Consumer-directed plan

What is a consumer-directed plan?

A consumer-directed health care plan (CDHP), also known as consumer-driven health care, is a health insurance policy centered around a savings account that gives the user more freedom to make her own medical decisions. Consumer-directed plans are easier to afford than traditional health insurance policies, but they have high deductibles for more expensive procedures.

Deeper definition

Consumer-directed plans are a combination of health savings accounts, which the consumer pays into every month, and a high-deductible insurance policy. Additionally, CDHPs allow policyholder’s employer to contribute to some of her medical expenses through a health reimbursement arrangement

What makes them consumer-directed is that by offering policyholders a lower premium, the consumer is expected to make health care decisions based on what she has in the health savings account rather than what the insurance company approves. The policyholder is also not bound by a network/out-of-network policy that traditional insurance companies use to dictate which doctors their customers can see. And if the user needs an expensive procedure, she still enjoys a traditional insurance policy as part of her CDHP, although she’ll have to pay more out of pocket to meet the deductible.

Contributions to the health savings account can be deducted when filing income tax, and family members are allowed to contribute to the covered person’s HSA. Just like regular savings accounts, money deposited in the HSA earns interest. However, money in the account can only be used for qualified medical expenses.

CDHPs are controversial in that they better meet the needs of healthier and wealthier people. That’s because lower-income people and those with more expensive health care needs may forgo care until their health savings accounts reflect a more comfortable balance. In traditional insurance, consumers can request that insurers reimburse their doctors for care as soon as they need it.

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Consumer-directed plan example

Ken works for Company X. Every month, he is deducted $15 to that goes into his health savings account. For a routine medical procedure, Ken chooses Health Facility Y and Physician A independent of an insurance company, and after the procedure he pays them out of the balance he accrued in his health savings account. However, he finds the balance is running a little low after a series of doctor’s office visits, and he decides to skip another routine procedure out of concern for savings.