Stormy Weather Ahead for Health Savings Accounts

What's the "whether" forecast for Americans debating whether to purchase a high-deductible, tax-advantaged health savings account, or HSA?

While the skies remain sunny for now, the long-term forecast shows storms ahead as the popular health insurance plans struggle for survival under new health care reform regulations.

A Range of Preventive Services

Let's start with the good news. Not only did the Affordable Care Act outlaw the lifetime benefit limit across all health insurance plans including HSAs, it also provides health savings account holders and their families with a wide range of free preventive care services. Depending on your age, you can now partake in free diabetes and cholesterol screening, mammograms, colonoscopies, flu shots, regular well-baby and well-child visits, and routine vaccinations for measles, meningitis and polio, among other services.

However, the preventive care benefits don't automatically apply to HSAs written before Sept. 23, 2010, when those ACA benefits kicked in.

"For so-called grandfathered plans that were in effect before that date, that coverage is not there," says Wiley Long, president of HSA for America, an HSA broker in Fort Collins, Colo. "Now, the HSA company could have decided to include it, but most haven't and it's not required to be part of the plan."

If your HSA predates health reform, you may benefit by shopping for a new plan.

"Compare prices; if it's roughly the same or less, it probably makes sense to change," Long says. "But the new plans are generally more expensive because the carriers are facing more costs for having to cover all of this preventive care."

A Health Care Solution for Companies

Individual and group health savings accounts have grown steadily since 2004, with 11.4 million Americans now covered by HSAs, according to a June census by America's Health Insurance Plans, an industry trade group. Enrollment has nearly doubled during the past three years, with large-group plans up 26% in 2010 alone.

"Because of the new pressures that the (ACA) law places on businesses, this is kind of the go-to solution for most businesses," says Roy Ramthun, president of HSA Consulting Services in Silver Spring, Md. "Large employers are turning to these types of plans very quickly. It's the only way they can control their health care spending."

Ramthun calls HSAs the wave of the future for corporations, many of which have started their own self-funded HSA programs that eliminate the insurance company entirely. "Where an employee used to have a choice of PPO and HMO, it's now frequently just a choice of deductibles," he says. "They're all high deductibles that qualify for HSAs."

Those high deductibles, which HSA account holders gladly trade for lower premiums, also may place HSAs on a collision course with the Affordable Care Act.

For starters, there's the ACA's new actuarial value standard, which measures the percentage of your health plan's benefits your insurer will pay. The ACA designers plan to allow four plan levels -- bronze, silver, gold and platinum -- when state health insurance exchanges open in 2014. Bronze will be the lowest allowable actuarial value at 60%, meaning your insurer must pay at least 60% of your medical benefits.

High deductibles pose challenges

It's not hard to see that an HSA plan with a deductible of $11,900, the highest allowable to qualify for HSA tax status, might be hard-pressed to pay 60% of your annual health care expenses, given that many HSA holders never even meet their deductible.

Ramthun says the easiest solution for the insurer would be to simply lower deductibles. Unfortunately, that would place upward pressure on rates, which potentially could price HSAs out of existence. Another option might be to offer a first-dollar copay arrangement until the deductible is met.

"Whether or not these HSA plans meet that requirement really depends on how they develop the regulations," says AHIP spokesman Robert Zirkelbach.

Another dark cloud already overhead is the ACA's medical loss ratio, or MLR, which kicked in this year. The MLR requires that individual and small-group insurers put at least 80% of every premium dollar (85% for large-group plans) toward the customer's medical claims or rebate the difference. Again, that's going to be tough for a high-deductible policy.

"We have concerns about having the MLR requirement at all, given the potential consequences it may have," Zirkelbach says.

"We have asked for either an exemption or a different standard to be applied to these plans," says Ramthun.

Regulation Still Up in the Air

There is no clear indication on when rulings on these key points might come down from the Department of Health and Human Services.

Add to these uncertainties the volatile 2012 election cycle, the pending Supreme Court ruling on the constitutionality of the ACA itself (expected next summer), and forthcoming definitions regarding minimum "essential" benefits and low-income subsidies, and it's not surprising that HSAs find themselves in a regulatory limbo.

Considering the forecast, is it still a good time to purchase an HSA?

"Absolutely; get them while they're hot," says Ramthun. "My view is that these plans are going to qualify to participate in the insurance exchanges with the caveat that there are regulatory issues that may crop up later that we have to address. I can't say at this point that any of those are deadly to HSAs, but we have to monitor them to be safe. Until we get that final word, there is that uncertainty."