Consumer-Driven Health Plans – An Opportunity to Control Costs

March 12th, 2008

With the ever increasing costs of health care plans, many employers are turning to what are called “consumer-driven health plans”.  Plans that are considered consumer-driven include health savings accounts (HSA) and health reimbursement accounts/health reimbursement arrangements (HRA).  

A HSA is a medical savings account that has tax advantages and is used in conjunction with a High Deductible Health Plan (HDHP).  Funds contributed to an HSA are not subject to federal income tax when they are deposited and may be used to pay for qualified medical expenses without federal tax liability.  Additionally, withdrawals can be made for non-medical expenses.  However, when a withdrawal is made for non-medical expenses, it is treated similarly to an IRA in that there may be tax advantages if the funds are taken after retirement age and penalties if they are taken earlier.

A HRA is an arrangement with tax advantages that allows an employer to reimburse medical expenses paid by participating employees.  Reimbursement may only be made for expenses for those items, such as co-pays, coinsurance, deductibles and services, which are not covered by the company’s health insurance plan and have been agreed to by the employer.  However, any employer sponsored health plan may qualify, not just a HDHP.

According to survey data from the American Association of Preferred Provider Organizations (AAPPO), about 7% of employers now offer consumer-health care plans.  Additionally, the number of employers who offer these plans are expected to increase since 11% of employers who do not offer these plans say they will probably begin offering them this year. 

Large corporations have been leading the charge in offering these plans.  Indeed, 41% of employers with more than 20,000 employees now offer either a HSA or a HRA.  According to the survey data, these employers say the main reason driving this change is the need to lower the organization’s benefit costs. 

The data that Mercer, who conducted the survey for the AAPPO, collected showed the on average a HSA cost the employer $5,679 per employee as compared to $6,644 per employee for a PPO with a high deductible.  This can be a significant savings for an employer. 

Employers looking to control rising health care plan costs should consider exploring what consumer-driven health care plans offer and deciding if they will work for their company.  Working with their employee benefits attorney they can review their current plans, discuss various consumer-driven health plans and implement any changes that make sense.

One Response to “Consumer-Driven Health Plans – An Opportunity to Control Costs”

  1. Mona Lorion 09 Apr 2008 at 3:16 pm

    As you mentioned in your post, in an effort to control health care costs, employers are adopting consumer-driven health plans (CDHP). These plans have been very successful in controlling costs, but in order for these CDHPs to be effective, employees need access to meaningful tools to help the make informed choices, comparison shop for services and find the best value. Just like the tools we use when purchasing electronics, books/music, and booking vacations. When consumers are in the driver’s seat and making their own decisions and spending their own money – behavior really does change. Consumers become cost conscious, are willing to comparison shop, review recommendations, avoid providers that overcharge, avoid providers with poor performance ratings, and eliminate unnecessary tests.

    Mona Lori, Principal

Trackback URI | Comments RSS

Leave a Reply