When the details of PPACA emerged in 2010, many of us feared that the law would place severe restrictions on High Deductible Health Plans and Health Savings Accounts. These complimentary products reward consumers with premium savings and tax deductions. The law made no changes in HSA contribution or deduction limits although it did impose lower deductible limits on Qualified Health Plans.
About 30% of consumers currently take advantage of HDHPs and HSAs, often with significant savings for themselves and the health care delivery system as a whole. However, recent discussions of the new Minimum Loss Ratio (MLR) rules have brought to light a ticking time-bomb in PPACA. MLR rules might make High Deductible Health Plans unworkable for insurers.
Since HDHPs dramatically reduce claims but only marginally reduce administration costs and commission costs, the math might no longer work.
Here’s a hypothetical example: Male - n/s age 35
High Benefit PPO Plan – $500 deductible - Annual Premium $ 3,768
Typical Admin Expense $ 754
Hypothetical Average Claims $ 3,014 (80%)
High Deductible Plan - $3,000 deductible - Annual Premium $2,208.00
Hypothetical Admin Expense - $700
Hypothetical Average Claims $ 1,508 (68%)
Although this hypothetical HDHP contract released $1,560 in premium savings to the consumer, it doesn’t meet the 80% MLR test and therefore might have to be pulled from the market. Carriers that I’ve contacted acknowledge that the MLR arithmetic is working against them. They are concerned but would probably not pull HDHP plans from the market before 2013.
Will PPACA kill the HDHP market? Hard to tell, there are lots of possible scenarios before 2013. However, if PPACA stands, the numbers don’t look good. Perhaps it’s time for carriers and brokers to kick their creativity into high gear. Don’t be surprised if you see major carriers introducing some innovative products including shared-funding arrangements for small groups of 5+.
In Colorado, Senate Bill 200, the Health Benefit Exchange bill, states that its goal is to provide consumers with greater access, affordability and choice. Looks like someone needs to tell Washington about the “choice” part.
JL Sugden
Is there anybody advocating for the continued use of HDHPs and HSAs given there proven ability to control costs and bring consumers in touch with utilization?
ReplyDeleteThank again for your great insight. I love my HSA!
ReplyDeleteChris Bogott
A good number of Congressional Republicans are advocating aggressively for HDHPs and HSA along with the Heritage Foundation and John Goodman at the Center for Policy Analysis. Many on the Left feel that HDHPs and HSAs are tools available only to the "rich" and therefore unfair. This is the thinking that seems to pervade PPACA and the design of "Qualified Health Plans" I think that we'll see a real fight over this issue in 2012.
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