Consumer-Directed Health Plans - Assignment Example

Consumer-Directed Health Plans affiliation Health care consumers tend to lean on the side that will offer them autonomy in making informed and convenient healthcare options. Health care services are always costly especially to an individual with financial constraints. Pooling of consumer risks and resources regarding health care in most cases helps a great deal in mitigating the uncertainties and expenses of illness. It is because of escalating healthcare costs that consumers decided to embrace the consumer-directed health plans (CDHPs).This was way back in 2001 when employers decided to involve their employees in making decisions about their own health care (Collins, 2007). It is in the same year that health reimbursement arrangements (HRA) begun. Then Health Savings Account (HSA) closely followed HRAs after the approval of the 2003 Modernization Act. This Act allowed individuals with a considerable amount of deductible health contrive to contribute towards HSAs. The main reason for coming up with CDHPs was to empower employees to make informed decisions about health care (“FAQ - What are Consumer Directed Health Plans (CDHPs),” n.d.). Since 2001, CDHPs have assumed an upward trend as consumers have appreciated it as a financial friendly and cost- restraint system. Studies show that in 2013 only, nearly 23% of employers having workers ranging from 15 to 400 and employers with over 500 workers proposed the use of either HSA or HRA health scheme. Studies affirm that CDHPs do not downgrade preventive services and encourages younger healthier populations since most subscribers are young families. Today not only individuals but also business companies have embraced CDHPs as a way of handling their health related issues. There has been a rise for contributions in both HSA and HRAs 2013 having an approximated amount of $ 23.8 billion Collins, 2007). This was a significant rise from $18 billion in 2012. The number of account holders rose from 11.7 million in 2012 to 11.8 million in 2013. Although there are speculations about the ineffectiveness of CDHPs, it stands undisputed that this type of strategy has an amazing ability to make member to take actively part in their health care management. CDHPs readily offer necessary support to members in terms of materials and skills. Feeling that the individual may not be able to understand or manage his or her finances when enrolled in CDHPs is inappropriate. (Greene, Peters, Mertz, & Hibbard, 2008)A research conducted reveal that CDHP members are aware of their roles and make good use of the available information as well as support mechanisms provided. CDHP can be offered in combination with the three main accounts; these include the Health Savings Account, Health Reimbursement Arrangement and Flexible Spending Arrangement (Greene et al., 2008). Contributions are made to the selected account and they are used to make payments according to the preferred medical expenditure. Expenses are recouped on tax- deductible footing. Health Savings Account (HSA) This is an actual bank account where money is deposited for use in future medical expenses (Fowles, Kind, Braun, & Bertko, 2004). An individual can contribute and then make deductions when appropriate. HAS is basically owned by an employee and it can be offered with a high-deductible health plan which conforms to particular HSA characterizing prerequisites modified by internal Revenue Service (IRS). HAS is funded by the employee but his or her significant others can contribute into this account as well. Interestingly, regardless of who contributes towards the HSA, the money solely belongs to the account holder. Cash is deposited straight into the HSA. Pre-tax and post-tax contributions are allowed. The employer deducts some amount if it is pre-tax contributions while for post-tax; the employee contributes on his or her own time. HSA pays for any characterized medical disbursals stated by the Internal Revenue Service. This account is not without special considerations. For an individual to be qualified to contribute to HSA, he or she must also be a qualified High-Deductible Health Plan (Fowles et al., 2004). The account holder can withdraw money for non-health care expenditure but this comes with taxation and IRS penalization. Additionally, the federal government shoulders the responsibility of governing the HSAs. Flexible Spending Arrangement This is a healthcare plan reimbursement entirely created by employers. FSA enables one to set aside money to be used in meeting family health expenses prior to taxation. An individual decides on the amount to save for the annual health care costs. (Fowles et al., 2004) The most remarkable thing about FSA is that taxation rate is reduced because one has already spent pre-tax money for meeting healthcare demands. Furthermore, the salary is always enough to meet other expenses. In FSA, the employer is its main owner. FSA is used with any other compatible health care plan if it is for full- purpose. Whereas limited- function health care FSA is used in alignment with HAS as well as its characterized high-deductible health program. The prime contributor of FSA is the employee although the employer can also take part in it. In most cases, the employer determines how FSA is funded by deliberating on the annual contributions by each employee basing on wages (Collins, 2007). A certain percentage of Deductions are made on each employee’s payroll. Health care expenses are pain from FSA following the employer’s scheme of what is eligible for health care expenditures. It is worth mentioning that most FSA covers medical expenses on; dental care, eye treatments and hearing care. FSA must be in constant use otherwise, it becomes vestigial when inactive for a long time. Putting it differently, an individual is required to use all the money in the account by the end of the year because any remaining money is not carried forward to the next year. Other terms associated with FSA are; (Collins, 2007). Once the employee decides to leave the organization, he or she cannot take the contributions, the employee sets rules regarding reimbursable expenses and the contributions are tax-free. Health Reimbursement Arrangement HRA which tax-advantaged, is approved by the Internal Revenue Service and is funded by the employer. It is a beneficial health plan that compensates the employees for their out-of-pocket expenditure on medical care (Collins, 2007). The employer makes direct monetary contributions to the employees account as well as provides restitution for eligible medical expenses. Today the HRA is integrated with a preferred medical plan. HRA is purely funded by the employer and he or she makes a specific amount of contribution into the account. Note that HRA pays for health care expenses that characterized by the modified plan of the employer. HRA covers a variety of expenses including known healthcare insurance and semi-permanent care indemnity premiums. There lack restrictions on contribution the employer makes towards an employee’s health expenditures. Reimbursement is done basing on section 213 of the Internal Revenue Service. However, the employer is mandated to limit the number of reimbursable expenditures according to their HRA design. Socioeconomic Group that Benefit from CDHPs CDHPs require a stable contribution of funds from the employer, the employee or both. In this case, it is therefore imperative that for an individual to benefit fully from CDHPs, he or she must be connected to the two parties (Greene et al., 2008). The continued contribution keeps CDHPs alive. In other words this means that salaried individuals, the employer and by extension their family members are likely to benefit most than any other person not categorized among them. CDHPs can be described as working class-oriented and all services are shaped to better the lives of employees and their significant others. In an isolated study, families that enrolled for CDHPs cut on their expenditures on health care unlike those that were not. This is because one of the family members was either an employee or employer who had subscribed to CDHPs. Educated people in the society, which are, form the working class in the society; have a better understanding on how CDHPs work as well as the terms and regulations. Therefore, CDHPs locks out almost all illiterate and jobless people (Beeuwkes, Haviland, McDevitt, & Sood, 2011). It is imperative that for one to benefit from CDHPs one must be literate and at least working or close to someone who is working. Not all working individuals may benefit from CDHPs since their wedges may limit them. Contributions are made as deductions from employee’s salary in most cases. Incentives Institutions use incentives to attract and maintain customers to ensure sustainability of that particular business. CDHPs have several strategies use as incentives to have many employees and their associates enroll for CDHPs (Greene et al., 2008). It is not automatic that employees will embrace CDHPs because it works to improve their healthcare and livelihood. Various strategies must be implemented to enhance efficiency and remarkable delivery of health care services. For instance, the employers must work in conjunction with the insurance company of employee’s choice to define the preferred level of responsibility. Secondly, reducing employee’s contribution amount or raising the employers’ contributions to the account. Conducting employee education as well as accurate communication on how to use the programs and backing tools. (Collins, 2007). Another type of incentive is by providing wellness plans and promoting healthy behaviors among employees. The financial risk is not only limited to one party rather it is shared across all involved groups. The patient can bear financial risks if the process of reimbursement is compromised. The provider who can be the employer can also endure financial risk if the employee refuses to make necessary contributions and defaults (“Health Reimbursement Arrangement (HRA) - What is it?,” n.d.). The whole of CDHPs can suffer financial losses if both the provider and the patient work in disagreement. Recommendations Patients seeking to enroll into a CDHP have a variety to choose. HSA is most preferred for a patient who wants full control of his or her contributions as well as requires support from family members. This best suits a patient whose income is inadequate to make substantial contributions towards his or her health care expenditures (Collins, 2007). HSA contributions belong to the account holder and the account holder can withdraw money for non-health care expenditure. A patient may consider FSA if he or she has good control of money. The income must also be substantial so that once the medical expenditures are deducted taxation is not compromised. FSA has one major advantage of lower taxation rates than any other form of CDHP contributions. However, an individual must regularly use the FSA since any unused money is not carried forward to the next year. This also implies that an individual who makes lager contributions must not consider FSA as the best choice. The most unfriendly part of FSA is that; once the employee decides to leave the organization, he or she cannot take the contributions. Those patients going for Health Reimbursement Arrangement (HRA) must know that solely the employer funds the account. HRA ensures that an individual meets future medical expenses and the remaining amount of money is carried forward to the next year unlike FSA. The account holder has the allowance to accrue money for later medical demands for example retirement health services expenditures. This type of CDHP favors low to moderate-income earners. In conclusion, CDHP works through three major branches that is; FSA, HRA and HSA. It was first developed in 2001 to enable employees to have full control of their health care expenses by making informed decisions as well as contributing towards their health care. CDHP works well for individuals who can make certain amount of contributions consistently. A patient chooses a CDHP that best suits his or her income. It important that before one decides to settle on a CDHP option must be literate and understands the requirements and responsibilities ascribed to him or her once her sign up for any account. References Beeuwkes, B. M., Haviland, A. M., McDevitt, R., & Sood, N. (2011). Healthcare spending and preventive care in high-deductible and consumer-directed health plans. The American Journal of Managed Care, 17(3), 222–230. FAQ - What are Consumer Directed Health Plans (CDHPs)? (n.d.). Retrieved May 16, 2015, from http://www.zanebenefits.com/blog/faq-consumer-directed-health-plan-cdhps Fowles, J. B., Kind, E. A., Braun, B. L., & Bertko, J. (2004). Early Experience with Employee Choice of Consumer-Directed Health Plans and Satisfaction with Enrollment. Health Services Research, 39(4p2), 1141–1158. Greene, J., Peters, E., Mertz, C. K., & Hibbard, J. H. (2008). Comprehension and choice of a consumer-directed health plan: an experimental study. The American Journal of Managed Care, 14(6), 369–376. Health Reimbursement Arrangement (HRA) - What is it? (n.d.). Retrieved May 16, 2015, from http://www.zanebenefits.com/blog/bid/97288/Health-Reimbursement-Arrangement- HRA-What-is-it Read More