What Is a Consumer-Driven Health Plan (CDHP)?

A Consumer-Driven Health Plan (CDHP) is a type of health coverage designed to give individuals more control over their healthcare spending and decisions. These plans combine health insurance with a tax-advantaged savings account, encouraging engagement in managing health costs. Individuals often have a higher upfront financial stake in their medical services, promoting cost awareness.

High Deductible Health Plans

A High Deductible Health Plan (HDHP) forms the foundation of most CDHPs, serving as the insurance component. An HDHP features a higher annual deductible compared to traditional plans, generally resulting in lower monthly premiums. For 2025, an HDHP must have a minimum annual deductible of at least $1,650 for self-only coverage and $3,300 for family coverage. Individuals pay a significant portion of healthcare expenses out-of-pocket before insurance coverage begins.

Beyond the deductible, HDHPs include an out-of-pocket maximum, which is the most an individual or family will pay for covered medical expenses in a plan year. For 2025, this maximum cannot exceed $8,300 for self-only coverage and $16,600 for family coverage. This limit includes deductibles, co-payments, and coinsurance, but not premiums. Once this maximum is reached, the plan typically covers 100% of eligible medical costs for the remainder of the year.

Preventive care services are generally covered at no cost, even before the deductible is met. This includes routine screenings, annual wellness visits, and vaccinations, which are exempt from the deductible.

Health Savings Accounts

Health Savings Accounts (HSAs) are a primary savings vehicle linked with CDHPs, offering tax advantages. To be eligible for an HSA, an individual must be covered by an HDHP and cannot be enrolled in Medicare or another non-HDHP health plan. Individuals also cannot be claimed as a dependent on someone else’s tax return. The HSA belongs to the individual, providing portability even if they change jobs or health plans.

Contributions to an HSA can be made by the individual, an employer, or both, up to annual IRS limits. For 2025, the maximum contribution limit is $4,300 for self-only coverage and $8,550 for family coverage. Individuals aged 55 and over can contribute an additional $1,000 as a catch-up contribution. These contributions are tax-deductible.

Funds within an HSA grow tax-free, and withdrawals are also tax-free when used for qualified medical expenses. Qualified medical expenses include deductibles, co-payments, prescriptions, and dental or vision care. If funds are withdrawn for non-qualified expenses before age 65, they are subject to income tax and a 20% penalty. After age 65, non-qualified withdrawals are taxed as ordinary income without penalty.

Other Associated Savings Options

Beyond Health Savings Accounts, other tax-advantaged savings options like Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs) can also be associated with health plans. HRAs are employer-funded accounts used to reimburse employees for qualified medical expenses.

Unlike HSAs, the employer owns the HRA, and funds are typically not portable if an employee leaves. Employers determine annual reimbursement limits and eligible expenses. Reimbursements from an HRA are generally tax-free for employees.

Flexible Spending Accounts (FSAs) are typically funded by employees through pre-tax payroll deductions, though employers may also contribute. Funds in an FSA are used for qualified medical expenses. FSAs have a “use-it-or-lose-it” rule, meaning unused funds at year-end may be forfeited. Some plans allow a small amount to be carried over or offer a grace period.

While both HRAs and FSAs provide tax advantages, they differ from HSAs. HSAs are individual-owned, portable, and roll over year to year without forfeiture. HRAs are employer-owned, and FSAs often have a limited carryover or a “use-it-or-lose-it” provision.