CDHPs and HSAs? The ABCs of Health Insurance

More workers are likely to be offered a health insurance option that offers a lower premium, but could mean higher out of pocket costs, when open enrollment begins at many companies in coming weeks. Here are some tips for evaluating these new plans, called consumer directed health plans, and the alphabet soup of options this open enrollment season.

What's a consumer-directed health plan?

This is insurance that typically carries a premium lower than traditional coverage, but the trade-off is accepting a deductible that tops $1,200 and can stretch as high as $10,000 for some family plans. Typically, that deductible must be paid before insurance coverage starts.

That can mean paying for bills for blood tests, X-rays or a doctor's office visit in full instead of the usual $20 co-pay many have become accustomed to. Consumer-directed plans are paired with a special account to help manage these expenses. The most common are health reimbursement arrangements (HRAs) and health savings accounts (HSAs).

How do I tell an HRA from an HSA?

HRAs are an employer-funded account that helps pay out-of-pocket expenses. That money belongs to the company and stays with it if the employee leaves.

In contrast, customers own health savings accounts, which allow people to set aside pretax dollars for medical expenses. They can keep unused money in the accounts and earn interest.

How do I know if it's right for me?

The plans can vary widely from employer to employer, so a lot depends on what's offered.

Financial planners say these plans generally work best for people who use little health care. Those customers can pay a smaller premium, receive a tax break on money they put in their HSA and build up that account.

The plans are a poor match for those who struggle to save money.

"For people that are really on a tight budget and are close to being in financial trouble, that risk could push them over the edge," said Jon Beyrer, vice president of wealth management for Blankinship & Foster, a Solana Beach, Calif.-based financial advisory firm.