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- A consumer-directed health plan, known as a CDHP, allows you to use funds from a Health Savings Account or a Health Reimbursement Account to pay for routine medical expenses
- You must enroll in a High-Deductible Health Plan before you can enroll in a Health Savings Account or a Health Reimbursement Account
- Consumer-directed health plans place more financial control over your health-related expenses in your hands
- Employer-based Health Savings Accounts allow you to save money for future medical expenses on a pre-tax basis
The goal of a CDHP is to expose you to the financial effects of medical-related expenses, which in turn gives you greater control over your health insurance costs. CDHPs include Health Savings Accounts, Health Reimbursement Arrangements, and High-Deductible Health Plans.
In order to enroll in a CDHP health savings account, known as an HSA, you must be enrolled in a high-deductible health plan. In order to qualify for an HSA, you cannot have an existing health plan or have someone else claim you as a dependent on another health insurance policy. If you are currently enrolled in Medicare, you do not qualify for an HSA.
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High-Deductible Health Plans
A High-Deductible Health Plan, known as an HDHP, offers a lower monthly premium with higher deductibles to help you pay for catastrophic medical expenses.
According to healthcare.gov, the IRS considers any insurance policy an HDHP plan if you pay at least a $1,300 per year deductible for yourself or $2,600 per year for your family. You can combine your HDHP with your HSA to help you pay for some medical expenses using pre-tax dollars.
To help you better understand HDHPs, you should know what a deductible is and how it works. A health insurance deductible is the amount of money you must pay each year before your insurance plan or policy starts paying its share of your medical expenses.
When you meet your annual deductible, most insurance plans may require you to pay another form of cost sharing known as coinsurance. Once you meet the out-of-pocket cost-sharing maximum each year, your insurance plan will then pay 100 percent of covered your expenses.
Also known as Health Reimbursement Arrangements, these employer-funded accounts reimburse you for out-of-pocket medical-related expenses up to a certain dollar amount each year. These tax-advantaged accounts allow your employer to make contributions to the account, which are then used to reimburse you for healthcare costs.
However, Health Reimbursement Accounts are not actual insurance policies and only your employer can make contributions to the account.
Health reimbursement accounts, known as HRAs, help you pay for out-of-pocket expenses such as deductibles, coinsurance and copays. When setting up an HRA, your employer will decide which medical-related expenses qualify for reimbursement.
However, what an arrangement covers varies from plan-to-plan, but your employer can set up multiple HRAs that allow for greater flexibility when you need help paying your out-of-pocket expenses.
Employers and CDHPs
Since more than half of the U.S. population receives their health insurance from their employers, many companies are switching to CDHPs in an effort to place more of the financial burden on their employees. Some estimates show that over the next few years, nearly 40 percent of employers will only offer health insurance through high-deductible health plans.
If you fall into the low-income category, HDHPs could place a tremendous burden on you since you must meet the yearly deductible before your insurance company starts paying its share.
Taking Control of Your Healthcare
The creation HDHPs, HSAs and health reimbursement arrangements began with the idea that you would take charge of your healthcare by not seeking medical treatment for such ailments as the common cold or everyday aches and pains. The creation of CDHPs also included the idea that you would spend more time comparison shopping for your health insurance.
The thought is if you share a portion of your medical costs with your insurance company, you would spend more time comparing policies and finding an insurance company who offers a specific plan tailored to your health care needs.
The premise behind that thought remains true today, and since many policies on the health insurance marketplace are consumer-directed health plans, it is critical for you to spend more time comparison shopping.
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