Merrill Matthews, Contributor, Forbes.com
3/27/2013 — It appears that Health Savings Accounts (HSAs) will slip under the Affordable Care Act’s threshold for qualified coverage—although just barely. And given the fact that HSAs, and similar high deductible health insurance options, are about the only type of health coverage bending down the health care cost curve, they may even thrive.
It has been three long years since President Obama and his Democratic allies rammed their widely unpopular health care bill through Congress without one Republican vote. And for those who wanted to ensure that HSAs would survive the reform, it has been a guessing game. Not because ObamaCare killed HSAs overtly, but could have done so covertly.
The reason is a little technical, but I’ll try to make it understandable.
ObamaCare allows four different levels of health coverage to be offered inside the health insurance exchanges: platinum, gold, silver and bronze. These levels must provide a minimum amount of insurance coverage based on a standard known as “actuarial equivalence.” The bronze level provides the least amount of coverage, 60 percent, when compared to the standard. Of course, that also means bronze plans will likely be the least expensive coverage available.
Here’s the problem. HSA plans combine high deductible health insurance coverage, to protect against major accidents and illnesses, with a tax-free savings account used for smaller and routine health expenditures. High deductible coverage reduces the risk faced by the health insurer; but that type of policy usually costs a lot less.
That price break with high deductibles is why the large majority of people who buy their own (not employer provided) coverage choose high deductibles. But employers increasingly have been switching to high deductibles as well.
The question was whether a high deductible policy that meets the standards set by the 2003 law creating HSA plans would also meet the 60 percent actuarial equivalency threshold set by ObamaCare. If the contribution to the HSA—which can be several thousand dollars, often paid in part or in whole by the employer—were included in the calculation, there is no question the HSA plans would qualify. But no one knew if the government would allow the HSA contribution to be included.
Fortunately, it doesn’t have to be. Roy Ramthun, who handled health policy in the Bush (43) White House for a time and now runs his own HSA consulting company, has recently done the calculations. Given the requirements under the HSA law, federally qualified high deductible coverage comes very close to the bronze requirement of 60 percent.
However, ObamaCare gives health plans a little wiggle room: plus or minus 2 percent. That wiggle room allows some federally qualified HSA plans with the highest deductibles (around $6,000) to barely meet the ObamaCare standards, according to Ramthun.
This is great news for two related reasons. First, employers have been increasingly shifting to HSAs. A recent Towers Watson/National Business Group on Health survey found that 66 percent of large companies (1,000 employees or more) offered employees at least one account-based plan option this year, and that number is expected to grow to 80 percent next year.
The second reason is that HSA plans slow the growth in health care spending. For example, a 2012 study from the Rand Corporation, a policy research institute, found that families with consumer-directed health coverage, like HSA plans, spent an average of 21 percent less the first year after switching from traditional coverage. And that if half of those with employer-sponsored coverage were in such plans, health care costs would fall by $57 billion.
That’s because HSAs encourage people to be value-conscious shoppers in the health care marketplace, just like they are in every other sector of the economy.
By contrast, defenders of ObamaCare—including New York Times economist Paul Krugman—do not believe people can make value-conscious health care decisions. Their preferred option is to insulate patients from almost all costs of care—otherwise known as national health insurance—and then control costs by imposing price controls. ObamaCare doesn’t get them all the way there, but it’s a big step in that direction.
However, if individuals and businesses have access to HSA plans, that might help offset the health care spending explosion that ObamaCare creates. Even now health insurers are warning of quickly rising premiums under ObamaCare. So HSA plans may be the only “affordable” option.
But we’re not out of the woods quite yet. Health insurers are going to have to offer HSA options at a reasonable price. One of the dirty little secrets in health insurance is that lots of health insurers offer an HSA plan, but price it so high that the more expensive, comprehensive coverage looks like a better deal.
It would be ironic if HSA plans, which most ObamaCare supporters really dislike, ended up becoming the favorite option among employers and individuals—and significantly slowing health care spending. If that happens you can bet those supporters will take credit for the slowdown, even though most of them never wanted to include HSAs in the first place.