The Future of Health Savings Accounts
November 3, 2009
Vol. 5, Issue 10
As Congress rushes to try to pass a very expensive healthcare reform bill, the most successful and popular healthcare reform has already taken place starting in 2004 – Health Savings Accounts. But many people are concerned that these high-deductible plans and Health Savings Accounts will not be available after healthcare reform passes. Since there is no final bill yet as I write this, we can only speculate what will happen. But it does look like yes, Health Savings Accounts and high deductible health insurance plans will probably still be available under Obamacare – let’s look at the details.
Why HSA Plans are so Popular
While HSA plans don’t appeal to everyone, they are very popular among many (including our customers), and for very good reasons. First, these plans are much less expensive than conventional copay plans that offer first dollar coverage. When a plan pays for every little doctor visit and prescription, the insurance company has to take in enough money to not only pay for the procedure, but also to cover administrative costs in processing the claim. This is the main reason why high-deductible HSA-qualified plans are a much better value, and also explains why automobile insurance doesn’t pay for small expenses like oil changes.
Health Savings Accounts also appeal to people who are trying to find a solution to the high cost of health care. This is arguably a much more important consideration than what percentage of our population carries health insurance. If there are not mechanisms to control costs, then we are simply building a system that will crumble under its own weight. HSA plans provide a tremendous incentive for consumers to shop and compare before spending money on doctor visits, prescription drugs, and lab work. As we’ve explained in this newsletter many times, smart consumers can save a bundle by doing a little comparison shopping.
And finally, HSA plans encourage consumers to save for the future. Most people experience increased medical needs as they age, and encouraging them to save for these coming expenses prevents them from being a financial burden to the rest of society.
So, with so much going for them, you’d think Health Savings Accounts would be at the very center of healthcare reform…
Health Savings Accounts and the Healthcare Reform Bills
Unfortunately, the proposals currently being considered do not directly address the future of Health Savings Accounts, but they do leave a few hints that make us think that Health Savings Accounts will be part of the future. If we are right about that, we expect them to be more popular than ever.
The first clue that these plans will still be available is the minimum benefit levels defined in the Baucus proposal in the Senate. The bronze benefit package would allow an out-of-pocket limit up to the HSA current law limit ($5950 for individuals and $11,900 for families in 2010).
The bill also makes some changes to how distributions from Health Savings Accounts are handled. Distributions from an HSA that are not used to cover medical expenses will be subject to a 20 percent additional tax penalty, instead of 10 percent as it now stands.
So we can see they seem to be thinking about Health Savings Accounts. But here’s the possible catch. All qualified health insurance plans “would be required to provide primary care and first dollar coverage for… physician services, prescription drugs”. Under current law, an HSA-qualified plan cannot offer first dollar coverage, other than for certain preventive benefits. So currently a plan cannot comply with the requirements in the Senate bill, and also be HSA-qualified.
Both the House and Senate bills give authority to work out this issue to an appointed official. In the House it is the “Health Choices Commissioner”. The Senate Finance Committee (Baucus) proposal gives authority to the secretary of Health and Human Services. What they will decide is anybody’s guess.
What Happens Next?
First of all, if this legislation passes, we believe it will have a serious impact on anyone who is purchasing individual health insurance. Because all plans will be “guaranteed issue”, we expect a flood of people into the insurance market who were previously considered uninsurable. This is a great opportunity for people who have previously been unable to obtain health insurance, but the increase in claims that will happen will cause large rate increases – possibly going up as much as 100% or more.
Those of us with HSA plans may be buffered from this large rate increase, since the previously uninsurable will likely be signing up for plans with richer benefits and lower deductibles. But we believe that it is critical that wording that ensures the future of HSA plans is in the bill – otherwise, things are still up in the air. If it is decided that current HSA plans are not qualified, we could all be looking at much more expensive rates when we change to a plan that offers “first-dollar” coverage for doctor visits and prescriptions.
So we are hopeful and expectant that Health Savings Accounts will be a part of future healthcare reform legislation. However, at this point it is very questionable as to whether any bill will be passed. The current legislation will create a giant government bureaucracy, and in our opinion will result in increased health insurance premiums, increased taxes, and a declining quality of available healthcare. Exercise your constitutional right and duty, and let your Congressional representatives know how you feel about it.
Regardless how this all works out, remember that most of new laws would not actually go into effect until 2013. So it still makes sense to get and fund an HSA plan right now. Anyone who has a qualified health insurance plan in place by December 1 can make a 2009 contribution, and cut their April 15th tax bill by up to $1900 or more.
P.S. – Next month we’ll talk about some ways price transparency is entering the system, and how you can find and negotiate the best rates for medical services you may need.