Published June 2010
Over the past few years, more employers are using a consumer driven health plan (CDHP) to combat the rising cost of health care. The CDHP model is designed to encourage employees to make more informed and cost efficient decisions regarding their health care. CDHPs have become increasingly popular, surpassing HMOs to become the second most popular plan design (behind PPOs). A 2010 Mercer National Survey of employer-sponsored health plans found that 15% of small employers offered CDHPs in 2009, up from 9% in 2008. The increase is a direct result of smaller employers using the cost savings inherent in CDHPs to reduce their overall healthcare costs. The Mercer National Survey also found that 46% of all employers expect to offer CDHPs over the next five years.
How CDHPs Function
A CDHP is designed to let the individual decide how their healthcare money is spent. Consumer driven health plans work by combining a high deductible health insurance plan with a tax advantaged spending account (typically an HRA or HSA) to help pay for the high deductible of the health plan. CDHPs help to promote healthy living and wellness, and also reveal the true cost of healthcare to consumers who have long been insulated from the actual costs.
One of the results of CDHPs is lower premium costs which employers can take the savings from and apply to an HRA or HSA plan for employees to cover the cost of higher deductibles. Some employers have experience cost savings of up to 25% to 30% by switching to CDHPs. HRA and HSA accounts help to keep employer costs predictable in the long run by maintaining benefit levels as long as employers take the savings and set them aside to stabilize unknown future costs.
Making CDHPs Work
CDHPs require a culture change to be truly effective. Employees need to take an active role in finding the location where they get the best and most service for their healthcare dollars. In an article written by Bruce Shutan for the United Benefit Advisors, Gerald L. Staten, senior vice president for Leonard Insurance Services argues that “people with auto insurance don’t expect that their annual deductible will cover oil changes, so why should it be any different with health insurance?” Staten argues that employees must be willing to pay for small amounts of healthcare costs out of pocket for office visits and prescription drugs.
Many clever consumers with CDHPs have noticed and taken advantage of the disparity in the pricing of healthcare services. For example, when one man needed to get a CAT scan but didn’t want to pay his annual deductible of $6000, he shopped around to check the prices of the procedure at different offices. He received three quotes ($750, $1050 and $1950) for the procedure and was able to bargain down the first quote to $500. If employees can effectively handle the money contributed by their employer, they may not have to spend any of their own.
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