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Money Fix: Switching to a consumer-directed health plan

Before signing up for a consumer-directed health plan

Before signing up for a consumer-directed health plan such as a Health Savings Account, or HSA, learn how it works and whether it is the most effective tool for your family's health-care dollars. Credit: iStock

A new Rand study found that families who switched from a traditional health plan to a consumer-directed health plan (CDHP) spent an average of 21 percent less on health care in the first year than similar families in a traditional plan.

These days, any mention of saving on health care gets attention. Here's what you need to know about CDHPs.

How it works: A typical CDHP is an HSA-eligible health insurance plan. An HSA is a tax-advantaged savings account you pair with an HSA-eligible high-deductible insurance plan. HSA contributions are tax-free. You can invest your money, and interest and earnings grow tax-free. Withdrawals for qualified medical expenses are tax-free. Monthly premiums are typically lower than other health plans. You can roll over your HSA balance from year to year.

Not for everyone: "Don't sign up for these products unless you're willing to spend time upfront learning how they work and how to use your health care dollars efficiently," says Fran Irwin, principal with Deloitte Consulting in New York City.

Check the rules: Not all CDHPs are the same. "Each type has its own rules. Know the difference," says GoHealthInsurance.com spokesman Sean O'Connor.

Not all will benefit: If you use prescription drugs regularly, or have small children, a CDHP may not be right for you. It's best if you're relatively healthy and rarely visit the doctor -- you stand to save a lot over the long term.

Says Carrie McLean, consumer specialist with eHealthInsur ance.com, "Think of an HSA as a retirement fund for medical expenses."

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