven health plans.

  • Low premiums — The key to consumer-driven health programs is the emphasis on low prices.
  • High deductibles —  The insurance plan protects the insured persons by insurance benefit payments that begin after payment of the deductible.
  • Out-of-pocket expenses — The plan provides funds through a tax-advantaged savings or reimbursement account. Employees or beneficiaries get to decide when and where to spend.

Rising Costs before the ACA

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In the decades before the Affordable are Act, popular sentiment grew across the US for a national health insurance program. Inspired by examples in Central Europe and Canada, voters in the US increasingly demanded action to alleviate rising health costs and promote universal coverage.

While many Americans could not get coverage due to insurance industry practices and exclusions, those that had coverage faced rising prices for premiums, deductibles, and expenses.

  • From about the year 2000 through the enactment of the Affordable Care Act in 2010, employers used High Deductible Plans to help control expenses.
  • In the same period, consumer-driven health care gained popularity as consumers demanded increased involvement in their health spending choices.
  • The solution that emerges was health spending assistance from the employer or the employee’s earnings.

High Deductibles and Lower Premiums

 

Before the Affordable Care Act, insurance companies offered high-deductible plans to large and medium sized employers to reduce employer costs. Insurers offered high-deductible plans, low premiums, and reduced benefits. The combination lowered the amounts that employers paid to cover employees.

The result was that employees had to handle more out-of-pocket expenses. Deductibles were harder to reach, and insurance was more difficult for employees and their families.

Employers Save

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The employers that selected high-deductible menus for their employers added cash assistance to employee health care resources. In this way, employers shared their savings with employees and added an important source of funds to pay expenses.

The use of High Deductible Health Plans was part of a strategy to put resources and decision-making in the hands of employees. Experience showed that employees spent their limited health care money more carefully and in lower amounts when deciding whether to spend.

Obamacare CDHP

Individuals and families can use consumer-directed or consumer driven health plans to get coverage, cover expenses, and develop savings. Obamacare offers HDHP options for qualified applicants in select silver plans. The Obamacare Marketplace identifies policies that pair with HSA spending accounts.

Consumer-Based Approaches

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High Deductible Plans create savings for employers and individuals by low premiums. But they do not add funds to cover medical expenses. The options create consumer controlled resources to cover medical expenses prior to reaching the deductible threshold.

  • High Deductible Health Plan and Health Savings Account(HDHP-HSA)
  • High Deductible Health Plan and Health Reimbursement Arrangement
  • Flexible Spending Accounts

Health Savings Accounts

Health Savings Accounts are tax-advantaged savings or employer contributions that help pay out-of-pocket expenses. To get a tax deductible Health Savings Account, policyholders must have coverage under a High Deductible Health Plan. Comparison shopping is an excellent tool for selecting plans from employer-sponsored menus.

IRS and High Deductible Plans

The IRS sets annual standards for High Deductible Plans. They establish the annual deductible and contribution standards that qualify as High Deductible plans for tax purposes.

High Deductible Health Plans must have deductible at or above $1,300 and cannot have annual contributions greater than $6,750.

There is a catch-up provision allowing an extra $1000 for those 55 and older.

Defining High Deductible Plans

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Obamacare and the IRS provide rules for maintaining High Deductible Plans and Health Savings Accounts. The below-listed items describe the recent standards for Health Savings Accounts funded by employers or individuals. Comparison shopping helps employees make sound decisions when spending funds from Health Savings Accounts.

  • Annual deductible minimum for individuals in 2016 was $1,300 and the minimum for families was $2,600
  • Annual out-of-pocket limit for individuals was $6,550 and the out-of-pocket limit for families was $13,100.
  • The 2017 annual contribution limit for individuals was $3,350 and for families was $6,750.
  • The 2017 annual contribution limit added an additional $1,000 for individuals over 55 was and for families with head of household over over age 55.

The CDHP Health Plan

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Consumer Directed Health Plans provide relief for consumers when health expenses rise, and policies offer fewer benefits because of high deductibles. Consumer-directed plans take advantage of high deductibles by capturing the value of low premiums.

The consumer uses tax-advantaged savings or employer contributions to pay out-of-pocket expenses. The High Deductible Health Plan model provides coverage in the event that medical costs rise to the threshold of the high deductibles.

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