High-deductible health plans and the health savings accounts (HSAs) that link to them are becoming a familiar fixture on the insurance landscape, even though they get mixed reviews from many consumers and health-policy experts.
Rising costs make the plans attractive to employers because they are cheaper than comprehensive coverage. And the new health-care overhaul makes only minor adjustments to the plans. But some supporters worry that bigger changes might be in store.
Plans with high deductibles - ones that have annual deductibles of at least $1,200 for individuals or $2,400 for families if they're linked to an HSA, for example - are a key element in "consumer-driven health care," an approach based on the idea that people will make smarter, less wasteful health-care decisions if they have a bigger financial stake in their own care. The plans started going mainstream after a 2003 law created HSAs that link to some high-deductible plans. The accounts allow people to put money aside tax-free to cover deductibles and other medical expenses. Employers and employees can both contribute to the accounts, but the money belongs to the workers, who can take it with them if they leave their jobs. (Money deposited in a flexible spending account, in contrast, disappears at year end if it's not used.)
The health-care overhaul law makes two specific changes involving HSAs: Starting in January, you can no longer use those funds tax-free for over-the-counter medications unless they're prescribed by a doctor. In addition, if you use your HSA for nonmedical expenses, you'll be hit with a 20 percent penalty instead of the current 10 percent.
Many Democrats say HSAs are a tax shelter for healthy, affluent people who can afford to sock money away and leave it there to grow. A 2008 Government Accountability Office report found that the average household [see note below] income of people with HSAs was $139,000, compared with $57,000 for all other taxpayers. Critics also say that requiring people to dig deeper into their own pockets to pay for health care encourages them to cut back on care they need.
More employers are adding high-deductible plans to the mix of health plans they offer or using them to replace their traditional plans. In 2009, about 12 percent of employers offered workers a consumer-driven health plan, and many more said they plan to do so, according to an Employee Benefit Research Institute analysis. Bigger companies were most likely to offer them: More than 40 percent of companies with more than 10,000 workers did so. But the plans also have fans among small business owners, because of their lower costs.
The plans are likely to become more popular with time. "As costs rise, it makes the high-deductible plan more attractive, because it's one way to keep premiums down," says Paul Fronstin, director of EBRI's health research and education program.
Some insurers who offer high-deductible plans say the health-care overhaul is imposing new regulations that will make it harder for them to operate. Earlier this month, nHealth of Richmond announced that it was shutting its doors, saying its business model couldn't be sustained under rules that will require insurers to spend 80 to 85 percent of the amount they collect in premiums on clinical services and quality measures, or give customers a rebate. Some news reports, however, suggested that the new law was a convenient excuse for a company that was losing money anyway.
"In my view, this was the first shoe to drop, and I'm wondering if there will be others," says Roy Ramthun, president of HSA Consulting Services, who was an adviser to former president George W. Bush on the rollout of HSAs. Ramthun worries that more insurers such as nHealth will fold, and prices will rise as competition wanes.
Ramthun also says he's concerned that the high-deductible plans might have trouble complying with regulations that will be set for health plans sold on the exchanges (new marketplaces that will begin selling insurance to individuals and small businesses in 2014). Those rules might require lower deductibles, for example.
T.J. Daly is worried, too. The president of StreamLine TimberWorks, a home design and construction company in Floyd, Va., Daly will lose coverage for his own family and for eight of his employees when nHealth closes. Even though his company has been funding the entire deductible amount ($1,500 for individuals and $3,000 for families) through HSAs, going with the high-deductible plan had enabled him to trim his company's health-care costs by 30 percent.
After nHealth announced it would close, Daly met with his insurance agent and learned that there are probably few other insurers in the area that offer HSA-compatible plans that meet his needs. "As a small-business owner, you're just kind of trapped," he says.
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