Is a Consumer Directed Health Plan (CDHP) Right For Me?

Traditionally, health insurance has been a benefit most Americans got through their jobs. And until recently, most employers paid for 100% of the coverage. But as healthcare costs have increased, employees have been asked to shoulder more and more of the healthcare burden. They are being asked to make tough choices about what kind of coverage they want, and how much they’re willing to pay for that coverage.

Buying health insurance isn’t so different from buying a car. Sure, the sticker price matters, but for most people, individual features and options are what make them choose one car over another.

It’s the same when you’re choosing the right health plan. Knowing which plan features matter most to you can make the difference between a plan you love and a plan you can barely live with.

Here are some questions to ask yourself if you’re considering a CDH plan:

1. Do you want to take more control of your health care spending?

CDH plans pair a higher deductible with a lower premium. This means you’ll be responsible for all of your medical expenses until you’ve reached your deductible. In 2010, the minimum deductible amount, set by the federal government is $1,200 for individuals and $2,400 for families. In exchange for this higher than average deductible, you’ll save an average of 20% on your premiums and your co-pay’s will be at the lower end of the spectrum.

2. Are you a bargain hunter?

If your doctor orders routine blood work, would you feel comfortable about asking her how much the tests will cost and possibly price-shopping to find a lower price? CDH plans reward people who like the challenge of finding the lowest prices and don’t mind doing some research to find them. And as health care reform brings about greater transparency in the cost of medical services and procedures, you’ll have even more information at your fingertips.

3. Are you confident about managing your personal finances? Do you enjoy it?

What could this possibly have to do with choosing a health plan? A lot, if you’re thinking about CDH. And here’s why. All CDH plans are made up of two components. The first is a high deductible health plan (HDHP). The second is a Health Savings Account (HSA).

An HSA is a special healthcare savings account, similar to a Flexible Savings Account, (FSA). Like an FSA, you put pre-tax dollars into an HSA. In 2010, individual contributions will be capped at $3,050 and family contributions at $6,150. If you’re lucky, your employer will match some or all of this amount. You can use your HSA funds to pay for any IRS-approved medical expenses, including some costs traditional plans don’t usually cover, like dental care and long-term care insurance.

Now, here’s how HSA’s differ from FSA’s:

* They’re portable: If you change jobs, your HSA funds go with you.

* The funds roll over: If you haven’t spent the money in your account by the end of the calendar year, you won’t lose them.

* They grow tax-free: You won’t have to pay taxes on the interest your HSA funds earn.

If you’re the kind of person who enjoys thinking about the stock market and managing your finances online, the extra work of managing your HSA funds won’t faze you. But, if you have a low tolerance for financial risk or don’t feel comfortable making investment decisions, a CDH plan won’t be a good fit.

4. Are you disciplined when it comes to your personal finances?

If your budgeting philosophy is “spend first, ask questions later,” think twice about going with a CDH plan. In order to maximize the financial benefits of your HSA, you should be able to accurately predict your likely medical costs for the year and develop a household budget that allows you to make appropriate contributions throughout the year. Being disciplined enough to create a “rainy day fund” for unexpected medical expenses is also key.

Having an HSA account also requires a certain level of record-keeping and organization. Unlike traditional FSA accounts, you won’t have to submit invoices and receipts to get reimbursement – some HSA’s even come with an ATM card for easy payment. However, for tax purposes, you should collect all of your medical/health care receipts in one place. It can be a file folder, a shoe box, whatever works for you. But it is important that you’re able to account for any funds you withdraw from your HSA. If that sounds like an onerous task, stick to another kind of health plan.

5. Does network size matter to you?

There was a time when health insurance offerings differed radically from one another. HMO’s had tiny networks, highly restricted access to specialists, and no coverage for out-of-network care. PPO and POS plans offered larger networks, access to specialists without referrals, and the option to go out of network if you were willing to foot part of the bill. These days, the lines between plan types have blurred. You’ll need to look closely at the network descriptions and coverage of any plan you’re considering.

In general, CDH plans offer larger networks of doctors and hospitals than HMO’s. This is good if you’re concerned that choosing a new health plan will mean losing your current primary care doctor. However, make sure any CDH plan you choose counts out-of-network physician charges toward your out-of-pocket maximum. If the plan doesn’t, you’ll want to make sure that your chosen physicians and facilities are part of the plan’s network.

6. How’s your health?

When it comes to saving money on healthcare, one of the best ways to spend less is to stay healthy. Many serious medical conditions can be prevented simply by staying fit, eating healthfully, and avoiding bad habits like smoking or drinking to excess.

Of course, nobody can predict the future. In the face of a catastrophic health event like a cancer diagnosis or a car accident, paying your medical bills shouldn’t mean risking bankruptcy. CDH plans come with an annual out-of-pocket maximum. For 2010, that maximum is $5,950 for individuals and $11,900 for families. Once you’ve paid those amounts, your insurance will cover 100% of your medical expenses.

7. Do you worry about rising healthcare costs?

If fears about maintaining your current level of care keep you awake at night, a CDH plan may offer some reassurance. An HSA can help you build wealth for the future. And taking more control of what you spend – in the form of price-shopping and actively managing your health – can help you feel more empowered and less anxious.

Choosing a health plan can seem complicated, but it doesn’t have to be. Look closely at all of your plan options and compare their features. When you understand what features matter most to you and choose accordingly, you’ll end up with the right plan.