Health Savings Accounts Under the Affordable Care Act Challenges and Opportunities for Consumer-Directed Health Plans
Nearly four years after the passage of the Patient Protection and Affordable Care Act (ACA) and nearly one year after its first open enrollment period, many key provisions of the legislation are still just beginning to come into focus. Policy experts' critics and friends of the law alike—expect the law’s rocky rollout and uneven implementation (i.e., the delay of the employer mandate until 2015 and the extension of some non-ACA-compliant individual policies until 2016) to produce significant uncertainty in the non-group health-insurance market for several years.
One critical area of uncertainty before the launch of health-insurance exchanges was how the law would affect a fast-growing alternative to traditional health plans, called Health Savings Accounts (HSAs). HSAs are paired with high-deductible health plans (HDHPs) and allow funds to be used pretax for out-of-pocket health expenditures. Consumers trade off higher deductibles under these plans in return for lower monthly premiums and tax-advantaged, out-of-pocket spending; the savings can be substantial and can be rolled over, year after year. Services above the deductible are often covered entirely by insurance.
The ACA implemented a number of important new regulations on health-insurance products, many of which potentially boded ill for HDHPs. Indeed, many advocates of these types of health plans believed that the administration would implement ACA insurance regulations in a way that would disadvantage consumer-driven products in the new public health-insurance exchanges. Nonetheless, the Obama administration has maintained that HDHPs and HSAs would continue to be available under the law. In a 2010 letter to Congress, President Obama noted:
“I believe that high-deductible health plans could be offered in the exchange under my proposal, and I’m open to including language to ensure that is clear. This could help to encourage more people to take advantage of HSAs.”
Former HHS secretary Kathleen Sebelius made a similar claim in a 2011 op-ed in the Washington Post:
“The Affordable Care Act puts states in the driver’s seat because they often understand their health needs better than anyone else.... States have discretion, for example, to offer a wide variety of plans through their exchanges, including those that feature health savings accounts.”
Initial skepticism from HSA advocates was understandable; but based on our current research, it appears that the Obama administration was true to its word and that HSAs (at least for the moment) remain widely accessible on public exchanges. The report finds that, far from becoming obsolete under the ACA, high-deductible plans are widely available—98 percent of uninsured Americans have access to at least one HSA-eligible plan. Moreover, these plans also make up about 25 percent of total offerings on Obamacare exchanges. We also found that they remain significantly less expensive than traditional plan designs, offering savings of about 14 percent, on average.
Nonetheless, our analysis indicates that it remains difficult for consumers to identify HSA-eligible plans and that much more could be done to simplify their administration and educate exchange consumers on their advantages and limitations.
To improve competition between HSA and non-HSA plans on the exchanges, we suggest a number of reforms for HSA-eligible plans, including:
- Improve transparency. HSA-eligible plans are often not labeled as such on the exchanges. Mandating identification would go a long way toward making such plans more accessible. Also, exchanges should, like Medicare’s Part D drug plan, contain a simple “cost calculator,” allowing consumers to estimate annual out-of-pocket costs while comparing the latter with the savings associated with a particular HSA-eligible plan. Over time, consumers can accumulate significant funds in such accounts.
- Standardize and simplify. One easy way to do this would be to allow any plan with a qualifying deductible to be automatically designated HSA-eligible, as opposed to the current thicket of regulations surrounding HSA eligibility. Alternately, policymakers could make any plan with an actuarial value of 70 percent, or less, HSA-eligible—since it is really the full out-of-pocket payment, not merely the deductible, that is relevant when considering a plan’s full expected cost in the event of serious illness.
- Improve affordability for low-income consumers. Catastrophic plans on public exchanges should be redesigned to be eligible for premium tax credits and cost-sharing subsidies, with savings from picking higher-deductible, lower-premium plans refundable into health savings accounts.
Recent evidence suggests that high-deductible health plans in the employer market have played a significant role in moderating premium-cost increases over the last several years—“bending the curve” for employer health care spending. If HSA-eligible plans are structured correctly in ACA exchanges, such plans could play a similar role in the non-group market (as the number of enrollees with individual coverage grows quickly over the next few years).
Slower premium growth on the exchanges would reduce costs to taxpayers while introducing greater pressure for providers to embrace price- and quality-transparency tools—thereby improving value for enrollees. Ultimately, HSAs can provide a valuable financial tool for saving against higher expected health expenses later in life, while helping to improve the overall efficiency of the health care market, too.