Overview: Talk of consumer directed, or consumer driven, health care (CDHC) started in the late 1990s. Advocates of CDHC argue that health care costs can be reduced if individuals are responsible for their health care choices; more specifically, if individuals pay for health care services, they will be more cost conscious and make better choices when purchasing services.
Consumer driven health plans (CDHPs) are popular with employers today with the belief being that educated employees can be motivated to change their health care behaviors, which, in turn, can help reduce an organization's health care costs.
Contributions to a CDHP are excluded from gross income and are not subject to FICA and FUTA taxes. Additionally, employees may tailor benefits to meet their needs, allowing employees to reduce their premiums since they are not purchasing insurance they do not need.
Trends: There is increasing interest in CDHPs. This trend is likely to continue with the creation of health care exchanges under the Affordable Care Act (also known as Health Care Reform).
Author: Tracy Morley, SPHR, Legal Editor
Employment glossary definition of Consumer Driven Health Plan (CDHP).