Many people have health insurance through their employer. It is offered as a benefit, where the full cost of the monthly premium is split between the employee and the company – if the company doesn’t pay for the monthly premium outright.
If you are self-employed or need to purchase your own health insurance, there are two common plans which are available to you in the United States: the CDHP and the HDHP.
Although the provisions of coverage are similar when comparing the CDHP vs HDHP structures, there are several key differences that must be considered as well.
Here is a comparative look between CDHP options and HDHP options.
What Is a CDHP?
CDHP stands for “consumer-driven health plans.”
They are a wide range of plans that will put more power of choice into your hands as a consumer. That also means you have more responsibility in taking care of your health needs.
Most CDHPs feature a high-deductible plan that allows for a health savings account (HSA) to be used to offset health costs. Some allow for an FSA, or flexible savings account, to be used. These accounts give you the ability to save money, like an IRA, then withdraw from the account to take care of a qualified health need.
This money can be deposited pre-tax, giving you protection against a healthcare catastrophe, while providing you with the ability to be in full control of what you spend.
That allows you to have a healthcare plan that is similar to a PPO, like you’d receive from an employer, with a low monthly premium. To counter that low monthly payment, you’ll have higher deductibles to pay before you reach the higher levels of coverage.
What Are the Benefits of a CDHP?
The CDHP will usually have a lower premium than an HDHP. You’re responsible for the actual costs of your health care with this type of insurance. You still receive the freedom to choose your own doctors and specialists without needed to receive a referral for the care you believe you need.
When properly managed, it is possible to save on your tax liabilities at the end of the year while reducing your reliance on an insurance company. If you don’t use all the funds that are in your HAS, it may be possible to put them toward your retirement in the future.
What Are the Disadvantages of a CDHP?
It is possible to save money with a CDHP if you are healthy most of the time and rarely see the doctor. If you suffer a catastrophe, then you’re covered, no matter what.
If your family needs to visit the doctor a few times each year, pay for prescriptions, or deal with an emergency here and there, then a CDHP could cause you to pay more for your healthcare needs than other plans.
Although some basic services, like vaccinations, may be covered by a CDHP, most of the costs of care are going to come out of your pocket.
If the tax savings can offset what you’d pay for your healthcare needs, then a CDHP makes sense. If they don’t offset these costs and you visit the doctor more than a few times each year, then an alternative healthcare plan may be a better option.
What Is an HDHP?
An HDHP is a “high deductible health plan.” A CDHP can be an HDHP, but an HDHP is not always a CDHP.
HDHPs are any healthcare plan which requires an individual deductible of $1,350 or more, or $2,700 for a family. The total out-of-pocket expenses for an HDHP cannot be more than $6,650 for an individual or $13,300 for a family, though any out-of-network services do not count toward these totals.
As with the CDHP, an HDHP qualifies for HSAs and FSAs to help offset the medical costs of care that happen over the course of a year.
If you use an FSA, then the salary reduction contributions to the plan cannot be more than $2,600 per year, though this figure is indexed for inflation. Employers are permitted to change the cafeteria plan to carry over up to $500 in unused funds at the end of the plan year with the FSA, paid or reimbursed for qualified medical expenses during the next plan year.
With HSAs, the account functions more like a retirement plan. The funds stay in a tax-advantaged state without threat of cancellation.
One important consideration in the United States with this type of funding is that a domestic partnership or civil union is not treated the same as a marriage for structural purposes. For the purposes of federal taxation in the U.S., any relationship that isn’t a marriage under state laws is not considered a marriage for taxing.
What Are the Advantages of an HDHP?
Like the CDHPs, an HDHP provides consumers with a lower monthly premium for healthcare insurance access. In some situations, the premiums for the HDHP may be lower than traditional PPO plans that are offered as an employee benefit.
Instead of using a narrowed network, like an HMO would require, the HDHP allows consumers to choose their doctors and providers. Because of this structure, if you rarely go to the doctor, then you’ll be able to save more on your annual healthcare costs.
When paired with HSAs, there is the possibility of saving more for your retirement with this healthcare option.
At the same time, the HDHP allows you to take advantage of the negotiated rates that insurance providers have with medical facilities. That allows you to avoid the market rate for costs, even though you’re still paying the majority of the cost with your higher deductible.
And then you cannot discount the advantage of the HSAs. Anyone can contribute to the HSA, which allows you to build a nest egg that covers health expenses without a potentially negative impact on your immediate financial situation.
What Are the Disadvantages of an HDHP?
The deductible cost is the primary disadvantage of an HDHP to consider. With a $13,000+ limit for families to consider, a majority of household income during a catastrophic year might be required to go to healthcare costs before any of the plan benefits will begin to kick-in to provide cost help.
If there is a chronic illness in the family, then the out-of-pocket costs of an HDHP will be much higher than they would be with an HMO or PPO. Until that deductible is reached, most services will require an upfront payment.
Because of these costs, some patients or families may avoid seeking healthcare treatments to save some money. Fearing the expense of care may drive some people toward chronic health conditions which could be easily avoided if early interventions took place.
Then there is the disqualification issue with HDHPs to consider. If you are an HSA participant, then you cannot be covered by another non-HSA qualified healthcare plan. You are not permitted to be enrolled in Medicare, be claimed as a dependent, or even have an FSA.
For many families, that means walking a tight rope between the income they earn and the health savings they require should something happen that requires the attention of a doctor.
Key Points to Remember with CDHPs and HDHPs
Although deductibles can be very high with these healthcare coverage options in the United States, it can be an effective form of care for some households. Once the deductible demands have been met for the year, most CDHPs and HDHPs will pay 100% of the allowable amount for the care that is provided for the remainder of the calendar year.
There are in-network services which may be provided with a copay, or at zero expense, even though the high deductible has not been met. Annual checkups are often covered under this stipulation. Health maintenance needs for children, like scheduled vaccinations, flu shots, and sports physicals may be included outside of the high deductible requirements as well.
It is the non-preventative healthcare needs which CDHPs and HDHPs do not initially cover.
If you use HSAs with your healthcare plans, then you can withdraw from them for items other than a qualified medical expense. If you’re under the age of 65 when you do this, however, the funds withdrawn will be subject to a penalty tax and the money will count toward your overall income for the year.
HSAs are portable, so even if you switch to another plan, the funds will not go away. You may also qualify for certain health reimbursement arrangements if you do not qualify for HSAs under these high deductible plans.
Although there are many similarities in the CDHP vs HDHP comparison debate, the key differences will help you determine which option can best meet your needs. Examine the terms of all healthcare plans in their entirety before making your final decision.