CDHP: Pros and Cons of the Consumer-Directed Health Plan

CDHP: Pros and Cons of the Consumer-Directed Health Plan

In the last decade, a growing number of organizations have been offering consumer-directed health plans (CDHP) as a way to reduce health care insurance costs for both the company and the employees.

By offering consumer-directed health plans, you can encourage your employees to make informed decisions and efficient health care spending.

When used correctly, CDHP can help employees reduce premium costs in a significant way.

That said, you must know that consumer-directed health plans are not immune to employees’ rejection. This health care plan might not be suitable for everyone in the office due to its high deductible.

The question is: is it worth it to offer your employees CDHP options? Can you and your employees benefit from it at the same time?

I’ve created this post so you can compare the pros and cons of offering your employees CHDP options and how doing so can have an impact on your organization.

Let’s start by defining what a CDHP is:

What Is a Consumer-Directed Health Plan (CDHP)?

A consumer-directed health plan (CDHP) or a consumer-driven health plan is a health care insurance policy that offers policyholders low premiums and high deductibles in conjunction with tax-advantaged health savings accounts (HSAs).

The purpose of this plan is to reduce health insurance costs for employers and increase policyholders’ accountability for their health care spendings. In addition, a CDHP can help employees save significant amounts of money by offering lower premiums than traditional health care plans such as HMO or PPO.

I know this might sound a little confusing, especially when you have to explain it to your employees. For that purpose, I recommend you explain to them what insurance premiums and deductibles are so they can understand the implications of getting a CDHP.

What’s an Insurance Deductible?

An insurance deductible is the amount of money the policyholder – the employee in this case – has to pay before the insurance company starts to pay for an insurance claim.

What’s an Insurance Premium?

An insurance premium is the money policyholders have to pay for acquiring an insurance policy. For this, customers can make monthly or yearly payments. There is also the option of making a single upfront payment.

Advantages of Consumer-Directed Health Plans (CDHP)

The main advantage of offering your employees a CDHP is a reduction in health care insurance costs. When it comes to yearly health care spendings, a consumer-directed health plan can help reduce the cost for the company and the employees as well.

Advantages of a CDHP for the Employers

Although it may not seem like a big difference, offering employees CDHP with lower premiums and higher deductibles, such as HDHP, represents an average of $691 less per employee compared to traditional plans such as PPO, POS, or HMO in a year.

CDHP employer's contribution

These statistics are provided by the Employee Health Benefits Summary of Findings, which is a study made by The Kaiser Family Foundation and Health Research and Educational Trust.

Therefore, a difference of almost $700 a year per employee in a company that has 1,500 employees, for instance, can have a huge impact on the organization’s finances.

Advantages of a CDHP for Employees

As I mentioned before, consumer-directed health plans might not be for everyone. However, it does have an advantage for those employees who are healthy and don’t need to use health care services often.

Since CDHP comes with a higher deductible than those of traditional health plans, employees are less likely to seek unnecessary health care, which translates into fewer insurance claims.

Therefore, employees who tend to stay healthy during the year can save money on the premium that consumer-directed health plans such as HDHP offer.

But how much money can an employee save by acquiring a CDHP? Let’s take a look at the Summary Of Findings one more time:

CDHP worker's contribution

As you can see, Except for the Point of Service plan, the consumer-directed health plan HDHP means less out-of-pocket money from the employees. On average, CDHP can help employees save almost $200 on premiums a year.

Sounds good right? But what happens when employees do need to make an insurance claim? This is the other side of the CDHP coin.

Disadvantages

The aspect that characterizes a consumer-directed health plan is its high deductible, and that’s exactly what some employees consider a big disadvantage.

Although it does not represent a disadvantage for employers, some employees, especially those who have medical conditions, see high deductible health plans as a trap.

Their reasoning is the following: What’s the point of saving a “couple hundred bucks” if you are going to end up paying a deductible of $1,350 on average when you do get sick?

There are health care plans, such as HMO, that charge considerably lower deductibles or don’t charge annual deductibles at all.

According to statistics published by the Kaiser Foundation, this is true. Employees who don’t get sick often can save some money on premiums but those who do get sick are not going to be happy with a CDHP.

This is the reason that high deductible health plans are somehow controversial among employees these days. In fact, CDHP was not popular at all when they were first released back in 2000.

The History of CDHP

CDHP was introduced in early 2000 by a group of organizations with the purpose of reducing costs associated with health care insurance policies.

It did not become popular among employees due to the same disadvantages it has today. Yet it is true it helped employees save some money, the real problem came when they got sick and needed to pay medical bills. At that moment, employees were not happy with high deductibles.

Although CDHP hasn’t been extremely popular, the number of companies that offer CDHP to its employees in on the rise these days.

According to ConnectYourCare, CDHP showed the biggest increase in the last 5 years compared to other types of health insurance plans. Consumer-directed health plans increased from 30% in 2014 to 40% in 2018, and this tendency continues to grow.

As you can see, more and more companies are now offering their employees consumer-directed health plans in order to reduce health care costs. You can evaluate how beneficial it would be to offer your employees this option by calculating the reduction of costs with your employees.

There are many factors that come to play here, such as:

  • The type of industry.
  • The overall health of your staff.
  • The number of employees you have.
  • The current insurance benefits you offer.

By evaluating these factors individually, you can determine if offering these health insurance plans are worth it for your organization.