How Obamacare Will Make Health Savings Accounts More Costly

WASHINGTON - AUGUST 19: Health and Human Services Secretary Kathleen Sebelius speaks during a news conference on August 19, 2010 in Washington, DC. (Image credit: Getty Images North America via @daylife)

In February, the U.S. Department of Health and Human Services issued a “guidance bulletin” regarding the compatibility of health savings accounts with Obamacare’s insurance regulations. According to HSA expert Roy Ramthun, the news isn’t good. “HSA plans will not be as affordable as they are today,” says Ramthun.

It all hinges around a technical term called “actuarial value.” Actuarial value is an insurance concept that defines, on average, the fraction of costs that a particular insurance plan will cover, versus requiring the beneficiary to pay directly. For example, a health insurance plan with an actuarial value of 70 percent would, on average, require its beneficiaries to directly pay 30 percent of the covered health expenses, through co-pays, deductibles, and the like. The rest would be paid indirectly, through the insurance premium.

The problem is that health savings accounts aren’t really compatible with conventional “actuarial value” calculations. If you have a consumer-driven health plan consisting of high-deductible insurance and a health savings account, and you don’t count the HSA as a “health expenditure,” the actuarial value of your plan could be extremely low. On the other hand, if HSA savings are counted as a form of health spending, the actuarial value of your plan could be quite high.

As usual, under our new health law, the government gets to decide these things on our behalf. Sections 1302 and 1402 of the Affordable Care Act regulate insurance plans offered in the individual and small-group markets (i.e., the markets for insurance for those who buy it on their own, and for small companies with less than 100 employees). Plans are required to have a minimum actuarial value of 60 percent (the “bronze plan”). I’ve written in the past about how this provision in the law will substantially drive up the cost of insurance, and damage the private insurance market through an adverse selection death spiral.

“The guidance is a mixed bag,” says Ramthun. The HHS guidance does allow employers to include the contributions they make to health savings accounts or health reimbursement accounts (HRAs). But contributions that individuals make into their own HSAs or HRAs won’t count. That’s particularly harmful to people who buy insurance for themselves on the individual market.

In the wonky language of the guidance bulletin: “In calculating the combined [high-deductible health plan] and HSA or combined employer health benefit plan and HRA, the [actuarial value] calculation would assume that the employer contribution to the HSA or HRA is used by the employee to pay for cost-sharing. Accordingly, these amounts would be credited to the numerator of the AV calculation…In the individual market, we intend to propose that HSA contributions paid directly by the individual would not count towards AV.”

“This will make it much more difficult for high deductible plans to meet the minimum actuarial value standard of 60 percent,” says Ramthun. “If they can’t, these plans will either not be available, or these plans will have to raise their values by covering additional benefit expenses. This in turns means the premiums will have to be increased to cover the additional expenses, meaning HSA plans will not be as affordable as they are today.”

The free-market approach to health care involves going in exactly the opposite direction: encouraging even more people to save money for their own health expenses using health savings accounts. It’s when you pay for something directly that you are most likely to make sure that you’re paying for value. When other people pay on your behalf—whether that third party is a private-sector insurer or the government—you’re not going to shop for value. The examples of Singapore and Switzerland show that paying directly for one’s own care makes a big difference. Obamacare’s central flaw is that the law makes it harder for us to do so.

Follow Avik on Twitter at @aviksaroy.

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Health Savings Accounts Help Consumers Save on Their Taxes and Health Care

INDIANAPOLIS--(BUSINESS WIRE)--

As 2011 W-2 forms and 1099s start arriving in mailboxes throughout the country, now is the time to remind taxpayers with health savings accounts (HSAs) that they have until April 17 to contribute to their HSAs to maximize their 2011 deductions, up to the legal limit.

For 2011, HSA contributions are tax deductible up to $3,050 for individuals and up to $6,150 for families. HSA holders who are 55 and older can deduct an additional $1,000. In 2012, tax-deductible contribution limits have been increased to $3,100 for individuals and $6,250 for families.

Health savings accounts have two components: a tax-advantaged savings account coupled with a high-deductible health insurance plan. In addition to the tax savings, a high deductible health insurance plan paired with an HSA typically costs significantly less in monthly premiums compared to more traditional health insurance while still providing quality coverage, including preventive care.

Savings deposited into an HSA grow tax-deferred and can be withdrawn tax-free as long as the HSA dollars are used for qualified medical expenses, which include health insurance deductibles as well as vision and dental care that are not covered by health insurance plans.

“HSAs make sound financial sense because they enable consumers to save tax-free for their current and future medical needs,” said Richard A. Collins, CEO, UnitedHealthcare’s Golden Rule Insurance Company.

According to a recent Fidelity Investments® survey, “almost seven in 10 (68 percent) of pre-retirees said the cost of medical care in retirement is one of their three biggest financial concerns.”

“Unspent HSA savings can accumulate year after year, earning interest. This helps build up a ‘medical nest egg’ that can be valuable later in life when health care needs can increase significantly,” Collins said.

To learn more about HSAs, visit www.HSAcenter.com, an interactive online resource developed by Golden Rule to educate consumers about the advantages that health savings accounts offer. Golden Rule’s expertise in the consumer-directed health care market goes back more than 20 years when the company introduced the first medical savings account (MSA), predecessor to the HSA.

About Golden Rule

A leading provider of health insurance for individuals and families for 65 years, Golden Rule has been a UnitedHealthcare company since 2003. UnitedHealthcare’s personal health and dental plans are offered in 41 states and the District of Columbia, and marketed under the UnitedHealthOne brand. For more information, consumers can call 1-800-444-8990, visit www.goldenrule.com or contact a local independent insurance broker who offers UnitedHealthOne health and dental plans.

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Health Savings Accounts Surpass $12.4 Billion Accounts in 2011

MINNEAPOLIS--(BUSINESS WIRE)-- Health Savings Accounts (HSAs) surpassed $12.4 billion in assets in almost 6.8 million accounts by year-end 2011 according to a survey and resulting research report conducted by Devenir, an investment firm that specializes in providing investment options for HSAs.

The survey data was collected in January, 2012 and primarily consisted of the top 50 HSA providers in the health savings account market, with all data being collected for the December 31st, 2011 period. “We continue to see strong growth in the HSA marketplace as well as steady increases in average balances,” says Eric Remjeske President and Co-Founder of Devenir.

Key findings from the Devenir December 2011 survey and research report:

Steady growth. HSAs continue to see consistent growth as the total number of HSA accounts rose to almost 6.8 million with assets totaling $12.4 billion, a year over year increase of almost 20% for accounts and a 26% increase in assets for the period from December 31st, 2010 to December 31st, 2011. Average account balance at the end of 2011 grew to $1,841 from $1,751 at the end 2010, a 5.1% increase. When you eliminate identified zero balance accounts that average rises to $2,179. Existing accounts average balances have grown at an average of 31% each year from the year they were opened since 2005. Contributions and Withdrawals industry wide carried forward 24% of their contributions over the past year into 2012. HSA investment dollars continue to grow. HSA investment assets reached an estimated $960 million in December, a 34% year over year increase and are projected to reach $4.7 billion by the end of 2015.

“With the data suggesting that the average HSA balance continues to grow steadily the longer the account has been opened, HSAs are demonstrating that they are serving their purpose and helping consumers save for future healthcare expenses,” according to Jon Robb, Lead Research Associate with Devenir. Devenir projects the HSA market to reach $27.6 billion in assets by the end of 20151. Devenir also projects that HSA investment dollars will continue to grow quickly as health savings account user’s balances become larger, representing 17% of all HSA assets by the end of 2015.

Estimates are derived from the Year-End 2011 Devenir HSA survey, press release and, previous market research.

1 Projections are barring any dramatic regulatory or market environment changes.

Forward-looking statements are based on current expectations and assumptions based on historical growth, the economy, other future conditions and forecasts of future events, circumstances and results.

About Devenir

Devenir, a full-service broker dealer and registered investment advisor based in Minneapolis, is a national leader in providing customized investment solutions to the HSA Custodian marketplace. As an HSA industry leading investment firm, Devenir offers a host of investment options to suit the unique needs of employers, banks, third party administrators and plan participants. www.devenir.com

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