By Roy Ramthun, “Mr. HSA”, HSA Consulting Services, LLC, CMT Contributor
AUGUST 23, 2013 – The Affordable Care Act did not eliminate HSAs as many had feared. The HSA bank accounts themselves were only impacted in a minor way. However, larger changes have been made to health insurance plans, including “high deductible health plans” (HDHPs) that make people eligible for HSAs. In some cases, the impact of the ACA will be very positive for HSAs. In other cases, the effects of the ACA will not be known until more information is available about the plans offered through the state health insurance exchanges.
Regarding the HSA bank accounts, the ACA only made two relatively minor changes. First, funds withdrawn for non-medical purposes are assessed a 20 percent penalty plus income tax. Prior to the ACA, the tax penalty was only 10 percent. The second change requires a prescription from a physician for reimbursement of over-the-counter (OTC) drugs. However, other OTC products (e.g., bandages, medical wraps, etc.) still do not require a prescription.
On the insurance side, the ACA is making numerous changes to health insurance plans, including HDHPs. Two features of HDHPs that will be applied to all insurance plans include: (1) first-dollar coverage of preventive care (no copays or deductibles can apply), and (2) annual limits on out-of-pocket expenses. These two features have been a part of the HSA design since their inception.
The most significant change brought by the ACA requires all insurance plan designs to cover, on average, 60 percent of the cost of benefits covered by the plan. Fortunately, even the highest deductible HSA-qualified plans can meet this standard. This means that HSA plans may be offered in each state health insurance exchange. However, very little information is yet available on the plans that will be offered in each state and their corresponding premiums. Assuming HSA plans are available and are affordable, many consumers may enroll in these plans, especially when the income-based premium subsidies and the requirement to purchase insurance are considered.
But for larger employers who will continue provide coverage outside of the state insurance exchanges, HSAs provide the most affordable option to avoid the “Cadillac plan tax” coming in 2018. Many employers were already switching to HSA plans before the ACA, but now the adoption has accelerated so employers can avoid paying a 40 percent excise tax on the value of employee benefits above the specified amounts for the tax.
Although the ACA did not focus on HSAs and their continued adoption, there are a variety of factors which could lead to robust growth, as described above. This could be one bright spot in the ACA which could help increase insurance coverage while helping keep rising costs under control. For example, the RAND Corporation said in 2012 that our nation could save almost $74 billion per year if half of our workers were enrolled in HSA-qualified plans. That is definitely worth pursuing!