Many organizations are adopting another option for healthcare: the consumer-driven health plan (CDHP). The main philosophy at work in these programs is to involve the consumer directly to contain costs. Another guiding principle is that individuals will become better healthcare consumers if they are given the proper information, tools, and financial incentives. A CDHP thus empowers the consumer with personal responsibility to facilitate this.
Typically, a CDHP such as this includes a high deductible alongside an individually controlled healthcare account, which would include one of two things: either a health savings account (HSA) or a health reimbursement account (HRA). These programs are discussed in detail later in this chapter. The pairing of a high-deductible plan and one of these two options is envisioned to introduce and advocate responsible behavior on the part of the consumer. These plans also provide information, and tools, to facilitate informed decision-making.
Key components of a CDHP are as follows:
- A high-deductible health plan
- An individual health account to pay for expenses not paid by the plan
- Adequate information and tools to help participants make informed decisions
- A comprehensive communication program developed to assist with decision-making
- Access to a healthcare coach or consultant
- Severe chronic illness management with a licensed medical practitioner
Keep in mind that consumer-driven healthcare is a comparatively recent design feature. In general, this type of initiative follows one of two approaches. The first is normally called a defined contribution medical expense plan. In this, the employer provides a variety of options, such as HMOs, PPOs, or an indemnity plan. The employer’s contribution is then set to be equal to the lowest-cost item, which is usually the HMO plan. If employees want to participate in a more expensive (which is to say, better) option, they must then pay a higher out-of-pocket premium. This is called a high-deductible healthcare plan (HDHP).
The employer then offers a portion of the deductible. For example, if the plan’s deductible amounts to $6,000, the employer might make a $3,000 contribution. If the employee chooses this plan, a savings account is set up into which the contributions are deposited. From this account, the employee can withdraw funds for medical expenses. The employee can forward unused funds to the next year.
These plans are designed to offer incentive to choose wisely when seeking out medical care services, because any expenditures that exceed the funds in the savings account must be paid by the employee in full.
The high deductible plans significantly reduce the cost of providing healthcare benefits. Secondly, many employers see these plans as very effective because they make the employee an informed consumer of expensive healthcare services. As of 1996, employer contributions to the savings plan became non-taxable to employees.
To make such a plan effective, emphasis must focus on educating employees on the subjects of medical needs, costs, and outcomes. Armed with their employers’ contributions to the account, alongside their own, employees are thus motivated to make informed decisions (to shop around, in other words, for the most economical and cost-effective medical service).
In the second approach to consumer-driven healthcare, the employees remain in charge of directing their expenditures with funds that they sets aside specifically for these expenses. After all, when employees are spending their own money, a high incentive exists to be responsible when purchasing healthcare, and the necessary cost-containment measures are created by the employees for themselves.
This second approach involves various government-supported, tax-favored incentives and programs, such as the following:
- HSAs (health savings accounts)
- HRAs (health reimbursement accounts)
- FSAs (flexible spending accounts)
(An FSA cannot truly be classified as consumer-driven, but rather should be known as a pretax spending provision. A detailed discussion of these tax-favored plans is provided in the “Tax Dimensions” section of this chapter.)
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