How consumer-directed health plans work
If by good health or good luck you don’t need to visit the doctor often, choosing a consumer-directed health plan (CDHP) can save you money and provide flexibility in how you spend and save for your health care.
While CDHPs provide similar coverage to traditional plans, they have specific eligibility requirements and other characteristics that make them unique. Before you enroll in a CDHP plan, learn about how it works and if it’s right for you and your family.
Eligibility and enrollment
Due to the unique tax advantages of health savings accounts (HSAs), which are governed by the Internal Revenue Service (IRS), certain circumstances prevent you from enrolling in a CDHP. You can’t enroll in a CDHP if:
- You or your spouse is enrolled in a medical flexible spending arrangement (FSA), even if you are not covering your spouse on your health plan
- You’re claimed as a dependent on someone else’s tax return
- You’re enrolled in Medicaid, Medicare (part A or B), or TRICARE
- You’re enrolled in another comprehensive medical plan
- You or your spouse is enrolled in a Voluntary Employee Beneficiary Association (VEBA) account
If none of these apply to you, then you can enroll in a CDHP.
Is a CDHP right for me?
Compared to the other PEBB plans, CDHPs cover the same basic health care services and have a similar benefit structure. Like other plans, you pay coinsurance for services, your care costs less when using network providers, and you receive coverage for common services like vision and prescriptions.
CDHPs differ from the other plans in two important ways: the HSA and the high deductible, low premium cost balance.
While CDHPs have the lowest premium cost, by selecting a CDHP you take on more financial risk — a much higher deductible and out-of-pocket limit. Should you get sick or injured and need significant medical care, you’ll pay a lot more out of pocket than you would with a traditional plan.
The potential of paying higher out-of-pocket costs may not be a problem if you have money saved, either in the HSA or elsewhere, to cover those costs.
If you have money saved, a CDHP may be right for you. Additionally, CDHPs work well for people who:
- Can meet the eligibility requirements
- Want the lowest monthly premium
- Are generally healthy and do not have significant ongoing medical needs or costs
- Are willing to verify what services, supplies, and medication are qualified under the HSA
- Can keep track of HSA expenses in case of an IRS audit
- Want to save on taxes by depositing their own money into an HSA
How HSAs work
When you enroll in a CDHP, you’re also enrolled automatically into an HSA. Along with the cheaper premiums, this is main advantage of choosing a CDHP.
An HSA works like a typical bank account, but the money can only be used for medical expenses. While the Internal Revenue Service (IRS) specifies exactly what expenses qualify, you are in charge of how and when you spend HSA money. You even receive an HSA debit card that works just like a typical debit card.
Not only is the HSA money yours to use, the state deposits money directly into your account:
|People covered on CDHP||State’s monthly deposit into your HSA||Total deposited by end of year|
|Just you||$58.37||x 12 months = $700.08|
|You and your family||$116.67||x 12 months = $1400.04|
Notice that over the course of a year, the state deposits $700, which is half the $1,400 deductible of the CDHPs. Any money you save in an HSA gains interest, just like a bank account.
And, as it would in a bank account, money in your HSA stays there from one year to the next. This may be surprising to those accustomed to flexible spending arrangements (FSA) where you lose any unspent account funds at the end of the year.
While an HSA functions a lot like a traditional bank account, unlike a typical account, the money you deposit into your HSA is pretax. This is a significant benefit to you as it reduces your federal tax obligation.
The only catch, so to speak, of having an HSA is that you’re fully responsible for any tax consequences, which include using HSA funds only for qualified expenses and not exceeding the annual contribution limits.
The HSAs for the PEBB plans are managed by HealthEquity, a health savings company. Learn more about how HSAs work, including what qualifies as a medical expense, by visiting the HealthEquity website.
Deposit money into your HSA
If you want to deposit money into your HSA, you have two options: either make a contribution through HealthEquity or set up a UW payroll deduction.
To deposit through HealthEquity, log into your HSA account to make a contribution to your account. If you have questions, contact HealthEquity directly.
To set up a pretax paycheck deduction through UW, complete the Health Insurance - HSA - Employee Authorization for Payroll Deduction (PDF) form and return the original form to the Benefits office. Fax or email attachments cannot be accepted. Make sure to keep a copy for your records.
You may change your deduction as often as you wish during the year. If you choose, you can fully fund your HSA at the beginning of the year, provided you stay covered by a qualified CDHP for the entire year.
Annual contribution limits for HSAs
You have full responsibility for making sure contributions to your HSA don’t exceed the IRS limit. This includes contributions from you, your spouse, the state, and any other contributor. The maximum amount a taxpayer household can contribute each year to an HSA is shown in the table. For full tax details, visit the IRS health savings account page.
|HSA contribution limits||2015||2016|
|Additional catch-up contribution for those 55+||$1,000||$1,000|
Keep your HSA after leaving the CDHP
You own your HSA and won’t forfeit any unspent fund when you change health plan, change jobs, or retire. You can spend your HSA funds on future qualified medical expenses.
When you leave the CDHP plan, the state stops contributing funds to your HSA. If you have UW a payroll deduction going to your HSA, stop the deduction by submitting the Health Insurance - HSA - Employee Authorization for Payroll Deduction (PDF) form to Benefits.
Also, HealthEquity will charge you a monthly fee of $3.95 if you have less than $2,500 in your account after you leave the CDHP. You can avoid this charge either by ensuring you have at least $2,500 in your HSA or by spending all of your HSA funds.