What are the implications of the recent Supreme Court decision for Health Savings Accounts? Not good, if the Obama Administration continues its undeclared war on HSAs.
The American Bankers Association noted in their HSA update last week that
While the political impact of the Supreme Court decision will be debated, the real-world effect on Health Savings Accounts is certain. Individuals and small businesses will discover that obtaining HSA-qualified health plans - the one thing you must have to open a health savings account - will become increasingly more difficult, a negative result for these consumers.
Individuals and small businesses have more difficulty finding affordable coverage than any other market segment. The Affordable Care Act's many regulations make obtaining coverage harder for these consumers, not easier.
Regulations are slowly strangling HSAs. Under Obamacare, "fully insured" policies must spend at least 80 percent (small group and individual market) or 85 percent (large group market) of every premium dollar on health care related expenses (called the medical loss ratio or MLR). The remainder can be spent on administrative costs (improving health care delivery or combating fraud) and profits.
The problem is that HSAs have an MLR that is significantly lower (around 60-70 percent) by design because policyholders are paying out-of-pocket for claims before the deductible is met. The insurer spends less on
both on administrative claims and health care claims, but is also able to offer the policyholder a significantly lower premium as a result. Consumers get more power over routine spending, and significantly lower premiums. That's a win-win, right?
Not according to the Administration, which refuses to count claims below the deductible against the MLR. In response, companies would have to lower their deductibles, or cover more services below the deductible - both of which would raise premium costs for policyholders. So the Administration is, in effect, demanding that people pay more for even the most basic health care coverage - and making HSAs less competitive with other types of (more expensive) insurance.
Then we come to another key regulation, actuarial value or AV. AV is the percentage of expected health care expenses covered by insurance. Under Obamacare, the AV of plans on state health insurance exchanges starts at 60 percent for Bronze Plans, and goes all the way up to Platinum (90 percent).
Let's say that John Q. Smith buys an HSA qualified plan for himself and his family and starts putting money aside ever year to cover future health care expenses. Does that count against the actuarial value of the plan? Again, not according to the Administration. If the insurer isn't paying, it doesn't count, even if the design of the plan has consumer savings built in.
So regulators are insisting that you buy a more expensive health insurance plan than the one you want (or have already, since the MLR and AV rules will lead at least some Americans to lose the health insurance they have and like today).
Tossing a crumb to the HSA market, the Administration has said that it will allow some some small business contributions (but not the whole amount) made into individual HSA accounts to count against the plans' actuarial value. But employee contributions aren't counted at all.
On net, this will force small employers to purchase more expensive coverage, and take more money out of their employee's paychecks to pay for it - if they can afford to buy coverage at all. Offering HSA qualified plans, and kicking in some money to pay for it - along with higher wages - is discouraged.
Update: "If HSA plans can't meet the MLR and AV requirements, there might not be any "Bronze Plans" available in the insurance exchanges, causing many who are uninsured to remain so," said Roy Ramthun, president of HSA Consulting Services.
The message to the market couldn't be clearer: HSAs will be penalized in favor of more comprehensive and more expensive coverage. (And this from an Administration that has claimed that 30% of more of all health care spending in the U.S. is wasteful.)
HSAs track record of providing affordable, high quality coverage that actually "bends the curve" of health care inflation is indisputable. But since it doesn't fit into the Administration's vision of what "real" insurance is, it is quietly moving to kill it.
When it comes to HSAs, if you like what you have you won't be able to keep it.
(For a more in depth analysis of the challenges facing HSAs, see this article by Roy Ramthun.)