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No HSA plans in Health Insurance Exchanges due to MLR rules

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Quote: 

“When I say ‘If you have your plan and you like it,… or you have a doctor and you like your doctor, that you don’t have to change plans..”

“What I’m saying is the government is not going to make you change plans under health reform.”

(Editors note: unless you have an HSA!)

These are well-known comments from POTUS Obama in the time leading up to the passage of The Affordable Care Act, and afterwards as he flew around ginning up support for an incredibly bad piece of legislation. We now know that these comments aren’t accurate, or even, strictly, truthful. And they directly impact so-called Bronze plans, of which HSAs should be a component. Only, they won’t be.

It should come as no surprise that Democrats despise Health Savings Accounts (HSA for short). Their leading left-wing think tanks routinely lambast them. It’s been somewhat hard to understand why the Administration hasn’t been dissing them openly since the passage of Obamacare; now we know why. They are simply going to eliminate them without a shot being fired, due to a complex series of rules and regs that could only be interpreted as willful, and involve the actuarial percentage of benefits paid in each Gold, Silver, and Bronze plan, and the confusing effects from a price control enacted for political purposes.

The Medical Loss Ratio (MLR) Rule is the culprit. HSAs, under this regulation, cannot qualify.

The MLR Rule requires insurers to spend no more that 20% of premium on administration in the small group and individual markets and 15% in the large-employer market. This spells trouble for high-deductible health plans in exchanges, since only 5% of those with an HSA qualified health plan in a year have any claims paid by their insurance.

HSAs, in summary, are high deductible plans that allow cash to be set aside in a fully tax-deductible savings plan to be used to pay for out-of-pocket expenses before the deductible is met. HSA-qualified health insurance policies are usually lower cost than many fully-featured health plans, and are especially well suited for many small business sole proprietors, or others who believe saving money to pay for their own out-of-pocket costs is better than giving it to an insurer, who is in essence subsidizing other health insurance claims with their dollars.

Here’s part of the problem: payments made by an insurer for health care expenses count towards meeting the MLR Rule; payments by individuals out of their health savings accounts do not. Taking into account the complex rules for “credibility adjustment” and “cost-sharing adjustment” for companies that sell high-deductible plans, HSA-qualified or not, it appears that, given the lower claims-paying of HSA  or other high deductible plans, it is mathematically impossible for any plan to meet the MLR of 80%. This would mean no Bronze plans in the Exchanges, since they cannot meet the complex and required Minimum Loss Ratio Rules.

Obviously, plans with higher deductibles are being intentionally disadvantaged by this arcane formula because they cannot count claims incurred below the deductible. Since Bronze plans under the PPACA cover 60% of the benefit costs of the plan, it seems unlikely that HSA plans will be eligible under this scenario, even though the original guidance showed HSA plans as being eligible based on their deductible range (See here). Further, the carrier must still process claims below the deductible to track deductible expenses, but no cost of that processing can be applied to the MLR’s.

I draw my final conclusions from this study prepared by the HSA Coalition:

“Clearly, the MLR adjustment factors for cost-sharing and credibility help companies offering high deductible plans but only if they have low enrollment. Most [insurance] companies will likely see little benefit because the adjustments end up being minimal and ultimately disappear because of the way the MLR formula is constructed. In the short-term, this could limit future growth of HSAs in the fully-insured markets (individual, small group, large group) and put extra pressure on premium pricing to minimize potential rebates. Insurance companies (especially the current market leaders) may be encouraged to sell more expensive plan designs with more first-dollar coverage (e.g., HMOs and traditional PPOs)because it will be easier to meet the MLR requirements. The result could be a future market dominated by more expensive plans, dramatically reducing affordability of coverage and adding significantly to the costs of income-based subsidies provided under the law, since the subsidies are based on the weighted average premiums for Silver plans in the “market area.”

The end result will be that the exchanges will likely be dominated by high-cost health plans with few lower cost options available, leaving people out of the market – until they desperately require health insurance coverage. This will quickly drive up the cost of coverage, expanding the subsidies needed to pay for it.

A summary of the problem is here. And, here is a detailed article on MLR’s Potential Effect of HRAs and HSAs.

UPDATE on 2/26/12 – Quote: “The obstacles Obamacare creates for consumer-driven health plans could lead to their extinction, even though they are an affordable form of coverage that is gaining in popularity.” See this link.

 

 

 

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