CDHP stands for Consumer Driven Health Insurance. This type of health insurance is insurance that gives consumers more control over how their money is spent in regards to health care as well as placing more responsibility on the consumer to make intelligent health care choices. However, you should understand how these plans work before you purchase one.
A consumer driven health insurance plan is sometimes referred to as a high-deductible plan. These plans provide health insurance to you while charging premiums that are typically below those of standard copay plans. High-deductible insurance, as the name suggests, always has a high deductible relative to the premium cost. In many cases, this deductible may be several thousand dollars up to $10,000 or more (as of 2011).
The significance of a high-deductible plan is that the plan reduces premiums and allows you to save the money you would have paid to the insurance company on a copay plan. This saved money is intended to be actually saved and not spent. High-deductible plans often come paired with a health savings account. The account is a tax-free account. This account provides you with direct access to funds that you can use for medical expenses.
By using a high-deductible plan, you become more aware of the costs of health care, since your out-of-pocket costs are higher for basic health care treatment. The savings you have in your health savings account allows you to negotiate prices with your doctor for medical care. You may be less apt to use the money for minor illnesses, which might collectively help to keep plan costs down in the future.
The disadvantage to CDHPs is that they require a lot of out-of-pocket costs each year if you use your health insurance frequently. Because the deductibles are high, you may find yourself spending more money on the plan than with a copay plan. A copay plan sets a premium and low deductibles (in some cases, there are no deductibles) so that you don't have to worry about paying much (if any) money out of pocket when you need to use your health insurance. With a high-deductible plan, you must constantly watch what you spend, since it comes out of your own pocket at the time you use the money (or it comes out of your health savings account, which is still money you've set aside). This could become a liability if you refuse to use your health insurance for minor illnesses and the minor illness turns into a major, more expensive, illness that must be treated.
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A. Crane; 2007
- "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004
- "New England Journal of Medicine"; Do High-Deductible Health Plans Threaten Quality of Care?; Thomas H. Lee, M.D., and Kinga Zapert, Ph.D.; September 2005