The Patient Protection and Affordable Care Act (PPACA), passed in 2010, has brought a number of changes to health care in the last couple of years.
While some consumers have seen benefits from the PPACA, there are those who are not quite as fortunate. The biggest issue for some is with regard to Health Savings Accounts (HSAs). The availability of HSAs might not be affected, but the cost of the High Deductible Health Plans (HDHPs) associated with them could very well increase.
Actuarial Value and HDHPs
One of the key requirements of the PPACA is that health insurance plans in the individual and small business (less than 100 employees) markets have an actuarial value of 60%. Actuarial value describes the costs that the insurance company covers vs. what the consumer pays directly. So if you have a health insurance plan with an actuarial value of 60%, it means that you can be expected to pay 40% of your costs directly, and the health insurance company covers the rest (although you are technically covering them indirectly through your premium payment). Your direct costs include things like co-pays and deductibles.
For many more “traditional” health care plans, limiting direct consumer outlay to 40% for the costs is fairly easy to accomplish. It’s a little more difficult when it comes to HDHPs. The whole point of the HDHP is that you pay more out of your pocket in exchange for a lower premium. I’m a huge fan of this setup, and my family makes use of the HDHP/HSA combination.
Of course, this means that, since my family has few health care needs, almost all of my family’s health expenses for the year are paid out of pocket (one regular prescription and our preventative care visits are covered by insurance). This means that the actuarial value of our plan – and many other plans – won’t meet the minimum.
How Does the HSA Fit In?
I love my Health Savings Account; it provides me with a nice tax deduction, and the money grows tax free as long as it is used on qualified health care expenses. In order to contribute to the HSA, though, you need a HDHP. For families like mine, this works out great. I just put the difference between what I used to pay in health premiums and what we pay now in the HSA.
For those with employers that make contributions to plan Health Savings Accounts, the HDHP/HSA plan issue isn’t so problematic. Employer contributions to HSAs as part of the benefits and as part of the plan are considered direct costs for the purposes of determining actuarial value. So, if your employer contributes to your HSA on your behalf as part of your benefits, this helps the cause. It helps the plan retain its required actuarial value.
Unfortunately, this is not the case for individual contributions to HSAs. If you buy your own health insurance, contributions to your Health Savings Account won’t count in the same way. This changes things up, and means that many HDHP plans won’t meet the minimum threshold required by the PPACA. Instead, you are paying too much out of pocket, rather than indirectly. Many plans being offered now (like mine) might disappear.
In order to meet actuarial value, health insurers might have to offer more benefits. And that means that premiums for HDHPs could rise. It doesn’t necessarily mean the end of HSAs, but it could mean that fewer people are able to contribute as much as they would like to their accounts, since they will have to pay higher premiums to cover the increased benefits.
This is one of the more disappointing aspects of the PPACA from my perspective, since it limits the way I can manage my own health care costs. I’ve found the HDHP/HSA a great way to keep my costs down, while providing me with other financial benefits, and I’m disappointed that the law might lead to such restrictions.
What do you think of HDHPs, HSAs, and actuarial value requirements? Leave a comment!