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Self-Directed Health Plans (SDHPs)

A self-directed health plan (SDHP) offers the benefits of a Preferred Provider Organization (PPO) with a Self-Directed Account (SDA).

Some plans, for instance, give each covered individual an SDA of $1,000 per year, which may be used for a list of services including physical exams, well-baby and well-woman care, office visits, and immunizations. Any unused balance at the end of the year rolls over into the next year and the year after that. The result is often an accumulating balance that serves as a savings account for future health care expenses.

If a covered individual or family spends the entire balance in the SDA, they then pay a deductible and a percentage of remaining medical expenses until reaching an annual ceiling. Services not covered by the SDA, including inpatient surgery or emergency room visits, are covered as they would be by a traditional PPO, with a yearly deductible and coinsurance.

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As you decide whether an SDHP-combined-with-a-PPO plan is the right way to go for your small business, consider these factors:

• This plan comes with high annual deductible payments from the individual, discouraging uncovered medical care. The tradeoff is relatively affordable premiums. So, the SDHP-PPO is best for businesses whose employees have not incurred extraordinary medical expenses.
  
  
• Like a typical PPO, the SDHP-PPO offers the freedom to select any physician the covered individual chooses, but it will pay a higher proportion if the individual chooses a provider who is a member of the plan's approved PPO network.
  
  
• In some situations, the insurance company providing the plan will have negotiated discounts for specific services from local hospitals or clinics, which can further contain costs.
  
  
• Self-Directed health plans are sometimes more cost effective than fully-insured plans because many expenses associated with a fully-insured plan are eliminated, and savings from better-than-expected claims years belong to the employer, not to the insurer

With Self-Directed plans, the business owner becomes an active manager and partner in the health care delivery system. This gives you greater control over your plan's design, but it also places on his or her shoulders a larger burden for decision-making and risk-taking than, for instance, purchasing an HMO plan.

In recent years, many small-business owners and their employees have decided that Self-Directed plans offer the best option for maintaining health care quality, reducing costs, and managing health benefits.

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