Although the full policy ramifications of President Obama’s health care overhaul remain unclear, the legislation is expected to have a significant impact on popular Health Savings Accounts.
Recently Virginia company nHealth, an insurer offering HSAs, announced it would close its doors, in part because of the uncertainty of the new climate. In a letter released to the press, the company claimed to be doing well. But the new health care law places greater burdens on HSAs, according to Kate Nix, a research assistant with The Heritage Foundation, which she says is driving companies such as nHealth out of the market.
“Under Obamacare, the future of HSAs and the high-deductible health plans (HDHPs) they accompany will be decided by regulations determined by Secretary Sebelius,” Nix said. “The uncertainty created by the Patient Protection and Affordable Care Act (PPACA) has already caused some insurers who offer high-deductible health plans paired with HSAs to close shop.”
Fate in Bureaucrat’s Hands
Nix says smaller insurers are struggling to figure out how to comply with the loss ratio standards established in the new law, and that the recent reforms may hinder the growth of HSAs.
“The PPACA allows the federal government to specify what benefits must be included for a health plan to count as adequate insurance,” Nix said. “Part of this regulatory scheme requires that all plans have a minimum actuarial value of 60 percent with regards to the benefits they offer. The Secretary of Health and Human Services will determine whether HSAs will be included in this calculation. If they are not, these plans may no longer be viable.”
Increasing Restrictions, Regulations
Roy Ramthun, owner of HSA Consulting Services, claims nervous investors are concerned the new law will prove too burdensome for small insurers.
“Investors are skittish about the new requirements,” Ramthun said. “We have to see who will be able to cope.”
Beverly Gossage, director of HSA Benefits Consulting, maintains the recent reforms could indeed hurt the growth of HSAs.
“The proposed guidelines do not allow large enough deductibles to meet the public demand for lower premiums and more control over first-dollar spending. Plus, less money that can be pretaxed to use for medical expenses,” said Gossage. “For 2011, the feds did not increase the contribution allowance. The legislation also eliminates the purchase of over-the-counter medications unless there is a doctor’s recommendation for both HSA and FSA funds starting in 2011.”
Overall Impact Unclear
Greg Scandlen, an independent health care analyst in Maryland, says much of the impact remains to be determined.
“It is not clear yet what the impact will be on HSAs. There are two elements that pull in opposite directions. The favorable one is that employers, and others, will try to minimize their premium payments to avoid the ‘Cadillac Tax’ on high cost plans and other taxes,” Scandlen said. “But, at the same time, the ‘minimum loss ratio’ (MLR) standard will make it difficult for any low premium plan to stay in business, because they will have a smaller premium base over which to spread their fixed costs.”
Scandlen notes there are a great number of unknowns for insurers and consumers.
“Consider the requirement that ‘preventive’ services be covered at 100 percent. Will a funded HSA meet that requirement, or must the ‘coverage’ be on the insurance side only? Will the ‘actuarial equivalence’ standard of the Exchange offerings include HSA contributions?” asks Scandlen.
HSA Enrollment Could Still Increase
Even though HSAs may be under new restrictions, Scandlen expects a substantial increase in HSA enrollment in 2010 and 2011.
“Right now employers seem to be rushing to HSAs to maximize the efficiency of their benefit programs before most of the new regulations take place,” Scandlen said. “They think they will be in a better position to cope with new regulations if they can squeeze waste out of their programs now. And insurers are trying to front-load rate increases to be in a better position to withstand future cuts. This adds to employer interest in switching to HSAs.”
Even hamstrung by regulations, HSAs will remain an important and significant part of the marketplace, Gossage says.
“Most individuals want a lower premium, a defined ‘out of pocket,’ more control over first-dollar expenses, and a tax savings vehicle to save for routine and unforeseen expenses,” Gossage said. “And small business owners have discovered the advantage of choosing their own portable policy from a large selection of carriers and plan designs.”
Can Innovation Survive?
Nix says the question going forward is whether innovation can survive in the new environment.
“The elimination of HSAs and consumer-driven plans from the insurance market would mean less choice for consumers and less competition among insurers,” Nix notes. “Consumer-driven health plans are quickly gaining in popularity, putting patients in the driver’s seat of health care decision-making. Discouraging these plans or wiping them out of existence altogether would mean one less affordable option which has proven it gives consumers incentives to curb health spending while simultaneously ensuring they receive coverage for the care they need.”
Scandlen says the real impediment to innovation will be the newly empowered regulators.
“HSAs have been one innovation in health care financing, but only one. We need an explosion of innovation with many other approaches being tested. This law will—and already has—bring such innovation to a screeching halt,” Scandlen said. “The MLR makes it impossible for new ideas to be tested or new competitors to come into the market. Plus, the bureaucrats will never approve anything that isn’t already familiar to them.
“It is the worst possible thing we could be doing at this time,” Scandlen concluded.
Sarah McIntosh ([email protected]) is a constitutional scholar in Lawrence, Kansas.