Health Savings Accounts on the Obamacare Exchanges: Early Warning Signs for HSAs - and the Exchanges

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The state of Vermont recently posted summaries (available here) comparing what residents might pay for different types of coverage under Obamacare starting January 1, 2014. What I see really concerns me and underscores what many have predicted - extremely expensive insurance premiums for 2014.

I have had a high deductible health plan and a health savings account (HSA) since 2005. I'm happy to see that HSA-qualified plan options will be available in both the Silver and Bronze tiers of coverage in Vermont. Vermont has a fairly strong history of offer HSA-qualified plans - the Green Mountain State led the nation in 2012 in terms of the percentage of private market adoption of HSA plans, according to an annual survey by America's Health Insurance Plans (available here).

What troubles me about the proposed Vermont plans is that the HSA plan options have more expensive premiums than their non-HSA counterparts in both the Silver and Bronze tiers. The difference is only a few dollars per month in the Silver tier but is more pronounced in the Bronze tier. Why is that? No explanation is given. Without a better understanding of the plan designs it is impossible to tell.

But we can make some educated guesses. The difference could be partially explained by differences in actuarial values (defined, roughly, as the percentage of covered benefit costs paid by the insurance plan) for the HSA and non-HSA plans within each tier. For example, the actuarial value for Bronze plans can range from 58 percent to 62 percent. While this four percentage point variation does not seem large, in actuarial value terms it can mean a difference in deductibles between health insurance policies of more than $2,000. It would seem, then, that HSA plans should have lower actuarial values and lower premiums, if they have commensurately higher deductibles.

But this can change depending on how factors like plan deductibles interact with other Obamacare regulations like the Minimum Loss Ratio (MLR; the minimum that plans must spend on health care as a share of premiums). A rule of thumb is that higher deductibles have lower monthly premiums, and vice versa (higher premiums imply lower out of pocket deductibles). But Obamacare also requires a minimum MLR of at least 80 percent in the non-group market.

For HSAs to meet the minimum actuarial values for Bronze plans, they have to offer richer coverage before plan deductibles (like covering preventive services with no copays), driving up premiums. The impact of the MLR, however, is a bit more ambiguous.

If you think that insurance companies have wasteful overhead and excessive profits, and have room to reduce both, then it's possible to raise the MLR without raising premiums. However, if insurance companies are more strapped for cash (and indeed, profit margins in the industry are fairly small) then raising the MLR can put upward pressure on premiums instead (effectively, you're encouraging more utilization of less critical medical services, exactly what HSAs are designed to prevent).

This might not be a problem if HSA carriers could increase their deductibles to try and offset the effects of the higher actuarial values and MLR. Under Obamacare, the maximum HSA deductibles (maximum out-of-pocket costs technically) are around $6,000 for individuals, and $12,000 for families. But states can set their own rules for HSA policies, including limits on deductibles, so long as they are below the rules imposed by Obamacare. At least one news report suggests that deductibles in Vermont cannot exceed $3,500 for single coverage, even for HSA-qualified plans. I know from testing out the actuarial value calculator created by the federal government that a $3,500 deductible will produce a policy with an actuarial value closer to 62 percent.

In short, it could be that Obamacare regulations are pushing HSA-qualified plans to have a higher actuarial value than the non-HSA plans (e.g., 62 percent vs. 58 percent), even though both are within the range of actuarial values permitted for the Bronze coverage tier. And since deductibles are also typically the single largest determinant of premium price as well, one could see how Vermont's limits on deductibles might also be driving the comparatively large HSA pricing differences that will soon be available in the state.

State variations in plan requirements will have an enormous impact on the availability and cost of HSA-eligible plans. For instance, the least expensive premium in Vermont for a Bronze plan offering family coverage is more than $400 per month more than my family is currently paying in Maryland for an HSA-qualified plan that should also qualify as Bronze tier coverage. That would be a 75 percent increase in monthly premiums for our family.

We won't know more until more states release plan and premium data, but this could imply very high insurance premiums for younger, healthier uninsured individuals and families shopping for affordable plans. This would create powerful incentives for many families to pay the small penalty required in 2014 ($95) and simply sit out the market, since they already know they can purchase coverage later at the same price if they become seriously ill - saving thousands of dollars in premiums along the way.

HSAs have proven their ability to offer high quality health insurance at an affordable price, and to promote much more cost-conscious health care utilization (even some left-of-center economists have recognized the value of HSAs). They have been attacked largely for ideological reasons, and many liberal critics still have a poor understanding of how they are supposed to function - and an assumption they somehow fleece consumers. Ironically, without more affordable options like HSAs, Obamacare's state exchanges may collapse under the weight of their own expensive policies.

Roy Ramthun is President of HSA Consulting Services, and former Senior Advisor to the Secretary of the U.S. Treasury for health initiatives.

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While I understand that people can go without insurance, pay the $95 penalty, and then get insurance later when they get sick, what I don't understand is how well this will work for these people. For instance, what if the insurance company says there is a one-month "paperwork" period before the insurance becomes effective? Or a two-month or three-month period? If that's the case, these people would have gambled and lost because they would have to pay their expenses themselves before receiving coverage.

So my question is what is there to stop insurance companies from imposing a delay in new insurance policies as a way of weeding out already sick people?

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