House Healthcare Bill Would Impact HSAs.

Nancy Pelosi

The massive healthcare reform bill unveiled today by top House Democrats contains a couple of provisions that will impact those with Health Savings Accounts (HSAs).

Section 531 of the bill limits nontaxable reimbursements from Health Savings Accounts (HSAs) for drugs and medicines. After December 31, 2010, except for insulin, a prescription will be required in order for the purchase of drugs and medicines to be reimbursable. This change would also apply Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs).

A second change that will impact HSAs is in Section 533.  This provision will increase the penalty for nonqualified distributions from Health Savings Accounts from 10 percent to 20 percent.  It will likewise apply to taxable years after December 31, 2010.

CNN reported that the House Democratic leadership is working to post the text of the final bill online early next week and has agreed to give members 72 hours to read it before a vote. Under that timetable, the House would begin debating the bill at the end of next week.

HSAs Help People Save for Retirement.

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Over the Labor Day weekend, President Obama, noting that millions of Americans do not have enough savings to cover their retirement, announced a package of initiatives to spur increased savings.

He suggested four administrative actions, which do not require new legislation from Congress, intended to make it easier and more automatic for people to put money into tax-advantaged retirement accounts.

The four new initiatives, all of which are based on new behavioral research on ways to encourage people to save in a systematic way, included:

  1. Automatic enrollment plans, whereby employees would be automatically signed up for their 401K unless they explicitly ask not to participate.
  2. Instructions to the Internal Revenue Service to allow people to check a box on their tax returns to receive their tax refunds in the form of United States savings bonds.
  3. Making it easier for employees to contribute the money for unused vacation time and overtime to their retirement accounts.
  4. Publishing an easy-to-read guide to help people understand the arcane rules governing retirement plans when people change jobs.

I have a fifth idea.

Encourage people to buy a qualified health insurance plan and open and fund a Health Savings Account (HSA).

The HSA, created in 2004 is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit and unlike a flexible spending account (FSA), funds roll over and accumulate year over year if not spent. Funds can be withdrawn tax-free to pay for qualified medical expenses.

Best of all, withdrawals for non-medical expenses are treated very similarly to those in an IRA in that they are treated as normal income if taken after retirement age.

So, why not solve two problems at once, encourage people to select an affordable health insurance plan and then take advantage of the opportunity to save money for future medical expenses and retirement.

I also have some ideas about allowing anyone who has health insurance coverage to open an HSA, but I will save that for another time.

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An Open Letter to Health Savings Account Owners.

Dear health savings account (HSA) owner:

As a health savings account owner, you know that HSAs work.  They are among the bright spots in today’s health care, reducing insurance costs, making coverage available to people who could not otherwise afford insurance, and allowing individuals to choose how they spend their health care dollars instead of the government or the insurance companies.

The current proposals for health care reform in Congress, if passed, will prevent you from having an HSA-qualified health plan ever again.

If you value your HSA, you should contact your representatives today to voice your concern over this threat to end one of the only health care reform ideas that actually work.

This is not a stand against  health reform.  In fact,  HSAs are part of the solution:

  • 8 million Americans are covered by HSA plans, more than all SCHIP plans and more than the entire population of 39 separate states.
  • 30% of HSA Owners say they would be uninsured without their HSA.
  • Preventive care is free below the deductible in over 95% of group plans.
  • HSA Owners represent average Americans in terms of age and income.
  • 82% of HSA owners are satisfied with their HSA and only 4% would not recommend an HSA to a friend or family member
  • President Obama continues to promise that if you like your plan you can keep it.

This is where you can help.  In short, health reform bills approved by key committees in the House and in the Senate could eliminate HSAs, if passed.  On the surface everything looks fine, but the fine print is where the problem lies:

§      Buzzword: Actuarial equivalence – this means your HSA health plan will not qualify to be sold in government mandated “exchanges,” because your HSA contributions and your employer’s HSA contribution will not count.

§      Buzzword: Minimum credible coverage – The government will decide what benefits have to be provided below the deductible for a health plan to be allowed to be sold on the “exchange.”  Since HSAs only allow preventive care to be provided under the deductible, any additional benefits that are added will disqualify all plans from HSA eligibility.

§      Buzzword: Health Commissioner – The draft bills give all the power over hundreds of items to a new Health Commissioner or HHS Secretary, assuring that bureaucrats will make all the significant decisions regarding your health care coverage.

If you like your HSA, now is the time to make your voice heard:

  • Send an email directly to your elected representative and senators.
  • Attend a local health care town hall meeting and voice your concerns about reform that would eliminate HSAs.
  • Share your story of how HSAs are helping you stay healthy and get care when you are ill or have an accident.

Thank you in advance for being willing to contribute to the debate and help pass reform legislation that preserves health care choices and a healthy economy for all Americans.

IRS Announces 2010 HSA Limits

The Internal Revenue Service (IRS) has announced the 2010 inflation adjusted amounts for health savings accounts (HSAs) in Revenue Procedure 2009-29.

Annual contribution limitation. For calendar year 2010, the annual limitation on deductions under a high deductible health plan is $3,050 for an individual with self-only coverage, and $6,150 for an individual with family coverage.

High deductible health plan. For calendar year 2010, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less  than $1,200 for self-only coverage or $2,400 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $5,950 for self-only coverage or $11,900 for family coverage

This revenue procedure is effective for calendar year 2010.

8 Million People Now Covered by HSA-Qualified Health Plans

An annual census by America’s Health Insurance Plans (AHIP) of U.S. health insurance carriers released this week shows that the number of people covered by health savings accounts/high-deductible health plans (HSA/HDHPs) totaled 8.0 million in January 2009. This is up from 6.1 million in January 2008, 4.5 million in January 2007, and 3.2 million in January 2006.

The survey, which polled virtually all private health insurance carriers in the HSA/HDHP market, not only continued showed robust growth but growth within all segments of the market. Between January 2008 and January 2009, the fastest growing market for HSA/HDHP products was large-group coverage which rose by approximately 35 percent, followed by small-group coverage which similarly rose at 34 percent.

Likewise the gender of those adopting this form of coverage was evenly split with fifty-two (52) percent male and forty-eight (48) percent female participants.

Enrollment in the individual market also rose. As of January 1.8 million individuals were covered by HSA/HDHPs, up from 1.5 million covered lives in January 2008, and fifty-three (53) percent of all individual market enrollees-including dependents covered under family plans-were aged 40 or older.

The states with the highest levels of HSA/HDHP enrollment were California (854,000),

Florida (524,000), Illinois (497,000), Texas (476,000), Ohio (464,000), and Minnesota

(388,000).The highest premiums for HSA/HDHPs were reported in Massachusetts where they averaged $361 for single coverage and $925 for family coverage. The lowest priced plans were found in North Dakota where they averaged $210 for single coverage and $461 for family coverage.

Health savings account (HSA) plans give consumers incentives to manage their own health care costs by coupling a tax-favored savings account used to pay medical expenses with a high-deductible health plan (HDHP) that meets certain requirements for deductibles and out-of-pocket expense limits. Most HDHPs cover preventive care services (e.g., routine medical exams, immunizations, well-baby visits) without requiring the enrollee to first meet the deductible. The funds in the HSA are owned by the individual and may be rolled over from year to year. HSAs were authorized starting in January 2004.

Read the entire report here: http://www.ahipresearch.org/pdfs/2009hsacensus.pdf

Study: More Employers offer High Deductible Health Plans; HSA Contributions Double

The Kaiser Family Foundation and the Health Research & Educational Trust (Kaiser/HRET – http://ehbs.kff.org/) has published their annual survey of employer-sponsored health benefits. This year’s study found more employers offering high deductible health plans and that employer contributions to Health Savings Accounts doubled since 2007.

The study showed that thirteen percent of firms offering health benefits now offer a High Deductible Health Plan with an Health Reimbursement Arrangement (HDHP/HRA), a Health Saving Account (HSA)-qualified HDHP, or both in 2008. While the report notes that the increase does not represent a significant difference from the 10% reported in 2007, they do point out that there has been a statistically significant increase in the offer rate since the 7% reported in 2006.

As for the types of employers who have adopted HDHPs, the study found that firms with 1,000 or more workers are more likely to offer an HDHP/SO (saving option) than smaller firms. Twenty-two percent of firms with 1,000 or more workers offer an HDHP/SO compared to 13% of firms with 3 to 199 workers or 15% of firms with 200-999 workers.

The study also found that workers enrolled in HSA-qualified HDHPs on average receive an annual employer contribution to their HSA of $838 for single coverage and $1,522 for family coverage. These amounts are about double the amounts reported in 2007 ($428 for single coverage and $714 for family coverage), but this increase may be due in part to a change in legislation enacted by Congress in December 2006 that increased the maximum allowable annual HSA contribution. Although the increased amounts were allowed in 2007, due to the timing of the legislation, employers may not have had time to introduce higher contributions in 2007.  When those firms that do not contribute to the HSA are excluded from the calculation, the average employer contribution for covered workers is $1,139 for single coverage and $2,067 for family coverage.

Here are some other key findings related to HSA funding:

  • Small employers have significantly increased contributions: From 2007 to 2008, the amount contributed to HSAs for workers in small firms increased from $415 to $1,041 for single coverage and from $677 to $1,862 for family coverage. There was no statistically significant increase in HSA contributions for workers in large firms for either single or family coverage.
  • Not all employers are making contributions to employees’ accounts: In looking at employer contributions to HSAs, it is important to note that not all employers make contributions towards HSAs established by their employees. Twenty-eight percent of employers offering single or family coverage through HSA-qualified HDHPs do not make contributions towards the HSAs that their workers establish (covering 26% of covered workers enrolled in HSA-qualified HDHPs for single or family coverage).
  • But, the number not contributing is quickly decreasing: For single coverage, the percentage of firms that do not make a contribution to HSAs established by their employees decreased from 66% in 2007 to 28% in 2008. The report notes, however, that the 2008 percentage is similar to the percentage that was reported in 2006 (37%).

This year, the survey included questions for those employers offering HDHP/SOs on their opinions of the most successful outcome, biggest challenge, employee satisfaction, and primary reason for offering an HDHP/SO. Not surprisingly, forty-two percent of firms report that in their opinion, lower costs as the most successful outcome from offering a HDHP/SO.

Eighteen percent of firms reported helping employees engage in their health care as the primary reason for offering an HDHP/SO, with small firms (3-199 workers) being less likely (17%) than large firms (200 or more workers) (33%) to report this as their primary reason for doing so.

Health Plan Innovation Take: This report is more evidence that consumer-driven health care in the form of high deductible health plans associated with a tax-favored account has achieved significant acceptance among both large and small employers as a means of controlling the rise in health care costs. Both Presidential candidates have vowed to maintain the employer-based system of providing health insurance, So regardless of who moves into the White House in January, their health care strategy teams will need to figure out how to work these types of plans, including the accompanying HSAs and HRAs, into their overall health care schemes.

Fewer Americans Getting Health Coverage through Employers

As a follow-up to yesterday’s post about the Norvax online health insurance quoting service for individuals, a new report is out that says fewer Americans are receiving health insurance thorough their employers. In fact three million fewer Americans under the age of 65 received health insurance through employers in 2007 than in 2000, according to a report from the Economic Policy Institute in Washington.

The report, “The Erosion of Employer-Sponsored Health Insurance,” attributed the growing uninsured population across the country to declines in employer-sponsored health insurance.

According to the report, no category of worker has escaped losses in employer-sponsored health insurance since 2000, with every race, education level and work status experiencing declines.

Health Plan Innovation Take: What’s the problem with the decline in employer-sponsored health plans? Can’t these people buy a plan on their own through an agent or an online service like Norvax?

While many (young and healthy) individuals find that they can actually purchase an individual health plan for less money than they were paying for the plan offered through their employer, many are finding that they cannot purchase an individual plan at all.

Remember, group health insurance plans must be offered at the same price to all who are eligible, regardless of their age or health status. However, individual health policies are individually underwritten. This means that if you have preexisting conditions, or are obese, you will pay more for your policy than someone without these conditions – if you are offered a policy at all.

In fact, Norvax says that one out of every six online shopper is deemed “uninsurable” for standard coverage, due to either a pre-existing condition or a Body Mass Index (BMI) of 39 or higher. While these individuals could still obtain insurance, these two conditions will probably make it more difficult and more expensive.

This is a problem that will need to be solved if the trend continues, which I think it will, towards the widespread dependence on individual health policies. Unfortunately, if laws are passed to mandate guaranteed issue individual policies, as was done in Massachusetts, prices will have to increase for individual policy holders – even the healthy. Without instituting penalties for not buying insurance (again a part of the Massachusetts plan) will more individuals chose to go without coverage? They probably will.

Let’s just hope that as lawmakers get involved in this issue, that they do keep open money saving options like health savings accounts. It seems that the Massachusetts connector has now decide that minimum credible coverage for a health plan in that state must include prescription  drug coverage below the deductible, thus eliminating HSA-type plans in the state.

Share of Consumer-directed Plans Increases Again: Survey

The 2008 Employer Health Benefits Survey released yesterday by the Kaiser Family Foundation and the Health Research & Educational Trust (HRET) found that the share in consumer-directed plans – high-deductible plans that include a tax-preferred savings option such as a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) – has increased to 8 percent today from 5 percent last year and 4 percent in 2006.

The study found that an estimated 5.5 million covered workers are enrolled in these plans, including about 3.2 million in plans that would allow the worker to establish an HSA and 2.2 million in plans with an HRA established by the employer.

The study learned that the growth in consumer-directed plans occurred mostly among workers at small firms (three to 199 workers), where 13 percent are now in this type of plan, compared with 8 percent in 2007. In firms with at least 200 employees, 5 percent of workers are enrolled in such plans – statistically unchanged from last year.

According to the study premiums for consumer-directed plans are generally lower than for other types of plans, though in addition to the premiums, employers may also contribute money to the savings accounts. On average, firms pay a total of $8,291 annually toward the cost of family coverage for an HSA-qualified plan, including a $1,522 contribution to the account. In comparison, firms on average contribute $9,495 toward the cost of family coverage in non-consumer-directed plans.

Health Plan Innovation Take: Employers continue to adopt consumer-directed health plans to cut costs and they are being rewarded with lower costs – more than four in 10 of employers surveyed say that in their opinion the most successful result of adopting CHDPs has been lower costs. So it is good for employers, it is also good for employees. UnitedHealthcare analyzed more than 200,000 of its 1.4 million members enrolled in an HSA-eligible health plan during the full year 2006 – the latest period for which full year data were available – and found that customers with Health Savings Accounts (HSA) are depositing money into the accounts and accumulating balances, regardless of their income level, age or employer size.

Education is Key to CDHC Future

I spent the early part of this past week attending the CDHC/Prepaid Expo in Las Vegas which is described as the premier strategy conference for employers and employer groups to efficiently and profitably deploy consumer-directed health care plans.

The conference described itself as powering the movement toward consumer-driven health care, by bringing together employers, banks, account custodians and providers to help shape the future of the industry. The conference invitations suggested that from consumers to insurance carriers, consultants to administrators, and providers to pharmacies, each stakeholder must understand the opportunities, challenges, and benefits of consumer-directed health care, and how to best introduce the most relevant accounts to employers and consumers. So true.

My biggest take-away from the conference was the fact that prepaid and debit card technology may have finally out-stripped the capacity for employers and employees to comprehend its use. It is clear that the card processors now have the ability to produce a card that can access several “buckets” of funds from which to pay for health care expenses. One might have an HSA, HRA, FSA, line of credit all on the same card, and I applaud this innovation. This choice of products will give employers the ability to structure a health plan that best suits the needs of their employees. The problem is that the general knowledge among consumers, and even insurance agents and employers, needs to catch up in order to make these sophisticated financial products widely used.

I noticed many employers who attended the conference just asking for the basics. “Does anyone have a template that shows how to implement a consumer-driven health plan?” “Uh, no.”

The question for all of the stakeholders listed above is: Who will do this education? Will it be the card processors, the issuing banks, the insurance carriers, the insurance brokers, the “industry”?

I would suggest that all of the above need to work together to create a climate of ongoing education that will help employers and their employees understand the benefits and uses of consumer-directed health plans. The degree to which we are successful will not only determine the future of the CDHC industry, but will determine the future of health care financing and delivery in the US.

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Mandates or Innovation?

As the presidential political campaigns heat up and more of the discussion centers on health care, we are going to be hearing a debate about mandating health insurance. Many politicians are promoting a health care system whereby the government would require individuals to purchase health insurance just as states currently require auto insurance coverage.

Greg Scandlen the president of Consumers for Health Care Choices, a national membership organization based in Hagerstown, Maryland, and an expert in Health savings Accounts (HSAs) has published an interesting article on the subject of mandates. The piece can be found on the Heartland Institute website and is entitled: Don’t Mandate: Innovate

Here is an excerpt:

Failed Mandates

We have already seen that innovations such as Health Savings Accounts (HSAs) will appeal to market segments that did not find value before. Approximately 40 percent of the people who have purchased HSAs in the non-group market were previously uninsured.

But HSAs are only one of many possible innovations in health care financing. Mandatory coverage short-circuits the vital process of innovation in a competitive market.

Further, mandatory coverage simply doesn’t work. Virtually every state currently mandates auto insurance coverage, and the number of uninsured motorists is very similar to the number of people without health insurance.

In 17 states, the rate of non-insurance for auto (which is mandatory) is higher than for health insurance, which is not mandated.

To read the whole article click here: Failed Mandates

 

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