What Will Happen to HSAs Under Reform?

By Dan Diamond, California Healthline Contributing Editor

More than 10 million U.S. residents -- and one million Californians -- are covered by health savings account-eligible health plans, according to a census of insurance firms that America's Health Insurance Plans released last week. The plans allow individuals to contribute thousands of pre-tax dollars to HSAs, which participants may spend on health care needs or "roll over" indefinitely.

The figures reflect continued interest in HSAs, which were unveiled in December 2003 as part of the George W. Bush administration's push for consumer-driven health care. Nationwide, enrollment in HSA-eligible plans grew by 25% between January 2009 and January 2010 and has more than doubled since January 2007. In California, enrollment rose by 19% in the past year. While the plans were initially favored by consumers who might otherwise go without insurance because of its cost or their good health, the recent rise has been fueled by more companies and their employees opting for the plans, which shift risk onto the patient but carry less-expensive premiums than traditional coverage.

Despite growing numbers of consumers with HSAs, participation remains low compared with ambitious growth projections. Previous forecasts estimated that as many as 30 million U.S. residents would now be covered by HSA-eligible plans. Meanwhile, 40% of those who are eligible have historically failed to open HSA accounts.

The level of penetration in California requires some context. While the state has more residents in HSA-eligible plans than any other, just 4.5% of California's privately insured residents are in HSA-eligible health plans, a rate that lags the national average of 4.8% and is far behind Vermont, where 13.2% of privately insured residents participate in the plans. California employers that offer the plans also are "reeling" from significant rate increases this year, as the state's insurers suggested they historically underpriced the product.

Looking Forward on HSAs

Despite the slow-but-steady growth, analysts still question the long-term viability of the six-year-old HSA model, which President Bush conceived as a tactic to promote medical price transparency and ultimately reduce health costs. Edwin Park of the Center for Budget and Policy Priorities says that HSAs disproportionately attract healthier and high-income consumers who have fewer medical needs and can afford to pay out of pocket, forcing other plans to manage higher-risk patients and raise their premiums.

Moreover, the last president's signature health reform appears to be threatened by the current president's sweeping overhaul.

Although the new health law contains relatively few HSA-specific provisions -- most notably, the accounts will no longer cover over-the-counter medications as of 2011 -- the law "opens the door to death [of HSAs] by regulation," according to John Goodman, president of the National Center for Policy Analysis and an advocate of the HSA model. Goodman notes that the overhaul requires the HHS secretary to review and determine required benefits under all health plans each year, which could lead to changes that essentially prevent individuals from adding new money to their HSAs.

Paul Ginsburg, president of the Center for Studying Health System Change, also sees a threat to HSAs, although from an opposing perspective. He contends that the accounts eventually will become “redundant” under reform. According to Ginsburg, the so-called Cadillac tax on high-cost health plans will accomplish HSAs' purpose of lowering premiums by forcing employers to craft new benefit designs that encourage lower utilization and have higher deductibles.

In the short-term, Paul Fronstin of the Employee Benefit Research Institute expects that HSA-eligible health plans will be included in the health insurance exchanges called for under the overhaul. According to Fronstin, employers continue to deal with significant cost increases and will be pushed to hike deductibles, and "it can easily be argued that [consumer-driven health plans] will continue to play an important role" in addressing these concerns.

Rules and Regulations

  • The National Association of Insurance Commissioners on Monday said it would need an additional month to deliver recommendations on how to define medical and administrative spending under medical loss ratio rules in the new health reform law, Reuters reports. HHS Secretary Kathleen Sebelius had asked NAIC to submit its recommendations by June 1 (Heavey, Reuters, 5/24).
  • IRS on May 21 issued guidelines on how small companies can apply for tax credits for biomedical research, the AP/San Diego Union-Tribune reports. The credits, part of the Therapeutic Discovery Project Program, were included in the health reform law. Companies can begin submitting applications on June 21. HHS then will evaluate the proposals and IRS will issue certifications in October (Crutsinger, AP/San Diego Union-Tribune, 5/21).

Benefit and Burden

  • CMS this week will begin sending out mailers to Medicare beneficiaries to promote the benefits of the new health reform law, as part of an ongoing initiative by the Obama administration, Roll Call reports. In an e-mail to congressional staffers on Monday, CMS Office of Legislation Director Amy Hall said that beneficiaries would begin receiving brochures, titled "Medicare and the New Health Law -- What it Means for You," describing how the new law will affect them and their families (Drucker, Roll Call, 5/24).
  • Tax credits included in the federal health reform law designed to encourage small businesses to provide health coverage to employees could have an adverse effect on hiring practices, according to a study by the National Center for Policy Analysis, The Hill's "On the Money" reports. The NCPA study found that the tax credit could be a cost concern for small businesses that look to hire additional employees and provide health coverage, while continuing to operate on small profit margins. Beginning this year, small businesses that employ fewer than 25 full-time workers with average annual wages of $50,000 or less and cover at least 50% of the cost of coverage will be eligible for a 35% federal credit on premiums (Heflin, "On the Money," The Hill, 5/23).

Political Battles

  • Republicans might turn Donald Berwick's nomination for CMS administrator into "a proxy for the entire health care overhaul" by stirring up public anger over the reform law as the November midterm elections approach, CQ Today reports. While several experts predict that Berwick ultimately will become CMS' first confirmed administrator since 2006, it nearly certain that Republicans will stall the nomination, according to CQ Today. Some experts worry about CMS' ability to implement the reform law if the confirmation process is significantly delayed (Adams/Ethridge, CQ Today, 5/21).

Public Perspectives

  • A plurality of surveyed employers expect health benefit costs to moderately increase in 2011 because of health reform, although 30% of respondents remain unsure of how reform will affect their costs, a survey released on May 20 by benefits consulting firm Mercer found, Reuters reports. Forty percent of respondents said they expect health reform to boost their health costs to rise by 2% or less next year, while one-quarter of employers anticipate at least a 3% increase in health costs. Three percent of employers said they already comply with the provisions of the new reform law (Heavey, Reuters, 5/20).
  • Ninety-four percent of employees with health insurance said that the top priority of the health care overhaul should be to control health care costs, according to a survey conducted by Hewitt Associates and released on Monday by the National Business Group on Health, CQ HealthBeat reports. The survey polled 3,026 men and women between ages 23 and 69 or their spouses who work at large employers offering health insurance. According to the survey results, consumers felt that the overhaul's ability to control costs was twice as important as a new mandate that U.S. residents gain coverage (Norman, CQ HealthBeat, 5/24).
  • Despite the Obama administration's efforts to bolster public support for the health law by implementing some of its provisions early, a new Kaiser Family Foundation poll shows that many U.S. residents remain unswayed, Politico reports. The Health Tracking Poll found that 41% of respondents view reform favorably, while 44% view it unfavorably -- a change from last month when 46% held favorable views and 40% held unfavorable views. The poll was conducted between May 11 and May 16 and involved about 1,200 individuals (Haberkorn/Kliff, Politico, 5/21).

 


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