What are HSAs, FSAs, and HDHPs?
Health Savings Accounts and Consumer Driven Health Plans. It's a jumbled alphabet soup of letters, but it makes sense when you understand how they all kinda work together. The simple answer is, they're different ways to give you more control over your healthcare dollars.
CDHP or Consumer Driven Health Plan
A CDHP, or Consumer Driven Health Plan, uses different ways of spending to put more responsibility and control in the hands of healthcare consumers like Gary. With one of these plans, Gary can use tax-free dollars for routine medical expenses, with hospital coverage in place to protect against catastrophic medical expenses. With a CDHP, consumers pay lower premiums but more up-front costs for any care they need.
HDHP or High Deductible Health Plan
An HDHP, or High Deductible Health Plan, is designed to help people like Gary pay less for their healthcare while still providing protection from catastrophic medical expenses. So if Gary is hit by a meteor or contracts a rare and debilitating disease, he'll have protection from huge medical bills. Meanwhile, his premiums are lower, the deductible is higher, there are no copays for doctor visits, and preventive services that help him stay healthy are often covered completely. The plan also has a yearly cap on what he will spend out of pocket for his healthcare. HDHPs are often used in conjunction with HSAs to maximize healthcare dollars.
HSA or Health Savings Account
An HSA, or Health Savings Account, is a way for people with high insurance deductibles to spend their healthcare dollars more efficiently by putting money aside to use when needed. With a Health Savings Account, Gary puts a little money aside in a tax-free account every month, similar to a 401k, but only used for healthcare. He'll dip into that account for care when he or a member of his family gets sick. And at the end of the year, the money in his HSA carries over to the next year.
An FSA, or Flexible Spending Account, is similar to an HSA in that it puts pre-tax dollars into a fund to be used for medical expenses. However, while HSAs are almost always used with HDHPs, an FSA can be used with other health plans. Also, unlike an HSA, the money in an FSA expires at the end of the year.
HRA or Health Reimbursement Account
An HRA, or Health Reimbursement Account, is a health plan in which employees pay for their healthcare up front and are reimbursed by their employer. If Gary goes to the doctor and pays cash for services, his company will repay him for what he spent.
Summary of Health Savings Accounts and Consumer Driven Health Plans
So to sum it up, FSAs, and HSAs are money set aside to pay health expenses. HSAs are often used in conjunction with lower premium HDHPs. An HRA is money paid out of pocket that is reimbursed by your employer. And they're all part of a CDHP, or Consumer Driven Health Plan.