Obamacare vs. Health Savings Accounts
by Scott Borden
HSAs poised to thrive in new environment, even if independent agents aren’t.
The Patient Protection and Affordable Care Act has been ruled constitutional. Even if Mitt Romney and company pull off an upset this November, Obamacare will have permanently impacted health insurance in our country.
So what does all this mean for Health Savings Accounts?
HSA-qualified High Deductible Health Plans are the fastest-growing segment in health insurance today; over 13 million people have saved over $14 billion in HSAs. Since unspent HSA funds roll over from year to year, HSA owners have a vested interest in not spending their own health-care dollars. The more common co-pay plans insulate people from costs, leading to over-utilization. When someone else pays the bill, people don’t care what the cost is. HSAs change this behavior, which is why they are referred to as consumer-driven health-care plans.
There are some parts of the law that directly affect HSAs, and there are many other provisions that require us to speculate on how they will be implemented.
Let’s begin with the direct HSA rulings: The penalty for ineligible withdrawals from an HSA has been increased from 10 percent to 20 percent. And all over-the-counter medications now require a written prescription. That’s it.
As long as you keep proper records verifying that your HSA withdrawals were for eligible medical expenses (see publication 502) and obtain a written prescription for your allergy medication, pain relievers, etc., then you will not be subject to any penalty at all.
Now for the provisions that will impact HSAs indirectly:
• The Individual Mandate. With people now required to purchase health insurance, most currently uninsured people will look for the option with the lowest cost. HSA-qualified policies are not allowed to have co-pays and have minimum deductibles of $1,200 for self-only coverage and $2,400 for families, making them more affordable. This could dramatically increase the number of HAS-qualified plans purchased.
• State exchanges. These are online portals where people can enroll in health insurance plans and potentially receive government subsidies based on income (up to 400 percent of poverty level). Since Kathleen Sebelius, secretary of Health and Human Services, continues to issue rulings on the exchanges that are supposed to be available in all 50 states by 2014, this one is far from finalized. Companies will be allowed to offer up to four plans on the exchanges (bronze, silver, gold, platinum) each with mandated “Essential Health Benefits.”
All exchange-qualified small-group plans have a maximum deductible of $2,000 for self-only coverage and $4,000 for families. This type of a restriction will increase the cost of HSA-qualified health-insurance plans over the larger deductibles available today (up to $6,050 for self-only coverage and up to $12,100 for families), but they should still offer a substantial premium savings over co-pay plans.
• Medical Loss Ratio. Insurers are now required to pay out in claims at least 80 percent of all collected individual/small group premiums and at least 85 percent of all large group premiums. HSA-qualified insurance plans typically cost less and have higher deductibles, while still having similar fixed costs—which makes it difficult for them to comply with those targets.
This could limit the number of insurance companies offering HSA-qualified plans on the exchanges. However, the elimination of under-writing costs [all plans will be guaranteed issue] and the reduction in marketing costs for the insurance companies, once most insurance agents are replaced by exchanges, should make all plans MLR-friendly by 2014.
Unless Sebelius makes an unexpected ruling, HSAs might not just survive Obamacare, but could thrive.
Even if Republicans manage to win everything and repeal Obamacare next year, many of these provisions
will stand. It takes a lot of time and money to create new products, file them with state insurance departments, and develop new marketing plans.
Insurance companies have invested hundreds of millions to be compliant; it’s difficult for them to change course. Many of the larger ones have committed to keeping popular provisions like fully paid wellness, covering children to age 26, unlimited lifetime maximums, etc. And most are already offering online quoting and enrollment portals. They just wouldn’t be subsidized like state exchanges would.
Health Savings Accounts appear to have a bright future, with or without Obamacare—much brighter than the future for those of us who are independent health insurance agents …
Scott Borden is director of OFM Benefits Consulting in Mission, Kan.
P | 913.980.4694
E | Scott@MissionHSA.com