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- Funds used for eligible medical expenses can be withdrawn anytime without incurring taxes or penalties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