It’s the season again—Benefits Open Enrollment, that time of year where you get to change your benefit elections and/or add or drop dependents for the following year.
More than one in five, or 22%, large employers plan to offer their workers only consumer-driven health care (CDHC) in 2014 as a cost-control strategy, according to a recent survey of 108 employers by the National Business Group on Health, Modern Healthcare reports. By comparison, 19% of employers offered only CDHPs this year, while about 7% did so in 2009.
What is a CDHP? Defined narrowly, it refers to health insurance plans that allows you to use Health Savings Accounts or similar medical payment products to pay routine health care expenses directly, while a CDHP protects you from catastrophic medical expenses. In most cases, to enjoy tax breaks, the employer must follow the CDHC rules. This type of health care is referred to as "consumer driven health care" because routine claims are paid using a consumer-controlled account versus a fixed health insurance benefit. That gives you, at least in theory, greater control over your own health budgets.
What’s an HSA? HSAs are private savings accounts that must be paired with a qualified high-deductible health plan (HDHP). They can be held by a bank, brokerage company, or similar vendor. HSAs allow both you to save money tax-free, and allow the employers of account holders to make tax-free contributions to your accounts. Provided the funds are used to pay for out-of-pocket health care expenses, the money deposited in an HSA is never subject to Federal income tax. HSA contributions may be invested in a manner similar to retirement accounts, and investment earnings and interest can accrue tax-free.
These accounts can be especially attractive for higher income individuals because any funds not spent in a given year can be carried over indefinitely and may even be withdrawn penalty-free in retirement for non-qualified expenses.
For 2013, the contribution limits for employees to contribute HSAs are $3,300 and $6,500 for a family, with an additional $1,000 “catch-up” contribution permitted after age 55.
Why would you want to choose a CDHP+ an HSA plan over your current, non CDHP plan? If you’re nearing retirement, and your employer does not have a retiree medical plan, you can let this money grow tax-free, and it will be there for you once you retire. This may not apply to you at this time, but individuals nearing retirement without retiree health coverage, it’s worth thinking about carefully.