Consumer-Driven Health Plans

The term Consumer-Driven Health Plans (CDHP) refers to plans with high-deductible health insurance and savings plans. These include HSAs and Medical Savings Accounts (MSA) and Health Reimbursement Arrangements (HRA). One driving force behind CDHPs was businesses that provide health insurance for their employees and concerns about increases in health care costs and insurance premiums. Another force was dissatisfaction with “managed care” which put patients into conflict with HMOs. CDHPs are intended to give patients more freedom.


An HSA is a trust or custodial account. Individuals can set up accounts with banks or insurance companies or other financial institutions. Often companies that offer IRAs also offer HSAs. You cannot simply designate an existing savings account as an HSA. There is no requirement that any bank or insurance company must offer an HSA. It is up to the provider.


Once you have an HSA, you keep it even if you are no longer eligible to contribute. For instance, if you take a job that provides health insurance that is not a HDHP, you can’t put any more money into the HSA, but you can still keep the HSA and continue to switch where it is invested.

Health Savings Accounts as Retirement Savings Vehicles

That’s not why they were invented, but the some financial planners say HSAs can be a good supplement to retirement savings. Balances in the accounts can be rolled over from year to year; money remaining at retirement can be used to cover health care costs in retirement,. Retired people often have expenses that include Medicare deductibles and long-term care insurance. Money in health savings accounts can be used for these expenses.


Planning experts don’t think they can or should substitute for more conventional retirement savings such as IRAs and 401k plans, but they can make a good addition to the overall retirement portfolio.


In an essay George Will offered an illuminating analogy. Car owners purchase insurance from companies to cover losses such as theft and accidents (big expenses). But they pay for routine maintenance like oil changes out of their own pockets. Nobody buys insurance to pay for oil changes and tire rotations. The idea behind consumer-driven health plans is that if people take charge of routine health care costs (analogous to oil changes), the free market will bring costs and allocations into better balance.

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