A consumer-directed health plan (CDHP) is one of the best ways for your employees, no matter their age, to not only become more aware about healthcare decisions they have to make, but also to save money for those medical expenses.
A CDHP allows employers to offer employees high-deductible health plans that can be paired with a health savings account (HSA), flexible spending account (FSA) or health reimbursement arrangement (HRA). These accounts can then be used to pay for medical co-payments, dependent care, dental and vision expenses and other qualified medical expenses tax-free1.
For an employee to really take advantage of the benefits of CDHP, they may need to adopt a consumer-directed healthcare mindset based on their own personal circumstances. While these circumstances differ from person to person, one of the easiest ways to determine how a CDHP can help your employees is through generational classification.
Baby boomers (born between 1946-1964)
There are roughly 70 million baby boomers currently living in the United States. In general, baby boomers are employees who are at or near the age of retirement. Among the expenses and challenges baby boomers face (or will be facing soon) are the rising costs of Medicare.
An article from CNBC notes, “As healthcare costs increase faster than economic growth, Medicare taxes and the Trust Fund will cover less and less. By 2033, some pundits say the Trust Fund will be bankrupt, and taxes will pay only for 48 percent of the costs.”
A CDHP paired with an HSA can alleviate at least some of these concerns. An HSA is a tax-advantaged way to both save for retirement as well as pay for current and future qualified medical expenses, including Medicare premiums. A CDHP mindset for baby boomers could include researching possible future medical expenses and saving for those costs as well as staying active as they continue to age and getting annual preventative medical exams.
Generation X (born between 1965-1980)
Generation Xers have a lot of influence. Forbes notes that Generation Xers own 31% of the purchasing power in the U.S.
When it comes to healthcare for Generation Xers, there are, in general, two reasons a CDHP can work for them: First, there are the increasing costs of healthcare that arise with age. Second, many Generation Xers have a spouse or children who can also take advantage of the benefits of a CDHP paired with an HSA.
The Milliman Medical Index found that in 2018 “a typical family of four insured by the most common health plan offered by employers” averaged $28,166. A CDHP paired with an HSA may help to alleviate some of those costs and help Generation Xers save for current or future medical costs as well as for retirement.
Millennials (born between 1980-1996)
When it comes to CDHP, millennials have been on the right track for a few years now. A report from PwC back in 2015 found that 19% of millennials “had asked for a discount on medical care, compared with just eight percent of the general population.” Further, millennials are twice as likely to “ask for cheaper treatment options.”
However, a report from the National Institute on Retirement Security notes that “this generation is expected to live longer than the Baby Boomers and Generation Xers that precede them. More than half of Millennials are expected to live to age of 89 and beyond.” The article goes on to say that “this generation will need to save significantly more that previous generations in order to maintain their lifestyle during retirement.”
This fact means millennials, more than any previous generation, must not only concern themselves with current medical expenses, but also medical expenses in retirement that could reach into their 90s and beyond.
A CDHP paired with an HSA may be one of the best ways for millennials to plan for both current and future medical expenses. With an HSA, unused funds automatically roll over every year, all the way to retirement and beyond. When millennials start saving now with a CDHP, they are putting themselves in a position for a potentially better retirement.
A CDHP can help all generations of your employees potentially prepare for future medical expenses and meet the unique needs they have as they prepare for retirement.
1 HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-free with very few exceptions. Please consult a tax advisor regarding your state’s specific rules. In addition to restrictions imposed by law, your employer may limit what expenses are eligible for reimbursements. It is the members' responsibility to ensure eligibility requirements as well as if they are eligible for the plan and expenses submitted.