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What is a CDHP (Consumer Directed Healthcare Plan)? – Part 1

In this 3-part series, we’ll explain 3 different types of health insurance plans: CDHP, PPO, and HMO. Today, let’s talk about the CDHP.

What is a CDHP?

A consumer directed healthcare plan (CDHP) typically has a high deductible and a lower premium. CDHPs usually work in connection with a HSA (health savings account) that is either funded by the employer or employee. The money in this HSA is tax exempt and can usually be rolled over to the next year if it’s not used (unlike an FSA that expires if you don’t use it during that calendar year.)

These types of plans are great for people who are generally healthy and don’t have many healthcare expenses throughout the year. They also work well if you can afford to pay a large deductible up front. That way, you can save on your premiums. Learn more about the difference between premiums and deductibles.

CDHPs Put You In Charge of Your Healthcare Spending

The idea behind a CDHP is that it puts you, the consumer, in control of how your healthcare dollars are being spent.

Instead of simply going to the ER for a cold, you’ll start to think twice about expensive treatment options. You might ask yourself:

  • Is this treatment really necessary? Should I wait a few days to see if I feel better?
  • Where would I receive the most cost-effective care? I should probably visit my primary care doc first instead of the ER.
  • Can I try a less costly treatment first? Have I tried an OTC medicine first?

Managing Your Healthcare Costs with CDHPs

When most people choose a CDHP, they’re just happy that less money is being taken out of their paycheck each month. The problem is, when they do need care, they have to pay for everything before their insurance/employer starts paying their portion.

Example: 

  • Sam has a CDHP with a $5000 deductible.
  • She needs a $3000 surgery.
  • She hasn’t had any other care this year, so she has met $0 of her $5000 deductible.

Since Sam hasn’t met her deductible yet, she has to pay the full cost of the surgery up front. We’re hearing from HooPayz members that they are being asked to pay up front before surgery. We heard from one lady who told us the surgical center would not perform the surgery unless she could come up with the full amount on the day of the procedure.

For most people, coming up with that much money at once is unrealistic. Keep these things in mind next time you choose your health insurance plan.


Tips

  • Many employers are offering CDHPs, some ONLY offer this type of plan. If that’s the case, start saving a little extra money each month so you’ll be ready to pay for care when you need it.
  • If your provider is asking you to pay in full up front, ask if they have a financial counsel you can speak with about setting up a payment plan.

Join us next Thursday as we continue our series on types of health insurance plans.

Comments

  1. RB | 18 May 2014 at 7:47 am

    My son just graduated from college and is about to start a career with a company related to his field of study. The company offers both CDHP and PPO. Under the CDHP, they offer an HSA and will contribute $500 annually. Using the “Sam” example above, let’s say in my son’s first year of employment he never had a need to seek medical attention. Now four months into his second year he injured himself and the treatment cost, say $2500 and the provider wants it up front. Will what he and the employer contributed to the CDHP the previous year be allowed to assist with the payment? Thanks.

    • HooPayz | 20 May 2014 at 12:46 pm

      Hello, thanks for the comment.

      I think in the example you provided, it would be an HRA, not an HSA. An HRA is employer-funded, whereas an HSA is “taxpayer” or employee funded. He should ask if his funds roll over to the next year. Many of them do, but it depends on the way his plan is set up. If the funds roll over, he could use the balance toward his $2500 bill.

      Here’s another blog post that may help answer your question about the HSA/HRA. https://www.hoopayz.com/health-insurance/fsa-hra-and-hsa-whats-the-difference/

  2. Melissa | 29 October 2014 at 12:34 am

    I am very worried about this plan. My employer just told us that they are getting rid of our PPO plan and only providing this CDHP and HDHP. We are a young family with pre-existing conditions with the spouse at stage 4 CHF. I am not sure how I am going to pay for his needs and my own diabetic treatments. The doctor has me seeing her every month. And he has to go every 2 weeks. What is the best game plan for me in this situation. I have until next month to enroll for 2015. I usually max my FSA. But after reading your blog it seems that I might not be able to use it with it. MY employer puts i $2000 for those using the HDHP. Your thoughts would be appreciated.

    • HooPayz | 3 November 2014 at 4:22 pm

      Hi Melissa,

      Thank you for your question. With a CDHP or HDHP plan, you can expect a higher deductible and a lower monthly premium. The difference between the two is that a CDHP is compatible with a spending account. In this case, you can apply the $2000 your employer puts in your FSA to your medical expenses.

      One of the obstacles you and your family will face is that high deductible. Since you need to pay that deductible, in full, before your health insurance kicks in, you need to be as prepared as possible for paying your deductible amount.

      In anticipation of this change, start setting aside extra funds. And utilize that FSA. Your employer is contributing but you can too. Money you put into your FSA account is tax exempt, so pooling your healthcare budget there is a smart idea.

      Even with your savings, you might still face some pricey medical bills that you have difficulty paying off. Many providers are willing to help make your medical expenses more manageable by setting up a payment plan. Be sure to explain the change in your health coverage with your providers, and ask what options you have. Smaller payments over a longer period of time might help alleviate your stress.

      In January, HooPayz will be starting a consumer pilot, allowing consumers to use our services and access our online tools. If you’re interested, we can let you know when the pilot begins.

  3. Tresa | 16 November 2014 at 1:35 pm

    In the past I have had a PPO with an FSA. In 2015 my employer will no longer offer the PPO but will now offer either a Standard or Premium CDHP with an HRA (employer funded, will roll over). I still plan to have an FSA but since any funds I contribute to my FSA will NOT roll over and the HRA will, should I use FSA funds first? Will I have that option when I go to doctors appointments or have medical treatment?

    • HooPayz | 18 November 2014 at 2:38 pm

      Tresa,
      Thank you for your question. You will be able to use your FSA for things like copayments and prescription drug copayments. However, for other services your plan may automatically bill your HRA. Since your employer is funding your HRA, you should use these funds first. That way you don’t pay out-of-pocket for costs that your employer will cover through your HRA.

      In regards to your FSA, be conservative in the amount you contribute. That way, you’re less likely to lose funds because they don’t roll over.

  4. Kevin | 14 October 2016 at 3:23 pm

    My company is switching to a CDHP with a Fidelity HSA, in which the company will provide an annual contribution, in addition to what I put in their. Once retired and I no longer have the CDHP plan and no longer qualify to contribute into the HSA, can those remaining HSA funds be used to pay a new insurance plan’s monthly premium?

    • hoopayz | 10 June 2017 at 2:00 pm

      Hi Kevin,

      Thank you for your question. Once you are retired (past the age of 65), you should be able to withdraw funds from your HSA tax-free to pay your new monthly healthcare premium.

      The IRS lists the following as qualifying:
      Health insurance premiums under COBRA continuation coverage.
      Health insurance premiums if you’re getting unemployment compensation.
      Medicare Part A or Part B premiums if you’re enrolled in Medicare.
      Your qualified long-term care insurance premiums.

      Remember, only healthcare expenses qualify for tax-free withdrawal after retirement. If you choose to use your HSA savings in other ways, they will be subject to income tax. Thanks again.

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