Learn more about CDH
Consumer-directed healthcare (CDH) was created to provide consumers with better access to reliable health information, improved resources for making healthcare decisions, and more control over their healthcare dollars.
We’ve put together these FAQs for employers interested in learning more about CDH, health savings accounts (HSAs), flexible spending accounts (FSAs), and other tax-advantaged programs — especially about how their company and employees stand to benefit.
The “health care account” is the primary mechanism of CDH and may take several forms:
Health Savings Accounts (HSAs) offer employees maximum control over their health care spending. These plans typically provide for virtually no “gatekeeping” (restrictions imposed by other types of health plans). Consumers are free to make medical decisions and expenditures as they see fit. HSAs are owned outright by the individual, including employer contributions from the time of deposit. All contributions to an HSA are tax-free, as is the interest earned on HSA balances.
Health Reimbursement Arrangements (HRAs) paired with the right health plan can cover expenses people face most often (e.g. dental, vision, dependent coverage, etc.). Contributions are made exclusively by the employer, and funds deposited into the account are not subject to income, FICA or worker’s compensation tax.
Flexible Spending Accounts (FSAs) provide a higher degree of discretion over health care budgets. Qualified expenses may go beyond services like copays, health insurance premiums, prescription and over-the-counter medications to include expenses such as child care or elder care. Individuals choose how much to contribute to an FSA. All FSA contributions are tax-exempt.
Employers may also contribute to these plans and reclaim unused funds at year’s end. FSAs are typically used in conjunction with other health plans.
- Payroll tax savings – Health Savings Accounts and Flexible Spending Accounts present an opportunity for pre-tax payroll deductions. If your employees obtain HSAs outside of your employer-sponsored plan, you will not receive the payroll tax relief. The savings in payroll taxes represent an immediate ROI and pay for the administration expenses of ConnectYourCare each year.
- Premium reductions – If you implement HSAs with a compliant high-deductible health plan (HDHP), you will likely see a reduction in your monthly premiums (this varies state by state and HDHPs will become more competitive over time).
- Decreases in health care utilization – Over time, as your employees take control of their health care spending, evidence suggests that they will use less health care compared to their utilization with many models of group health insurance today where every procedure costs them a fraction of the actual cost. For example, your employees may consider going to a lower cost provider, such as RediClinic, for a minor problem versus their regular doctor or emergency room!
See ConnectYourCare’s Employer Benefits Modeler Tool for a full picture of potential trended cost savings.
A Health Savings Account is sometimes referred to as the “401(k) of health care.” It’s true – the money goes in the account pre-tax and if the funds are spent on health care, there are no taxes on the funds withdrawn from the account. At the age of 65, an account holder (often referred to as an HSA Saver) can withdraw the funds for any expense – health care or non-health care – with no penalty, taxed at his current rate.
One critical differentiator between IRAs/401(k)s and HSAs is that an HSA participant can redeem money from his HSA for his expenses at any time in the future with no tax or penalty implications. The HSA participant can seek reimbursement immediately after an expense is incurred or he/she can save the medical receipts, while putting money away in the HSA, tax free, earning interest tax free, and access the account for reimbursement at a later time.
HSAs are commonly implemented as a “slice” plan or an option compared to a PPO or other traditional plan. HSAs are better for you and your employees in the long run; however, it is a big jumping off point for many employees to incur a risk of paying for first dollar medical expenses, while building an account. Seeding the HSA provides an incentive to make the HSA and underlying HDHP in parity with a traditional plan. Use the HSA Savings calculator to see your savings. Your seed funding of an HSA will pay for itself in two years or less.
Some regions have high penetration of CDH plans and thus very competitive prices while others are just introducing these plans to the market. Over time, the competition will spread as carriers begin to aggressively price CDH to take over business.
Benefits to Employees
Though employees may now have to pay for coverage under their deductible out of pocket, they can use their tax advantaged health care account to do so. Long term savings pay off as their accounts accumulate savings and interest in the case of an HSA. Employees can determine specific savings through our employee savings calculators.
Earnings through investments on money in HSAs grow tax free. Additionally, once a person turns age 65, they can continue to use the account tax-free for out-of-pocket health expenses. It is a great resource to save money for health care expenses one may incur during retirement. It can be used to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. It can also be used to pay for a person’s share of retiree health insurance premiums under a former employer.
The HSA can also be used to pay for things other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties.
Employees can determine specific savings through our HSA Growth Estimator.
At the end of the day, your account-based plan design and contributions must be consistent with your desired outcomes. ConnectYourCare can assist you and your consultant with creative ideas based on our experience in these areas.
If your company already has a CDH account administrator, but your administrator cannot offer a multi-purse payment card, mobile and online tools, health education tools, employee communications and access to experienced customer service representatives, we can help you quickly and easily upgrade your CDH program. For onboarding, we will provide an implementation guide complete with timelines, checklists and appropriate set-up and enrollment instructions and forms. We will also provide employee communications designed to drive understanding of CDH and increase enrollment. Our experience in onboarding clients and communicating to employees make the entire process a snap for your busy HR department.
ConnectYourCare’s plan design experts help you select the plan that best suits your needs and the needs of your employees. We offer pre-enrollment education materials and enrollment tools such as a plan cost modeler that help communicate the benefits and potential savings of CDH plans to your employees.