Health savings accounts encounter challenges
Since they were authorized in 2003, health savings accounts have enjoyed steadily increasing popularity. But now they're facing a challenge.
The Patient Protection and Affordable Care Act doesn't say much about HSAs. The two changes that do explicitly affect them — the tax on nonqualified distributions increasing to 20 percent from 10, and over-the-counter drugs no longer qualifying — both went into effect last January.
However, PPACA's medical loss ratio mandates rebates if more than 15 or 20 percent of premium costs — depending on the insurance type — are spent on administrative costs or profits. And it doesn't count employee HSA contributions or expenses up to the deductible. HSAs are by definition tied to high-deductible health plans that typically have lower premiums than other plans, and advocates say the MLR will hit them especially hard.
"It's going to motivate insurance companies to sell richer plans, so they have extra room for administrative cost," said Eric Beittel, president of the Central Pennsylvania Association of Health Underwriters.
The American Bankers Association's HSA Council has said HSA/HDHP were widely anticipated to be the low-cost "bronze" plans offered in exchanges, but that the MLR formula will make meeting the actuarial requirements difficult.
Also potentially problematic for HSAs are deductible limits of $2,000 per individual and $4,000 per family that come into effect in 2014 for nongrandfathered small-group markets and the exchanges. However, small-group plans may have higher deductibles if the employer makes contributions that offset everything above the limit.
Beittel said the situation is frustrating, because he believes HSAs have helped people become better consumers of medical care. That people have to personally pay a higher deductible means they see more of the bills and are more likely to educate themselves on the costs — and contributions that they don't use, they get to keep for future medical expenses.
"I'm an advocate for them when it makes financial sense, meaning is the savings in insurance premium worth the higher deductible?" Beittel said.
He noted that HSA/HDHP initially were sold mostly to individuals and small groups but have now reached the large-group market, which typically already has lower costs due to self-insurance. The lure of HSA/HDHP there lies in their ability to change people's behavior (see "Breakdown of HSA/HDHP plan type percentages," this page).
Matthew Fairbanks, an account executive at the Lancaster-based insurance and benefits firm EHD, said he has seen increasing interest in HSAs lately.
"It takes a lot of education" when a company switches to an HSA plan, Fairbanks said, because the deductible can be daunting, and the concept of making pretax contributions and then using them for qualified expenses isn't intuitive. But, he said, employers tend to structure HSA plans in a way that passes some of the savings on to employees.
"We see more and more employers every year explore it as a second option or just go 100 percent HSA," said TJ Morrison, sales and marketing manager for Benefit Design Specialists Inc. in Upper Allen Township.
Morrison said he expects what lies ahead for HSAs, like many other aspects of PPACA, to become clearer after the election.
As of this year, America's Health Insurance Plans' Center for Policy and Research reported that more than 406,000 Pennsylvanians were enrolled in HSA/HDHP plans — 5.3 percent of total enrollment in private health insurance, compared with a nationwide average of 7.8 percent. The average monthly premium was $395 for singles and $967 for families.
According to national 2010 and 2011 Kaiser Family Foundation surveys, 92 percent of employers offering HSA plans cover preventive care at 100 percent with no deductible, and the cost of HSA premiums averages $2,254 less per family than non-HSA plans.