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Consumer-Directed Healthcare
What is Consumer-Directed Health Care (CDH)?
Consumer Directed Health Care covers a range of topics about how consumers approach and pay for health care. CDH is in part a new way to purchase health insurance and part of a more general trend in the marketplace for consumers to have a more active role in how the health care dollar is spent. Traditional health insurance does not provide incentive for consumers to seek out and purchase the best value for their health dollar. Furthermore, the idea is that consumers who are more active in making decisions about how their health care spending will influence the health care market to drive cost reduction.
Is the consumer in control with consumer directed plans?
With the new health care plans and health savings accounts the theory is that consumers will have more control over their health care dollar. The reality may be that without a true marketplace to compare cost, quality, and service most consumers will not be able to make informed decisions about their health care spending. Health care spending will continue to be controlled by the large insurers and health plans until the consumer population becomes large enough to have an influence in the marketplace.
What are the advantages of consumer directed plans?
Consumer directed plans provide the health care consumer with lower premiums and tax-deductible savings. High deductible premiums have not increased at the same rate as traditional health care plans in some states.
What are the disadvantages of a consumer directed healthcare plan?
Consumer directed plans involve setting up a health savings account along with the high deductible plan. The consumer is also expected to shop around for health care. This can take time and effort to try to compare services. Furthermore, consumers with high deductible plans may spend more 'out-of-pocket' dollars for basic health services that are not covered under the plan.
Are consumer-directed health care plans better for young, relatively healthy people, and not for older people with health issues?
While it is true that healthier individuals will benefit most from high deductible plans, everyone should consider the risks and benefits of a high deductible plan. High deductible plans and health savings accounts may benefit older individuals in certain income brackets. The coverage of high deductible plans and any exclusions should be considered closely before investing in these health care accounts.
What is a High Deductible Health Plan (HDHP)?
High Deductible Health Plans have similarities to traditional health care plans. These plans offer the same coverage that traditional plans offer but have a higher deductible amount, typically over $1000 per year. The higher deductible means the premiums are much lower than traditional health care plans. High Deductible Health Plans are usually tied to a Health Savings Account. (See Health Savings Accounts)
Rules for HDHPs are:- A minimum deductible of $1,050 for a single person and $2,100 for families.
- Maximum out-of-pocket expenses are $5,250 for individuals and $10,500 for families.
What are Health Savings Accounts HSAs?
Health Savings Accounts are special accounts that allow setting aside of pre-tax dollars for health care spending. These accounts allow the both the consumer and employer to contribute money which the consumer can use for out-of-pocket health care expenses. A High Deductible Savings Account must be set up in conjunction with a High Deductible Health Plan. Spouses must have their own HSA.
Federal Tax Law states that to qualify for a HSA you meet the following requirements:- You have a high deductible health plan (HDHP), described above, on the first day of the month
- You have no other health coverage (with certain exceptions, visit www.IRS.gov for more information)
- You are not enrolled in Medicare
- You cannot be claimed as a dependent on someone else's 2006 tax return
Benefits of HSAs:- You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040.
- Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
- The contributions remain in your account from year to year until you use them.
- The interest or other earnings on the assets in the account are tax-free.
- Distributions may be tax free if you pay qualified medical expenses.
- An HSA is 'portable' so it stays with you if you change employers or leave the work force.
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IRS information on HSAs
http://www.irs.gov/
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