Will Obamacare Kill HSAs?
By Ryan Ellis • Friday, July 24, 2009 2:12 pm
Here's an interesting nugget from John Fund in today's WSJ on who will suffer under Obamacare:
Health Savings Account (HSA) holders. Eight million Americans, according to the Treasury Department, are covered by plans with low-cost premiums and high deductibles that are designed for large, unexpected medical costs. Money is also set aside in a savings account to cover the deductibles, and whatever isn’t spent in one year can build up tax-free. Nearly a third of new HSA users, according to Treasury figures, previously had no insurance or bought coverage on their own.
These policies will be severely limited. The Senate plan says a policy deemed “acceptable” must have insurance (rather than the individual) pay out at least 76% of the benefits. The House plan is pegged at 70%. That’s not the way these plans are set up to work. Roy Ramthun, who implemented the HSA regulations at the Treasury Department in 2003, says the regulations are crippling. “Companies tell me they could be forced to take products off the market,” he said in an interview.
If an insurance plan must pay for 70 or 76 percent of all health care costs, it would be next to impossible for it to qualify as a high-deductible health plan. No HDHP, no HSA contribution.
The only hope a plan would have would be to do the following:
- Have a deductible no higher than the HDHP minimum ($1150 single, $2300 family in 2009)
- The out of pocket limit would have to be an identical amount
- The plan would have to cover all allowable preventive care on a first-dollar basis (annual physical, prenatal and well-child, immunizations, smoking cessation, weight loss programs, and early screening services)
Any HDHP which is this generous would have very little premium savings relative to a tradtional health insurance plan. If the typical HDHP today shaves about 33 percent off your premium, a plan like this might only shave off about 10 percent. There would be very little incentive to get an HSA-qualified insurance plan.
Comments (6)
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I do not think either the Senate or House plan is saying that they have to pay 76 or 70% for *EACH* consumer. The way I understood is that they should pay out 76/70% *on average* back to all their consumers in health benefits (commonly called "loss ratio" in the insurance industry)
>> Tarun Upadhyay July 26, 2009 11:41 am
It is a shame, because I think the gov't should use an HSA-style plan for Medicare and whatever health reform they are proposing. They could base the deductible on income. I got an HSA through work and I cut my health spending over 70% per year. It really made me stop and think about my doctor's visits and switch to a lower cost pharmacy. When people get health coverage for free, they go to the doctor as a hobby or something to do. If you have to pay the first $$$ of your expenses, you stop and think if you really need to see the doctor or not. Without HSA, my health care costs will rise steeply.
>> Lola July 27, 2009 8:01 pm
You misunderstand, Tarun. HSA-compatible high-deductible health plans (HDHPs) cannot possibly cover an average of 70% (or 76%) of medical expenses for the pool of customers. They can't because they cover catastrophic expenses, only, and catastrophic expenses account for much less than half of total medical outlays. Most medical expenses are not for catastrophic illnesses and injuries. Most medical expenses are for routine care and minor illnesses and injuries. That's why HSAs cut total medical expenses so dramatically: because they take the middlemen (insurance companies and government) out of medicine for MOST healthcare expenditures, not just for 30% (or 24%) of healthcare expenditures. By making most medical purchases simple cash transactions, the bureaucratic overhead and paperwork is mostly eliminated, and consumers are far more likely to price-shop for the cheapest, lowest cost providers. When I switched from a traditional 75/25 Blue Cross plan to my HSA & HDHP, my insurance premiums were cut in half. If you think about that, you should realize that it is proof that HSA-compatible high-deductible health insurance plans pay for much less than half of total healthcare expenditures, on average. That means they would be outlawed by the legislation currently under consideration by Congress.
>> Dave Burton July 27, 2009 8:08 pm
You are talking about percentages. With only 3 comments above, there does not seem to be a consensus of agreement. In otherwords, interpretation of what it really means is unclear and open to discussion. Imagine the government bureacrats at low level departments or commissions making these decisions and further coming up with regulations regarding the enforcements. We would be stuck with their interpretation whether it be right or wrong.
>> JUDY KASTEN August 14, 2009 3:13 pm
Dave, since HDHPs have drastically cut medical costs but still cover catastrophic, then it stands to reason that routine costs must be doubly-drastically cut (which is confirmed anecdotally) - and so it would seem they COULD meet the average 70% requirement. The main thing is, does Obamacare eliminate HSAs? From the exchange above, it would seem it does not. And if there is even $1 to be made, you can be certain that someone will step in to make it. HDHPs will NOT go away!
>> John August 15, 2009 11:08 pm
I cannot pin point exactly the point being made here, but from first blush, it appears as if over the counter medications presently considered qualified reimbursable expenses under HSAs, HRAs, Archer MSAs and FSAs would be deemed unqualified with this bill's passage? Did I read this correctly? Text: "Under the provision, with respect to medicines, the definition of medical expense for purposes of employer-provided health coverage (including HRAs and Health FSAs), HSAs, and Archer MSAs, is conformed to the definition for purposes of the itemized deduction for medical expenses. Thus, under the provision, the cost of overthe- counter medicines may not be reimbursed with excludible income through a Health FSA, HRA, HSA, or Archer MSA. EFFECTIVE DATE The provision is effective for expenses incurred after December 31, 2009." Link: http://docs.house.gov/rules/hr4872/111_hr4872_rpt1.pdf Page of text: 282
>> Amy Weir March 22, 2010 1:53 am
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