From the Januray 2010 issue of Consumer Driven.
Five days after the U.S. Senate introduced its health care reform legislation last November, a Wall Street Journal editorial virtually held Senate Majority Leader Harry Reid solely responsible for the future demise of the consumer-driven health plan. To be exact, Harry Reid “wants to kill consumer-driven health care.”
The 2,074-page Senate bill crushes CDHPs with “malice-aforethought.” Start with the $2,500 cap on flexible spending accounts, which is projected to raise about $15 billion over the next decade by limiting pre-tax savings.
“The Senate in particular has gone after looking for money to finance this legislation, and there’s a lot more money to be gained by eliminating FSAs at this point than there would be by eliminating HSAs,” says Martin Trussell, senior vice president, First Horizon Msaver. “At $2,500, FSAs are going to dry up pretty quickly once [the cap] goes into effect.”
The Senate Finance Committee’s defenses for the cap: FSAs encourage non-essential health care spending. Also, the “use or lose it” requirement promotes wasteful spending (the average flexible-spending contribution in 2008 was $1,385, according to Mercer much lower than the proposed cap). Plus, people with high incomes benefit disproportionately from FSAs because they are in higher tax brackets, tend to consume more health care, and can afford to deposit larger amounts in their accounts; Middle- and lower-income people benefit much less, if at all.
Still, grassroots organization Save Flexible Spending Plans has called the $2,500 cap unreasonably low, and without indexing it for inflation, this will cause the value of an FSA to plummet to less than half its worth within a decade. The organization has made it known that families with special-needs children and people with chronic illnesses are those who stand to hurt most by losing tax benefits.
“Initially, the Senate will force approximately seven million hard-working Americans who use their FSAs to cover out-of-pocket health care expenses greater than $2,500 to pay higher taxes and health care costs. Federal employees who currently enjoy a $5,000 limit on FSA contributions will see their access to FSAs cut in half,” said Joe Jackson, chairman of Save Flexible Spending Plans and CEO of WageWorks Inc., in San Mateo, Calif., in an issued statement. “Additionally, state employees in 46 states who have FSA contribution limits set at $3,000 or more will be negatively impacted. Sadly, those with the highest out-of-pocket health care costsÑthe sickest will be hit the hardest by restrictions on FSA use.”
Then there’s the “assault” on health savings accounts, which, according to the editorial, will “most likely be barred from insurance exchanges.” They’ll also be more difficult to offer due to restrictive government standards on essential benefits, and will be less attractive with a tax hike on distributions that are not used for qualified medical expenses (the tax penalty’s going up by 10 percent).
And one other noted offense - over-the-counter drugs will be prohibited as an eligible expense in HSAs, FSAs and HRAs.
“The over-the-counter provision that allows for people to buy over-the-counter drugs with their pre-tax dollars [will be] eliminated unless you have a doctor’s recommendation. That’s going to also drive up the cost of the HSA administration,” says William Short, president and CEO of Ameriflex.
What else is in the legislation?
By the time this issue goes to print, the Senate will have just begun debate on legislation. It’s too exhaustive to list everything in each bill, but there’s more to the Senate Patient Protection and Affordable Care Act and the House Affordable Health Care for America Act that could possibly affect components of consumer-driven health care. Those include:
Public plan - Both would create a new government insurance plan to compete with private insurers, but the Senate’s plan would allow the states to opt out.
Employer mandates - The House plan would require most employers to provide insurance to workers or pay a tax equal to 8 percent of payroll. The Senate plan would not require employers to offer coverage, but employers with 50 or more full-time workers would pay a penalty of $750 for each worker in the firm if any of their workers receive federal subsidies to buy insurance through the exchange.
Essential benefits - The Senate bill requires the Department of Health and Human Services secretary to establish a standard of essential benefits that would be used to determine four types of coverage packages (bronze, silver, gold and platinum) of varying actuarial values. All individual and small group insurers would have to offer, at minimum, plans in the silver and gold values. Under the House bill, a new independent advisory committee with practicing providers and other health care experts, chaired by the Surgeon General, will recommend a benefit package based on standards set in the law. This new essential benefit package will serve as the basic benefit package for coverage in the exchange and over time will become the minimum quality standard for employer plans. Both plans call for no cost-sharing of preventive services.
According to the National Association of Health Underwriters, Senate legislation assumes inclusion of consumer-directed and account-based products like HSAs, HRAs and FSAs, and clearly includes them in the outlines of minimal creditable coverage. And the 60 percent minimum actuarial value for bronze level plans should be sufficient to cover many account-based consumer-directed high-deductible plans.
The House Democratic legislation, on the other hand, does not directly restrict HSAs, but “70 percent minimum actuarial value equivalents are insufficient to meet HSA qualified high deductible health plan requirements.”
“That was one of our biggest concerns, was would the actuarial value be set at a level that would allow most of the current HSA-type high deductible plans to remain in existence?” says Trussell. “And if there’s a public plan offered as part of the insurance exchange, and if will it be reimbursed at Medicare rates, (other) health plans are going to be really hard pressed to even stay in business. If it’s at more competitive rates, then I think that health plans that offer creative benefit packages at a good price are going to continue to succeed, and consumer-driven plans are going to help them compete.”
What’s really going to happen?
As it is, will reform goes so far as to make it impossible for consumers to choose an alternative that gives them more power over, and better awareness of their health spending? Will new provisions rule out CDH plans simply because they don’t cover enough of the required share of health care costs? Or is it more likely that employers, pressured by a mandate and rising health costs will gain more interest in low-premium, high-deductible health plans with a a tax-advantaged savings account?
It might be too early to tell, but experts have their opinion.
“One of the provisions of the Senate bill that hasn’t yet gotten a lot of exposure is the improvements to employer-sponsored wellness programs to allow for discounts of up to 50 percent,” says Trussell. “I think this will drive carriers to tie wellness programs more closely to their CDHPs, perhaps by developing more integrated programs for tying employer contributions to account-based plans to participation in wellness programs. Also, the threat of the $750 per-employee penalty may make some smaller employers look at options for offering a health plan. The lower cost of CDHPs should be attractive to these types of employers.”
Ultimately, according to Short, no one knows what’s really going to happen. “The only thing that’s for certain is that it’s not something they can institute for 2010 and they’re not going to try and institute it for 2011, so, then the question is when will any new reform actually come through?”
And to industry veteran Greg Scandlen, a senior fellow of The Heartland Institute and founder and director of Consumers for Health Care Choices, the question becomes more than when, but if?
“I think it’s very unlikely that even if they pass legislation it will ever be implemented because it is too massive. There’s too much at stake, there are too many stakeholders and the process of divvying up the health care pie between the various interest groups is impossible for any government, any commission, any legislature to do,” Scandlen says.
Political debate aside, research has shown consumer-driven health plans have played at least some part in curtailing rising health benefit costs - especially among small employers. A recent Mercer study found CDHP offerings among employers with 10 to 499 employees jumped from 9 percent to 15 percent in 2009. This, according to the study, helped to stunt health benefit cost growth. The increase was at 5.5 percent, the lowest in a decade.
But employers aren’t holding their breath for a resolution any time soon, nor should they. They’re faced with the here and now, Scandlen says - the reality of hard economic times, a rising jobless rate and the difficult task of staying competitive.
“Employers have to deal with today’s reality. They look at prices going up, they look at the recession, they look at unemployment and how to retain the people they want to keep. The consumer-driven approaches are more attractive today than they have ever been and employers have to make benefit decisions now. They can’t let political happy talk get in the way. I’m very optimistic that ultimately, consumer-driven approaches are here to stay and will grow substantially.”