The Payroll Blog

News, tips, and advice for small business owners

The Benefits of a Consumer-Drive Health Plan (CDHP)

Posted On
9/12/2019
By
Chris Bibey

Employers that offer cost-effective health insurance benefits find it easier to attract and retain top talent.

However, it’s becoming increasingly more difficult to provide high-quality coverage at an affordable price, which is why consumer-driven health plans (CDHP) are growing in popularity.  

What is a CDHP?

A CDHP is a consumer-driven, or consumer-directed health plan in which you must pay your medical costs before your health plan does. This also means that a CDHP gives you more control or your healthcare expenses. A CDHP is a plan that comes with a high deductible, meaning there’s a chance you could pay a higher amount of pocket before your insurance kicks in. This type of plan could work well for individuals who mainly stick to their annual wellness exams and the occasional seasonal cold, meaning they don’t need to go to the doctor frequently.

Additionally, when it comes to funding, a CDHP allows employers, employees, or both to set aside pretax money to pay for qualified medical expenses not covered by their primary health insurance plan. It’s also common to pair a CDHP with some health savings account, like an HSA.  

FSA’s, HSA’s, HRA’s, Oh My!

There are three unique types of tax-advantaged accounts to use alongside a CDHP. Employers typically offer one of the following to employees:

  • Flexible Spending Account (FSA): An FSA allows employees to set aside pretax dollars to pay for qualified medical expenses. Employers also have the ability to contribute to the account. 
  • Health Savings Account (HSA): An HSA is designed for employees with a high deductible health plan who want to fund a savings account with pre-tax dollars. Both employees and employers can contribute to an HSA. 
  • Health Reimbursement Arrangement (HRA): An HRA is an employer-funded plan that’s typically used alongside a traditional health insurance policy.  

Overall, these plans allow employees to set aside their pre-tax dollars to save for certain health-related expenses. However, there are specific requirements that you’ll want to be aware of as a small business owner. For more detail, check out our blog post about FSA’s, HSA’s, and HRA’s to better understand which savings plan is the best for you and your employees.

Employer Benefits

Now that you understand how a CDHP works, let’s examine the ways it can benefit your business:

  • Increased employee satisfaction: By providing employees with additional choices regarding healthcare, it’s easier to keep them satisfied. For example, participants who don’t typically require medical care may pay less for a CDHP. And when an employee pays less for coverage, there’s more money in their paycheck. And that’s the best way to increase employee satisfaction.
  • Save on premium costs: Generally speaking, premium costs associated with CDHPs are lower than other types of healthcare plans, such as a preferred provider organization (PPO) and health maintenance organization (HMO). With a lower premium cost per employee, more money remains with the company.
  • Reduced medical costs: With a CDHP, participants are more likely to share in out-of-pocket costs, thus allowing them to better understand the cost of health care. Subsequently, this encourages them to make more informed decisions regarding the care they receive.

Bottom Line

Understanding the benefits of a consumer-driven health plan – both for the employer and employees – will help you make a knowledgeable decision in regards to the coverage you offer.