Sorting Out the Alphabet Soup of Low-Cost Health Benefit Plans

You want to save money on health care benefits and you’ve heard there are some great alternatives to traditional insurance. But which option is right for your company?

CDHP or HDHP? And do you need an HSA, HRA or FSA account?

Here’s a quick look at what each plan and account offers so you can determine with the assistance of your broker if one or more of them would be a good fit for you and your employees.

Consumer-Directed Health Plans (CDHP)

Consumer-Directed Health Plans (CDHP) use high deductibles, combined with a tax-advantaged health savings account (HSA), health reimbursement account (HRA), or flexible spending account (FSA). Employers and employees make pre-tax contributions throughout the year and pay routine medical expenses from the account.

Money not spent can be rolled over to the following year — if the account is an HSA or HRA. This is not true for FSAs. The high-deductible health insurance plan pays for care once the deductible is met.

The difference between a traditional plan and a CDHP is that members pay higher monthly premiums for a traditional plan, but the insurance company covers many of the costs. With a CDHP’s lower premiums, members have more money for funding a health savings account. Keep in mind, though, that the plan can be expensive in the long run if the member needs a great deal of care because much of the cost will come out of their savings or bank accounts.

One of the biggest advantages of a CDHP is that members have the motivation to find the lowest prices and use health care services carefully. The Centers for Medicare and Medicaid Services found that, by increasing out-of-pocket costs, consumers become better health care shoppers because they have “more skin in the game.” In comparison, members who have traditional coverage pay a flat rate for services and therefore don’t have the same incentive to save money.

Currently, consumers who seem most interested in CDHPS are millennials, people born between 1981 and 1996. The Employee Benefit Research Institute (EBRI) has found that millennials want more say over their health care decisions. Millennials also had a higher likelihood to engage in wellness and preventive health behaviors.

One negative, according to researchers from the Indianapolis University and the Center for Health Reform in Dallas, is that CDHPs often encourage members to use fewer health care services as a way to save money. Research conducted by the National Business Group on Health (NBGH) revealed that consumers enrolled in CDHPs and HDHPs often are more worried about saving money than seeking adequate health care.

High-Deductible Health Plan (HDHP)

An HDHP is a specific type of CDHP and there are several regulations that a health plan must meet in order to be considered as an HSA-eligible HDHP. Generally, if a plan is a CDHP with an HSA, and the deductible is $1,350 (for a self-only plan) or $2,700 (for a family), most likely it is an HSA-eligible HDHP.

Total yearly out-of-pocket expenses, including deductibles and cost-sharing (co-pays, coinsurance) for an HDHP can’t surpass $6,750 for an individual or $13,500 for a family.

Employer Benefits

CDHPS, in addition to having lower premiums, can save employers money in taxes.

The Kaiser Family Foundation’s 2018 Employer Health Benefits Survey revealed that employers who elect a CDHP can save an average of $1,722 compared to a traditional plan. And, employers who incentivize employees by matching HSA contributions through pre-tax payroll deductions can save on FICA tax (7.65%).

If you would like help finding the right plan to fit your firm, please contact us.