How Do Consumer-Driven Health Plans Compare to Traditional Insurance?

Consumer-driven health plans (CDHPs) were first introduced in the early 2000s in response to rising health care costs, according to the Wall Street Journal. They were created to reduce the amount of money employers paid for health coverage.

A CDHP is a high-deductible plan where a portion of the health care services are paid for with pre-tax dollars. High-deductible plans have higher annual deductibles and out-of-pocket maximums than traditional health plans. The tradeoff: The insured pays lower premiums each month.

Typically, you’ll pay more out-of-pocket with a CDHP plan before your coverage begins. Because of that, people who choose CDHPs tend to be healthier, more cost-conscious, and more informed about how to manage their health care and the tax benefits that come from CDHP-related health savings accounts (HSAs).

When a person with a CDHP goes to the doctor, he or she will pay for the services through a three-tier payment system, first through a pre-tax savings account called an HSA. An HSA can be funded by the employer, the employee or both. An HSA is an investment account funded with pre-tax dollars that roll over indefinitely. You own the HSA, and it travels with you if you change jobs. Then, when you meet your annual deductible, the CDHP plan coverage kicks in.

Lower premiums, or monthly payments, are the major advantage of CDHPs over traditional benefit plans. According to an analysis from the Health Care Cost Institute, people with CDHPs spent $540 less per year on health care than those with traditional plans.

These types of plans have grown in popularity in recent years. The Health Care Cost Institute found 13 percent of workers with health insurance had a CDHP or another similar high-deductible health plan in 2010. By 2014, that number had risen to 20 percent.

Should you use a CDHP? Since everyone’s health care needs are different, be sure to weigh the pros and cons to determine one is right for you and your family.

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