What Is a CDHP Plan and How Do They Work?

A Consumer-Driven Health Plan (CDHP) represents a distinct approach to health insurance, empowering individuals to manage their healthcare expenditures. This type of plan combines a high-deductible health plan with a tax-advantaged savings account. CDHPs aim to encourage informed healthcare decisions by providing transparency regarding costs and allowing participants greater control over their funds. The structure of a CDHP involves an individual paying for initial healthcare costs from their savings account until a specified deductible is met. This framework fosters a different engagement with healthcare services, promoting cost awareness and personal financial planning for medical needs.

Core Components of a CDHP

A Consumer-Driven Health Plan is built upon two interconnected elements: a high-deductible health plan (HDHP) and a linked savings account. These components work in tandem to define how medical expenses are covered. Understanding each part individually provides clarity on the overall structure of a CDHP.

A high-deductible health plan is characterized by its higher deductible amounts compared to conventional health insurance plans. This means that individuals covered by an HDHP are responsible for a greater portion of their medical costs out-of-pocket before their insurance coverage begins to pay for most services. To qualify as an HDHP for the purpose of linking to certain tax-advantaged savings accounts, the plan must meet specific deductible and out-of-pocket limits set by the Internal Revenue Service (IRS). For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage and $3,300 for family coverage.

Accompanying the HDHP is a dedicated savings account, which serves as a financial reservoir for qualified medical expenses. This account is designed to help individuals cover the initial costs that fall within their deductible. Funds from this account can be used for a wide range of eligible healthcare services, including doctor visits, prescription medications, and other medical treatments. The presence of this linked savings account is a defining feature of a CDHP, providing a mechanism for consumers to manage their immediate healthcare spending.

Associated Savings Accounts

Consumer-Driven Health Plans are closely associated with specific tax-advantaged savings accounts that provide financial flexibility for healthcare costs. The two primary types of accounts commonly linked with CDHPs are Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs), each possessing distinct characteristics and benefits.

A Health Savings Account (HSA) is an individually owned account that allows individuals to save and pay for qualified medical expenses on a tax-advantaged basis. Eligibility for an HSA requires enrollment in a qualifying high-deductible health plan, and individuals cannot be covered by other health insurance, enrolled in Medicare, or claimed as a dependent on someone else’s tax return. Contributions to an HSA can be made by the employee, the employer, or both, and these contributions are tax-deductible or made on a pre-tax basis. Funds within an HSA grow tax-deferred, and withdrawals for qualified medical expenses are tax-free, and unused funds roll over year to year, making the account portable. For 2025, the maximum contribution limit for self-only HSA coverage is $4,300, and for family coverage, it is $8,550, with an additional $1,000 catch-up contribution for individuals aged 55 or older.

Conversely, a Health Reimbursement Arrangement (HRA) is an employer-funded account designed to reimburse employees for qualified medical expenses. Employees do not own HRAs and cannot contribute to them; the employer solely funds these accounts. Employers establish the rules for HRA usage, including which expenses are covered and whether unused funds can roll over to subsequent plan years. Reimbursements from an HRA are generally not considered taxable income for the employee, and employers can claim a tax deduction for their contributions. A notable distinction of HRAs is their lack of portability; if an employee leaves the company, they typically forfeit any remaining funds in their HRA.

Key Operational Features

The practical application of a Consumer-Driven Health Plan involves a specific sequence of payments and coverage, integrating the high-deductible health plan with the associated savings account. This operational flow helps individuals understand their financial responsibilities for healthcare services.

Initially, when medical services are needed, the individual typically uses funds from their linked savings account, such as an HSA or HRA, to pay for qualified medical expenses. This occurs before the high-deductible health plan begins to provide coverage. The savings account acts as the primary payment source for costs incurred up to the plan’s deductible amount. This mechanism allows individuals to manage routine and unexpected medical expenses directly from their allocated funds.

A notable exception to the deductible requirement is preventive care. Many CDHPs, in compliance with federal regulations, cover preventive services at 100% even before the deductible is met. This includes various screenings, immunizations, and wellness visits, ensuring that individuals can access essential health maintenance without immediate out-of-pocket costs. This coverage promotes proactive health management and aims to prevent more serious conditions.

As an individual incurs medical expenses, payments from their savings account or personal funds contribute towards meeting the HDHP’s deductible. Once the deductible is satisfied, the health plan typically begins to share costs through coinsurance, where the plan pays a percentage of covered expenses, and the individual pays the remainder. This cost-sharing continues until the annual out-of-pocket maximum is reached. The out-of-pocket maximum represents the absolute limit an individual will pay for covered medical services in a plan year, encompassing deductibles, copayments, and coinsurance.

After the out-of-pocket maximum is met, the high-deductible health plan assumes responsibility for 100% of all covered medical expenses for the remainder of that plan year. This cap provides a financial safeguard, limiting an individual’s total annual exposure to healthcare costs. The typical flow of costs within a CDHP therefore progresses from initial self-payment using the savings account, through cost-sharing with the insurer, to full plan coverage once the maximum financial responsibility is reached.