What is a Consumer Directed Health Plan with a Health Savings Account?

An increasing number of companies are providing their employees with health coverage through a Consumer Directed Health Plan with a Health Savings Account.

Companies using a high deductible plan often contribute a set amount into every employee’s Health Savings Account, also known as an HSA. In addition to the employer contribution, the employee can arrange for an amount to be deducted automatically from their paycheck on a weekly or monthly basis.

Towards the end of the year, the total balance in your health savings account may reach several thousand dollars.

Health Savings Account: Option if You’re Young and Healthy

At first blush, you may think that you have a nice pot of gold to pay for medical expenses. But, if you live in any major metropolitan area, a few thousand dollars won’t really get you very far. And if live in an expensive city like Boston, forget about it. That nest egg could be gone before you can say “atrial fibrillation!”

If you are young and healthy, a Consumer Directed Health Plan with a Health Savings Account can be a great plan because you can save the money in the Health Savings Account.

Beware: these plans are not exactly family friendly. If you live in a nice metropolitan area and have a family with 2 kids, you’ll probably make a few trips to the Pediatrician, maybe an ER visit, have some labs drawn. For each of these visits, you’ll pay 100% of the bill. You’ve blown through your HSA dollars in the poke of an eye.

Low Monthly Premiums, High Deductibles

That’s the trade-off with a Consumer Directed Health Plan with a Health Savings Account. Low monthly premiums in exchange for a high deductible.

The trick when electing this kind of plan (if you have a choice) is to be sure that you have the amount of money for your deductible in your bank account in January. Children and families often get sick in the winter, and you will be responsible for paying that deductible first.

Of course, once you’ve hit the deductible, then you’ll feel like using the plan (because everything seems to be on sale at 70-80% off) and you can go get those labs drawn, that surgery done, and those office visits booked. This is why it’s so difficult to get an appointment in November & December these days.

Only Covered Benefits or Services Count Towards Your Deductible

employer-provided insuranceRemember: only “covered benefits or services” will count towards your deductible.

If you want to use your Health Savings Account to pay for elective plastic surgery, it’s not likely to be covered (unless you are lucky enough to work for a company that covers it).

If there is a drug or procedure that is not on the health plan’s list of covered services, even if you know that it’s your money on the Health Savings Account card, it won’t work. Sometimes, the Health Savings Account card just won’t work at the pharmacy counter if you try to pay for a non-covered item.

Explained: HMO, PPO & EPO

HMOs, PPOs and EPOs describe the provider network. Usually, the more open and broad the provider network, the more expensive it is for you.

There are some employers who still offer old-fashioned HMOs (remember when Health Maintenance Organizations were all the rage?) If you have a family, or live with multiple medical issues, it might be the best option to keep your HMO. Yes, there may be a more costly premium week to week, but they offer peace of mind on the cost side and you won’t have the mindset of going without care due to costs.

PPOs (Preferred Provider Organizations) offer a broader network and fewer restrictions while HMOs are more middle of the road. EPOs (Exclusive Provider Organizations) are the most restrictive networks but in exchange for a less expensive plan. So, if you have a choice, consider how important it is for you to have access to everybody vs. a small network of providers. Is it really worth it if you tend to go to the same doctors all the time?

For more information, check out our helpful guide to open enrollment for patients with employer-provided insurance.

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