By Roy Ramthun, “Mr. HSA”
Many of you have emailed me asking about the status of HSAs in health reform. This email is an attempt to try to answer most of those questions. However, things could change at any time, so I will try to update you when they do.
First, none of the bills (so far) outright repeal HSAs. Sen. Rockefeller (D-WV) filed but did not offer an amendment to repeal HSAs completely in the Senate Finance Committee. Other amendments that would have improved HSAs were defeated.
Some of the bills do make some modifications to HSAs that you should be aware of, in case they become law. For example, the House Ways & Means Committee passed its version of health reform which included a proposal that would not allow HSA funds (or HRA or FSA funds) to be used to purchase over-the-counter medicines and products. The Senate Finance Committee has a similar provision in its version of health reform legislation as well as a provision that would increase the penalty for HSA withdrawals for non-medical expenses from 10 percent to 20 percent. Other amendments that have less of an impact on HSAs were also adopted by the Finance Committee and can be found here è http://finance.senate.gov/sitepages/legislation.htm.
However, my biggest concern comes from the insurance reform and mandated coverage requirements in the bills. The House and Senate bills say that in the “reformed” world, you will not be in compliance with the individual mandate unless you have the minimum required health insurance coverage. In comparing the overall benefit levels of different health plans, Congress is planning to use a yardstick known as “actuarial value” which measures the share of health care expenses paid by insurance. Consumers pay the remainder, in deductibles, co-payments and other charges.
The four levels of coverage allowed by the Finance Committee have actuarial values ranging from 65 percent for the “bronze plan” to 90 percent for the “platinum plan.” The Senate Health, Education, Labor and Pensions (HELP) Committee prescribes three levels of coverage, with actuarial values from 76 percent to 93 percent. The House bill also calls for three levels of coverage — basic, enhanced and premium — with values from 70 percent to 95 percent. By contrast, the actuarial value of policies in Massachusetts (the only state where the purchase of health insurance is mandatory, and the model Congress is supposedly copying) can be as low as 56 percent.
The Congressional Budget Office (CBO) says the actuarial value of policies bought in the individual (non-employer) insurance market now averages 55 percent to 60 percent. For insurance plans provided by employers, CBO says the average value is 80 percent to 85 percent. And according to the Congressional Research Service, the value is slightly higher, 87 percent, for the standard Blue Cross and Blue Shield plan available to federal employees, including members of Congress. Unfortunately, not everyone can afford that level of coverage.
If the minimum required coverage has an actuarial value of 70 percent, it leaves only 30 percent for all out-of-pocket expenses — including deductibles, copays and coinsurance. My concern is that many of the HSA plans on the market today cannot meet this standard because of the higher deductibles included in these plans. That means deductibles and other out-of-pocket expenses for copays and coinsurance will have to come down, which means premiums for HSA plans will go up. And that is on top of the likelihood that premiums will already go up due to other provisions in the bills that eliminate annual and lifetime limits on benefits, among other things.
There is one way that current HSA plans might be able to meet the 70 percent (or other minimum) standard – if the plan can include the HSA contributions made by you or your employer when determining the actuarial value of the plan. I believe reasonable actuaries would do this, and a paper released by the American Academy of Actuaries in May says it is appropriate to do so. While the federal legislation pending in Congress is silent on the issue, I remain concerned that the Secretary of Health and Human Services will use her regulatory authority to preclude actuaries from including the HSA contributions in the actuarial value.
My other concern is that the Secretary of HHS will require HSA plans to cover benefits below the deductible. Currently, HSA plans are only allowed to cover preventive care benefits below the deductible. But if the Secretary decides that all plans must now cover prescription drugs below the deductible, for example, that would create a conflict between the HSA law and the new reform requirements. This could effectively preclude HSA plans from being offered in the future. To date, amendments to limit the Secretary’s authority and clarify the actuarial value issue have not been accepted.
Neither of these actions by the Secretary would make any policy sense to someone who wants to keep their HSA, but remember this is more about politics than logic. Congress and the White House want to win any way possible. I believe you can no longer sit on the sidelines and wait to see what happens. Please consider calling, writing or emailing your elected representatives in Washington, DC and let them know that you want to be able to keep your HSA in the future.
Roy Ramthun, “Mr. HSA”
HSA Consulting Services, LLC
202-747-4467
