As health insurance reform presses on, many are concerned about what will happen to health savings accounts (HSAs) under new regulations. Will HSAs be permissible? And if they are, how could they possibly be sold in a world of minimum coverage requirements?
Although things could change at any time, it pays to have some idea of where things stand — and how you can keep selling HSAs even if reform does pass in its current state.
What you should know
The first thing that you should know is that none of the bills that have been introduced so far outright abolish HSAs. Sen. Jay Rockefeller (D-WV) filed, but did not offer, an amendment to completely repeal HSAs in the Senate Finance Committee. Other amendments that would have improved HSAs were defeated.
However, some of the bills currently on the table do make HSA modifications that every agent involved in the health insurance market should be aware of in case these bills become law. For example, the House Ways and Means Committee passed its version of health reform, which included a proposal that would not allow HSA funds (or funds from other consumer-driven health plans) to be used to purchase over-the-counter medications and other health-related products.
The Senate Finance Committee included 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 at http://finance.senate.gov/sitepages/legislation.htm.
However, the biggest concern for many agents comes from the insurance reform and mandated coverage requirements in the House and Senate bills. Both pieces of legislation say that in the “reformed” world, consumers will not be compliant with the individual mandate unless they carry the minimum required health insurance coverage. In comparing the overall benefit levels of different health plans, Congress plans to use a yardstick known as “actuarial value,” which measures the share of health care expenses paid by insurance. Consumers pay the remainder via deductibles, copayments, 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 ranging from 76 percent to 93 percent. The House bill also calls for three levels of coverage — basic, enhanced, and premium — with values ranging 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 which implements a model that Congress is attempting to copy) can be as low as 56 percent.
The Congressional Budget Office (CBO) says the actuarial value of policies bought in the individual 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.
Do HSAs stand a chance?
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, copayments, and co-insurance. But some are concerned that many of today’s HSA plans cannot meet this standard because of the higher deductibles included in these plans. That means that deductibles and other out-of-pocket expenses for copayments and co-insurance will have to come down, which means that HSA plan premiums will go up. Add that to the likelihood that premiums will already be increasing because of other provisions that eliminate annual and lifetime limits on benefits, among other things.
However, there is one way that HSA plans might be able to meet the 70 percent (or other minimum) standard — and that is if the plan can include the HSA contributions made by consumers when determining the actuarial value of the plan.
Reasonable actuaries should do this, and a paper released by the American Academy of Actuaries in May 2009 said it is appropriate to do so. While the pending federal legislation in Congress is silent on the issue, there are still concerns that the secretary of Health and Human Services (HHS) will use her regulatory authority to preclude actuaries from including the HSA contributions in the actuarial value.
Another 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 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.
The outcome remains to be seen, but for agents selling HSAs — and their consumers who prefer them — it’s recommended you keep your eyes out for reform changes that may impact this relatively young market, and possibly the future of your business.
Roy J. Ramthun is the president of HSA Consulting Services LLC. He can be reached at email@example.com.