Consumer Driven Health Plans

One of the solutions being advocated as a possible solution in the health care reform debates are consumer-directed health plans. The goal here is to make consumers (the patients) more actively involved in their own health and wellness, with a focus on preventative care. The plans are a positive for employers, whose costs in offering such plans are reduced in comparison to traditional coverage plans; in fact, many businesses who might not otherwise offer health insurance find that the costs of CDHPs make them viable (especially small businesses, who do not always realize economies of scale when offering a plan to a limited number of employees).

CDHP’s first provision is the inclusion of health funds or health savings accounts. Health savings accounts are accounts that have tax advantages in that they are funded with employees’ pre-tax dollars and the money is not taxed when withdrawn for qualified medical expenses. The money is invested and earnings are tax-free, as well, when used for medical expenses. These HSAs are the “property” of their owner—meaning, if one moves from job to job, the HSA can move with him or her. Another option, beyond an HSA, is a health reimbursement account—the money in both HSAs and HRAs can be rolled over year-to-year, but HRA’s can not be brought to a new job. Still one more option is an employer funded account (which also remains the “property” of the employer upon job change).

The next component of a CDHP is a high-deductible medical coverage plan. Thus, for any major illness, accident, or surgery, the member would have coverage (after the HSA is exhausted). One feature here: preventative care is stressed in CDHPs, and thus expenses for preventative care are not charged against the deductible. In fact, most CDHP’s pay up-front the costs for preventative care, encouraging members to make use of this option which is far more cost effective than managing the expenses of untreated illnesses (which can mean long-term medication, surgery, etc).

The last piece of CDHP’s is a focus on information and resources, through the provider, for wellness, education, and preventative care. This is delivered through online resources including research, online diagnostics, reports, support groups, and the like; phone support, from registered health care providers, and a wealth of material to allow members to make informed health care decisions.

Here’s an example of how a CDHP might work. Bill, a CDHP participant, has a HSA with $1000 in it. His plan has a $3000 deductible. As the year progresses (he begins the year with the $1000 set aside, in his account), Bill accumulates medical bills for himself and his family. The first $1000 of those expenses are paid from the HSA. At that point, his fund is exhausted. The next “chunk” of expenses, up to that $3000 deductible, are Bill’s out-of-pocket expenses; however, this does NOT include well-baby and well-child visits for Bill’s 1 year old and 4 year old, nor does it include his wife’s prenatal care as she visits the doctor to monitor the progress of her pregnancy. These “preventative” care options are covered by Bill’s plan. Once Bill reaches the $3000 mark, his high-deductible plan will kick in.

Research shows that CDHP premiums are more affordable than most traditional plans, which means some consumers are able to afford coverage they otherwise might not have. They are definitely a viable option for many consumers, and something to consider.