Consumer Directed Healthcare: Is it for You?

“Consumer-Directed” Healthcare is touted as the answer to reducing healthcare costs by placing more control over an individual’s health budget with the consumer. 

It is executed primarily through Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). With HRAs, the employer sets up funds from which employees are reimbursed for their health insurance premiums and other expenses. With HSAs, individuals purchase a qualifying high deductible health insurance plan which saves on premium and allows the consumer to contribute to a fund that can be used to pay for qualified medical expenses. 

In both cases, the funds have tax advantaged status and it allows individuals to pay for the care they want to buy while not buying care they don’t need or want.  For 2012, an individual can contribute $3,100 to their HSA or $6,250 for a family.

I have read pros and cons of these consumer directed approaches and offer the following for our readers to consider:

1. Consumer Directed Healthcare Plans when used correctly reduce insurance premiums significantly – yet they do come with a high deductible. The savings can be placed into a HSA and accumulated from year to year with tax advantaged status. Since the consumer is now deciding on needed healthcare (avoiding unneeded care) much in savings can be realized. The savings can literally be thousands of dollars per year dependent on the deductible chosen. It should be noted that preventive care still is covered under the lower premium but deductibles have to be met for diagnostic work, hospital stays, and other work.      

2. There are those that argue consumers can and will “skip” on needed healthcare in order to save. This can be particularly true of low income families.

3. For businesses using HRAs, they are saving significant sums of money and this does leave the spending and care decisions to the employee.

My recommendation to our readers (both business owners and individuals) is to seriously evaluate these consumer directed healthcare options this year. Look at your options from a financial standpoint AND how you expect to use healthcare always making sure you have catastrophic coverage. 

- For businesses facing “budget busting” group premiums, HRAs can allow for cost control and still offer employees support for excellent benefits.

- For individuals wishing to get control of rising traditional health insurance premiums, HSAs can reduce premiums while helping to establish tax advantaged funds to pay for the care needed.

Overall, this means looking at your specific situation assessing both care and financial benefits to make the best value decision for you and your family. 

Editor's Note: is a health, long term care and life insurance professional, and blogger for Cumming Patch.