The Value of a Consumer Directed Healthcare Account

View the infographic below to discover the value of consumer directed healthcare accounts.

The graphic features an overview of HSAs, HRAs, and FSAs, along with other helpful information.

What is a Consumer Directed Healthcare Account?

A consumer-directed healthcare account is a type of medical savings account that:

  • Helps pay for eligible medical expenses
  • Can be set up by an individual or offered through an employer
  • Gives account holders more control over healthcare dollars

Three Types of  CDH Accounts

1. Health Savings Account (HSA)

An HSA is owned by the participant and acts like a regular bank account. Money deposited into the account is used to pay for eligible healthcare expenses, including health plan deductibles.

  • Must have an HSA-qualified HDHP to open an HSA
  • Funds used for eligible medical expenses can be withdrawn anytime without incurring taxes or penalties
  • Unspent funds may be carried over into the following year
  • Money in the account earns tax-free interest
  • Funds used for non-medical expenses are subject to taxes and IRS penalties
  • All contributions are tax-deductible

2. Health Reimbursement Arrangement (HRA)

In an employer-owned HRA, the employer deposits money into the employee’s account to help pay for qualified medical expenses, including deductibles and co-pays.

  • Can be paired with any health insurance plan
  • The employer decides which IRS-qualified expenses are eligible
  • HRAs cannot be used to pay for monthly health insurance premiums
  • The employer has the option of rolling over any unused funds to the next year

3. Flexible Spending Account (FSA)

  • Maximum pre-tax contributions for 2023 is $3,050
  • FSA funds can be used for a wide variety of medical, dental, and vision care expenses
  • FSA funds can pay for co-pays and deductibles, but not premiums
  • FSAs lower your income taxes by using pre-tax money
  • Employers can contribute to your FSA, but are not required to do so

CDH Plans Catching On!

As of 2021, two-thirds of all large employers (1000+ employees) offer an HSA-eligible plan*.

Growth in the percentage of large employers with CDH plans:

  • 2014 – 45%
  • 2015 – 52%
  • 2016 – 57%
  • 2017 – 58%
  • 2018 – 64%
  • 2019 – 62%
  • 2020 – 67%
  • 2021 – 66%

*Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2005-2017; KFF Employer Health Benefits Survey, 2018-2021

For Employers:

  • Reduce current healthcare plan costs
  • Help limit future increases in plan costs
  • Employee retention tool
  • Employees become better consumers of healthcare

For Employees:

  • Reduce income taxes
  • Lower healthcare plan premiums
  • Save more for retirement (with HSAs)
  • Set aside tax-free money to pay for medical expenses

Who Should Use a CDH Plan

CDHPs usually have the lowest monthly premiums, but higher deductibles and out-of-pocket limits. They work well for people who:

  • Want the lowest monthly premium
  • Anyone looking to reduce their tax burden
  • Are good at planning and tracking their annual medical expenses
  • Want to save on taxes by depositing their own money into an HSA
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