Consumer-Directed Care

Featured Health Business Daily Story Aug. 6, 2009

Health Savings Accounts Are Likely to Survive Reform, May Even Flourish Under Proposed Mandates

Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans.

By Michael E. Carbine, Contributing Editor,
(mcarbine@aispub.com)

While nothing is certain except death and taxes, health reform observers queried by HPW say that health savings accounts (HSAs) are too deeply entrenched in the market to be eliminated. If they are targeted, any modifications would likely be minor, the observers say. And some provisions under consideration could actually drive the more widespread adoption of HSA-qualified consumer-directed health (CDH) plans.

At a briefing on Capitol Hill this month, sponsored by Consumers for Health Care Choices (CHCC), Roy Ramthun, president of HSA Consulting Services and former White House HSA czar under President George W. Bush, said that “no poison pills [for HSAs] have emerged in the reform proposals so far.” What could happen, Ramthun and others agreed, is that health reimbursement arrangements (HRAs) and flexible spending accounts (FSAs) could be abolished. However, Greg Scandlen, CHCC director, noted that HRAs are only “a small blip on Congress’ radar screen.” FSAs, meanwhile, are popular with many large employers.

Dan Perrin, president of the HSA Coalition lobbying organization, also is convinced that HSAs will survive health reform intact, telling HPW that the coalition has had as many as 400 meetings with Democrats on the Hill. The word, he says, is that they don’t plan to tamper with HSAs. Advocates of account-based health plans have been closely watching the Democrats, especially Rep. Pete Stark (D-Calif.), a member of the House Ways and Means Committee, because of their widespread opposition to HSAs. At a 2006 hearing, Stark referred to HSAs as “weapons of mass destruction.”

But it doesn’t appear that the Democrats want to dismantle HSAs. The 1,000-page America’s Affordable Health Choices Act (AAHCA), voted out of the House Energy and Commerce and the Education and Labor committees July 14, makes no mention of HSAs. Under the plan, reform would be paid for primarily through a $550 billion income tax increase on the nation’s wealthiest citizens and lower government spending on Medicare. In its version of the bill, approved July 17, the House Ways and Means Committee suggests that health accounts (i.e., HRAs, HSAs and FSAs) could no longer be used to pay for over-the-counter medicines.

The Senate Finance Committee, however, weighed in on May 19 with a list of reform savings and revenue options that included limiting HSA contributions and increasing the additional tax on distributions from HSAs that are not used for qualified medical expenses. That committee, however, had not released its bill as of HPW’s press time. The version of the AAHCA voted out of the Senate Health, Education, Labor & Pensions Committee July 15 makes no reference to HSAs.

HSAs Continue Rapid Growth

Scandlen contends that “HSAs are too deeply entrenched in the market” at this point to be seriously jeopardized, and employers are adopting CDH plans [with HSAs] at an increasingly rapid rate. While estimates on the number of new HSAs vary, Celent, a Boston-based financial research and consulting firm, expects that 1 million new HSAs will be opened this year alone, and that more than 3 million new accounts will be opened by 2012. Celent says that this would drive HSA deposits to about $27 billion by 2012, an amount that makes them an unlikely target for elimination.

Red Gillen, a Celent senior analyst and HSA watcher, tells HPW another reason why HSAs will most likely survive is that some members of Congress have said that all Americans should have the same coverage they have. While this is unlikely because of the coverage’s rich benefit design, he points out that “federal employees do have the choice of a CDH option.” He also contends that the days of comprehensive health plans in their current form are numbered because they are too expensive. “Plans with $10 copayments are definitely going the way of the buggy whip,” he says.

Jay Savan, an employee benefits consultant in the St. Louis office of Towers Perrin, says the adoption of account-based health plans, in particular HSAs, will accelerate as a result of many of the mandates in the House and Senate proposals.

“A requirement that all Americans acquire health coverage would likely drive substantial interest in relatively low-cost, high-deductible health plans (HDHPs),” Savan tells HPW. And interest in HDHPs “may be strongest among those individuals and families who qualify for federal premium subsidies.” HDHPs also would be attractive to employers under the proposed requirements that they offer at least a minimum-value health plan. A proposed tax cap on the value of employer-provided health benefits, he suggests, would drive interest in HDHPs in order not to breach the cap. And while the impact of a guaranteed-issue requirement in the insured market is yet to be defined, Savan speculates that “it may have an inflationary effect on premiums, in general, as carriers seek to counteract the impact of unregulated morbidity on their books of business.” But to the extent that premium levels are impacted, either broadly or with a focus on higher-value/higher-premium coverage, “it is reasonable to expect a migration into lower-premium plans, such as HDHPs,” Savan says.

HSA Rules Could Be Altered

While HSAs are not likely to disappear, the rules governing them could change. “There is discussion of a return to the original account contribution limits stipulated at [HSA] enactment that called for a maximum annual contribution equal to the lesser of the HDHP deductible or the statutory account contribution limit,“ Randall Abbott, a Boston-based Watson Wyatt consultant, tells HPW. There could also be increased penalties for HSA withdrawals when the funds are not used for qualified health-related expenses, he says. And while substantiation is not now required, “it is possible that it could be required at the time of distribution. If unsubstantiated, the amount would be immediately included in taxable income.”

Abbott cautions that “Washington watchers know better than to bet on the outcome of emerging debates.” But he contends that even if CDH plans and/or HSAs are affected by changes under reform, none of the changes should be viewed as roadblocks by employers or health plans. “Change is inevitable,” he says, adding that “the degree of change remains to be seen.”

Notably absent from the debate is the role CDH plans with HSAs could play in meeting the stated goals of health reform. “Still lost in the discussion is the growing evidence that HSAs and other CDH plan solutions are proving effective at doing exactly what advocates had predicted they would do: safely control health care costs while preserving quality of care,” James G. Knight, M.D., CEO of consulting firm Consumer Directed Health Care, Inc., tells HPW. “The current political machinations seem to be ignoring the success of HSAs and CDH plans.”

William Giaconia, vice president in charge of consumer-driven products at CIGNA Corp., agrees and says that “CDH plans are all about affordability and quality, which are the keys to expanding access, improving health and reducing costs,” Well-designed CDH plans that are benefits neutral and reduce, not shift costs,” he notes, “are proven to provide affordable health care coverage without restricting choice or compromising quality.”

Some of the key ingredients of CDH plans have made their way into the current reform proposals, however. For example, the House proposal includes preventive care services with no cost sharing under its list of essential benefits, reflecting the first-dollar coverage benefit typically found with CDH plans. And the proposal also would impose out-of-pocket limits on catastrophic coverage that are similar to limits found in CDH plans.

Advertise With AIS

Privacy

Site Map