Should I Choose A Consumer Driven Health Plan or A Traditional Health Plan?

While each situation is fact specific, in general a Consumer Driven Health Plan (CDHP) will be a better value for a participant than a traditional health plan.  Studies suggest 90-95% of participants are better off in a consumer plan, despite the high deductibles, if either plan is not disproportionately subsidized by the employer (i.e. priced to favor one over the other). 

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While perhaps not intuitive, once you appreciate what health insurance is and how the market works, you can see why this would be the case.  In brief, when health is offered as a buffet – literally all can take, any time you want – people tend to take more and more often, i.e. see the doctor more for minor nuisances and little pains that go away after 24-48 hours.  Further, if doctors know insurance is picking up the bill, they tend to prescribe more tests and order more procedures. 

As is well documented by academic literature (notably by Daniel Kahneman in Thinking Fast and Slow), people are risk averse and seek to avoid losing money.  In the case of consumer health plans, participants, generally speaking, shop around and use health services more efficiently.  Furthermore, this trend is accelerating, which is prompting some health care providers to actually lower their prices

In the decade or so since consumer plans have been around, health insurance underwriters have noticed this trend and observed a 10-30% reduction in usage of health services. As a result, the plans themselves are generally priced considerably cheaper, even after accounting for the high deductible component.

So what does this mean for you?  You have a very good chance of saving money by converting to a high deductible plan by pocketing the difference in out of pocket premiums that you would have paid for the higher cost plan.  For example, a HDHP may be $150/month less than a PPO, meaning you could save $1,800 per year.  If you deposit those savings in a health saving account, statistically you will still have hundreds, if not thousands of dollars left over each year, money that would have otherwise paid for a medical product you were not using.  Happy saving.