Consumer-Directed Health Plans
Consumer-Directed Health Plans (CDHPs) combine high-deductible health plans with tax-advantaged accounts, giving consumers more control over healthcare spending decisions.
High Deductible Health Plan (HDHP)
An HDHP is a health plan with higher deductibles and lower premiums than traditional plans:
HDHP Requirements (2025)
| Coverage Type | Minimum Deductible | Maximum Out-of-Pocket |
|---|---|---|
| Self-only | $1,650 | $8,300 |
| Family | $3,300 | $16,600 |
HDHP Characteristics
| Feature | Details |
|---|---|
| Premiums | Lower than traditional plans |
| Deductibles | Higher (must meet IRS minimums) |
| HSA eligibility | Qualifies for Health Savings Account |
| Preventive care | Covered before deductible (ACA requirement) |
| Cost-sharing | Lower after deductible is met |
Key Point: HDHPs must cover preventive care at 100% before the deductible under the ACA, but other services require meeting the deductible first.
Health Savings Account (HSA)
An HSA is a tax-advantaged savings account used with an HDHP to pay for qualified medical expenses:
HSA Contribution Limits (2025)
| Category | Limit |
|---|---|
| Self-only coverage | $4,300 |
| Family coverage | $8,550 |
| Catch-up (age 55+) | Additional $1,000 |
Triple Tax Advantage
HSAs offer unique triple tax benefits:
| Tax Benefit | Description |
|---|---|
| Tax-deductible contributions | Reduces taxable income |
| Tax-free growth | Earnings grow without taxation |
| Tax-free withdrawals | For qualified medical expenses |
HSA Eligibility Requirements
To contribute to an HSA, you must:
- Be covered by an HDHP
- Have no other health coverage (with exceptions)
- Not be enrolled in Medicare
- Not be claimed as a dependent on another's tax return
HSA Features
| Feature | Details |
|---|---|
| Ownership | Individual owns the account |
| Portability | Stays with individual if job changes |
| Rollover | Unused funds roll over year to year |
| Investment | Can invest funds for growth |
| Retirement | After 65, any withdrawal is penalty-free (taxed if non-medical) |
Qualified Medical Expenses
HSA funds can be used tax-free for:
- Doctor visits and hospital care
- Prescription medications
- Dental and vision care
- Medical equipment
- Long-term care insurance premiums
Non-Qualified Withdrawals
| Age | Tax Treatment |
|---|---|
| Under 65 | Income tax + 20% penalty |
| 65 or older | Income tax only (no penalty) |
Health Reimbursement Arrangement (HRA)
An HRA is an employer-funded account that reimburses employees for medical expenses:
HRA Characteristics
| Feature | HRA |
|---|---|
| Funding | Employer only (no employee contributions) |
| Ownership | Employer owns the account |
| Portability | Generally not portable |
| Tax treatment | Tax-free reimbursements |
| Contribution limits | Set by employer |
HRA vs. HSA Comparison
| Feature | HSA | HRA |
|---|---|---|
| Who funds | Employee and/or employer | Employer only |
| Ownership | Employee | Employer |
| Portability | Yes | Usually no |
| HDHP required | Yes | Not always |
| Rollover | Always | Employer decides |
| Investment | Yes | No |
Types of HRAs
| Type | Description |
|---|---|
| Integrated HRA | Works with group health plan |
| QSEHRA | Qualified Small Employer HRA |
| ICHRA | Individual Coverage HRA |
| Excepted benefit HRA | Limited to specific expenses |
Flexible Spending Account (FSA)
A Flexible Spending Account (FSA) allows employees to set aside pre-tax dollars for medical expenses:
Healthcare FSA (2025)
| Feature | Details |
|---|---|
| Contribution limit | $3,300 |
| Funding | Employee pre-tax payroll deductions |
| Employer contributions | Optional |
| Access to funds | Full amount available on day 1 |
| Rollover | Up to $660 or 2.5-month grace period |
FSA "Use It or Lose It" Rule
Unlike HSAs, FSAs have restrictions on unused funds:
| Option | Description |
|---|---|
| Rollover | Up to $660 can carry over to next year |
| Grace period | 2.5 months to use prior year funds |
| Forfeiture | Unused funds above limits are lost |
Important: Employers can offer rollover OR grace period, but not both.
Dependent Care FSA
| Feature | Details |
|---|---|
| Purpose | Childcare and dependent care expenses |
| Contribution limit | $5,000 (married filing jointly) |
| Use it or lose it | Yes (with same rollover/grace options) |
CDHP Comparison Summary
| Feature | HSA | HRA | FSA |
|---|---|---|---|
| Who funds | Employee/employer | Employer only | Employee |
| Ownership | Employee | Employer | N/A |
| Portability | Yes | Usually no | No |
| HDHP required | Yes | Varies | No |
| Rollover | Unlimited | Employer decides | Limited |
| Tax benefit | Triple tax | Tax-free reimbursement | Pre-tax contributions |
| Day 1 access | No (as contributed) | Varies | Yes (full amount) |
Best Uses for Each Account
| Account | Best For |
|---|---|
| HSA | Long-term savings, investment growth, portability |
| HRA | Employer-funded benefit, specific expense reimbursement |
| FSA | Predictable annual expenses, immediate access to funds |
What are the 2025 HSA contribution limits for an individual with self-only HDHP coverage?
Which tax-advantaged account offers a "triple tax advantage" of tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses?
An employee contributes $2,500 to a Healthcare FSA but only uses $1,800 during the plan year. Under the rollover option, what happens to the remaining $700?
21.4 Coverage Provisions
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