The majority of Americans receive their health coverage through the private health insurance market. Over the past several years, insurance carriers selling coverage in this market have added CDHPs to their portfolio of insurance products. The most common types of CDHPs are HRA-based and HSA-eligible plans used in conjunction with the associated health account. Private health insurance plans are offered in two primary markets—the individual and the group markets. The individual market includes health plans sold by insurance carriers to individuals who do not receive coverage through an employer or other group. About 17 million individuals and their dependents received health coverage through the individual market in 2004. The group market includes health plans offered by employers to employees, either by purchasing the coverage from an insurance carrier or by funding their own health plans, and health plans offered by other groups, such as professional associations. About 159 million individuals and their dependents received health coverage through the group market in 2004. Most employers subsidize a share of the cost of their employees’ health coverage purchased in the group market, whereas individuals purchasing coverage in the individual market typically must pay the full cost. Private health plans are subject to various state and federal requirements, depending on the market in which they are offered and the manner in which they are funded. Health plans purchased from health insurance carriers, either by an individual in the individual market or by an employer in the group market, are subject to state insurance requirements. In contrast, health plans that are self-funded by employers in the group market are generally not subject to state insurance requirements, but rather to federal requirements that apply to employer-sponsored benefits. Larger employers are more likely to self-fund their health plans, whereas small employers are more likely to purchase coverage from insurance carriers. Although insurance carriers and employers offer several variants of CDHPs in the private health insurance market, these plans generally include three basic components—a health plan with a high deductible; an associated tax-advantaged account to pay for medical expenses under the deductible; and decision-support tools to help enrollees evaluate health care treatment options, providers, and costs. In addition to including these three basic components, the health care billing process is different for CDHPs than for traditional health plans. The two most prominent CDHP models are HRA-based plans and HSA-eligible plans, used in conjunction with their associated savings accounts. An HRA is an employer-established arrangement designed to reimburse employees for qualified medical expenses that occur prior to meeting the deductible. When enrollees in an HRA-based plan receive medical care, the costs are paid from a tax-advantaged HRA account. Once the HRA funds are exhausted, enrollees are typically responsible for paying for a certain amount—known as a bridge amount—out of pocket before reaching their deductible. Although employers are not required to couple an HRA with a high-deductible health plan, in practice the two are typically combined. HRA-based plans are only offered by employers to employees in the group market, and only employers may contribute to the HRA accounts. Account balances can accrue from year to year, and the accounts are typically not portable—that is, employees do not own the accounts and cannot retain unspent funds when they change jobs. HRAs are administered by the employer or an insurance carrier. IRS affirmed in 2002 that employer contributions to HRAs are to be excluded from gross income for tax purposes. An HSA is also a tax-advantaged account established for paying qualified medical expenses, but it is the employee rather than the employer who owns the account. Individuals are eligible to open and fund an HSA when they have a high-deductible HSA-eligible plan and no other health coverage, with limited exceptions. In order to be considered an HSA- eligible plan, a health plan must meet certain criteria, including a minimum deductible amount—$1,050 for single coverage and $2,100 for family coverage in 2006—and a maximum limit on out-of-pocket spending— $5,250 for single coverage and $10,500 for family coverage in 2006. Preventive care services may be exempted from the deductible requirement; however, coverage of most other services, including prescription drugs, is subject to the deductible. Health insurance carriers offer HSA-eligible plans to employers in the group market and to individuals in the individual market. HSA-eligible plan enrollees are not required to open or contribute to an associated HSA. A financial institution, such as a bank or insurance company, typically administers the HSA. An employer may partner with a financial institution to offer an HSA alongside the HSA-eligible plan offered to employees, or it may defer to employees to open the account. Both employers and individuals may contribute to HSAs, and individuals may claim a deduction on their federal income taxes for the HSA contribution regardless of whether they itemize deductions or claim the standard deduction. Account balances can accrue without limit, and the accounts are fully portable. Contributions, withdrawals, and interest earned on the accounts are not federally taxed if used for health care; however, enrollees may use accrued balances for purposes other than medical care subject to a tax penalty and, for retirement income, subject to income tax. Tax advantages for HSAs were authorized in December 2003 by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Table 1 compares key features of the two CDHP plan types. Decision-support tools, including information on the price and quality of health care services and providers, can help CDHP enrollees become more actively involved in making health care purchasing decisions. These tools may be provided by health insurance carriers to all health insurance plan enrollees, but are likely to be more important to CDHP enrollees, who have a greater financial incentive to make informed trade-offs between the quality and costs of health care providers and services. Experts suggest that in order to make informed provider choices, enrollees need data to assess the quality of different providers. These data may include the volume of procedures performed, the outcomes of those procedures, and indicators demonstrating whether providers followed certain recommended treatment guidelines. In order to assess the price competitiveness of different providers, experts also suggest that enrollees need reliable and specific information about the cost of services. CDHP insurance carriers may also provide online access to health accounts for enrollees to manage their health care spending. CDHP insurance carriers process and reimburse health care claims differently than traditional insurance carriers. Unlike enrollees in traditional health plans, enrollees in CDHPs are typically not required to make a copayment or pay a coinsurance amount to providers at the time they receive care. Instead, providers send the complete claims to the insurance carriers, which process the claims and inform the providers of the correct amounts to charge the enrollees. The providers then bill the enrollees, who pay from their HRA account or HSA by check, by debit card, or by authorizing the insurance carriers to allow the providers to directly debit their account funds. If enrollees have exhausted all of the HRA or HSA funds in their accounts, but have not yet met the deductible, the enrollees must pay the full amounts owed the providers using out-of- pocket funds. Once the deductible has been met, however, the insurance carriers cover all or most of the costs of covered services. According to publicly available survey data, the number of enrollees and dependents covered by HRA-based or HSA-eligible plans is small but growing. In January 2006, total CDHP enrollment was almost evenly split between HRA-based and HSA-eligible plans. An increasing number of health insurance carriers are offering CDHPs, and a small but growing share of employers are offering them to their employees. Large employers were more likely to offer HRA-based plans, whereas small employers tended to offer HSA-eligible plans. Although no national database of CDHP enrollment exists, we estimate that the number of enrollees and dependents covered by these plans increased from about 3 million in January 2005 to between about 5 and 6 million in January 2006, based on publicly available survey data. About 3 million of the 5 to 6 million enrollees and dependents were covered by HRA-based plans, and from 2 to 3 million by HSA-eligible plans. These estimates represent a small share of the approximately 177 million enrollees and dependents with private health insurance coverage. The number of enrollees and dependents appears to be growing faster for HSA-eligible than for HRA-based plans. According to a series of surveys conducted by a health care information company, the number of enrollees and dependents in HRA-based plans grew from about 2.5 million in January 2005 to 2.9 million in January 2006, and the number of enrollees and dependents in HSA-eligible plans during this period increased from about 600,000 to about 2 million. A second series of insurance carrier surveys provide a higher estimate for HSA-eligible plans. These surveys— conducted by a health insurance trade association—estimate that the number of enrollees and dependents covered by an HSA-eligible plan increased from about 438,000 in September 2004 to about 1 million in March 2005 and to about 3 million in January 2006. In 2004 and 2005, more than half of these enrollees and dependents were covered by an HSA- eligible plan purchased in the individual insurance market, rather than obtained from an employer. None of these surveys indicate whether HSA- eligible plan enrollees opened HSAs. The number of health insurance carriers offering CDHPs in the individual and group insurance markets is increasing. A survey of health insurance trade association members reported that 99 offered HSA-eligible plans in March 2005, up from 29 in September 2004.