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, and 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 healthcare exchanges under Health Care Reform.
Tracy Morley, SPHR, Legal Editor
Employer-sponsored health care benefits are an important part of the overall compensation package used to attract and retain employees. Employers, however, face a number of issues when deciding on employee health care benefits. This section assists HR professionals in understanding the different types of benefit plans (e.g., traditional indemnity, managed care), the benefits that may be offered (e.g., prescription drug, dental, vision), how cafeteria plans work and the impact of the Patient Protection and Affordable Care Act (PPACA).
Employment glossary definition of Consumer Driven Health Plan (CDHP).