After the passage of President Obama’s health care reform legislation, Indiana Gov. Mitch Daniels (R) announced the state’s successful experiment with health savings accounts (HSAs) may have to be dropped entirely.
According to a spokesperson, Daniels’ office is still analyzing the impact the new legislation will have on state employee HSAs, specifically whether the program meets new federal “qualified coverage” standards, because HSAs require patient cost-sharing in every transaction.
“There were so many better ways to do this [federal health care bill], which would empower Americans as the Healthy Indiana Plan does for over 50,000 low-income Hoosiers, to look after their own health care, could’ve given them the tax benefit now given to employers, as opposed to a nationalized system we will now be forced to move into,” Daniels said at a press conference the day after the legislation passed the U.S. House of Representatives.
Daniels’ office is attempting to find a way to maintain the popular program, but John Graham, director of health care studies at the Pacific Research Institute in San Francisco, believes the state will most likely have to end it.
“It is very unfortunate,” Graham said. “For Gov. Daniels in particular, it is very unfortunate. And for those in their low-income sector program—they are probably going to have to close up the HSAs on that—I hope those people will be okay on the new Medicaid.”
Government Controlling Health Dollars
While Graham is not yet willing to completely swear off the possibility Indiana will be able to keep its program, he notes U.S. Secretary of Health and Human Services Kathleen Sebelius, along with the new Health Czar, will determine what constitutes qualified coverage.
“One can anticipate that these officials will not like people controlling their own health care dollars—they want the government controlling that spending,” Graham said. “The rationale they will use will be through what the new law says regarding medical loss ratios. One of the main differences with HSAs and small groups is the medical loss ratio—5 percent higher in HSAs—because the costs of administering the health plans are largely fixed, so if you get less money being laundered through the insurance plan, and more money in the health savings account, the worse-looking the medical loss ratio. The classic PPO is somewhere in the middle.”
Ultimately, Graham does not think these officials will rule in favor of Indiana’s HSA program.
“I can say with great confidence that the Secretary of Health and Human Services and the new Health Czar are going to eliminate these programs based on HSAs and flexible spending accounts, and if they cannot do it outright on their own, they will likely pressure Congress to pass a law doing so,” Graham said.
Need to Spend Now
Jody Dietel, who helps run Wage Works, a San Mateo, California-based company focused on providing flexible spending accounts to large organizations across the nation, notes Obamacare is going to force many families and individuals with health savings accounts to accelerate their health care spending.
“These spending accounts are capped at $2,500 beginning in 2013, so consumers are going to need to really begin thinking about their health care expenses plan, especially if they have a family,” Dietel said. “Do you do your medical procedures this year or next year? People are going to have to accelerate those things like getting braces, lasik eye surgery, getting a dental bridge, those things. In the next few years, employees are going to have to capitalize their pre-tax dollars for eligible expenses.”
Dietel hopes the Healthy Indiana program will continue, and he hopes it will spread to other states as a successful pro-consumer model.
“It has been a brilliant experiment in Indiana, and it should be expanded. Consumer-directed accounts are part of the solution to the health care crisis,” said Dietel. “Consumer-directed accounts demonstrate, generally, better compliance with treatment regimes with chronic illnesses, and are more tax-effective—families do not have to make the choice between feeding the family or seeking health care treatment, as HSAs provide access to pre-tax dollars.”
Thomas Cheplick ([email protected]) writes from Cambridge, Massachusetts.