Edit: Commenter Free By 50 has pointed out that guidance has been issued on employer paid contributions to an HSA or an HRA. You can find that calculator on the Center for Consumer Information & Insurance Oversight website. I was only able to open it in a recent version of Microsoft Office – YMMV.
I don’t know who came up with the morbid phrase, “there’s more than one way to skin a cat”, but a similar quote could be applied to the machinations currently happening behind the scenes on the 2014 implementation of the Patient Protection and Affordable Care Act (you may know it by the vernacular, ‘Obamacare‘). That’s right – that’s the law that infamously squeezed through the House of Representatives on a 220-215 vote, after some legislative trickery to avoid a re-vote in the Senate after (ex) Senator Scott Brown’s surprise election to Congress.
What do I mean by that quote above? Well, let’s consider an example: (with apologies to my sister and her strawberry-blonde hair).
Let’s say I wanted to enact a law that deported all red-heads. I could, of course, pass a law that had text that stated “All persons who have red hair will be deported.” That might not be the brightest idea – perhaps my party has been accused of bias against red-heads, or red-heads have done something seen as against my party’s ideals (and this would appear to be legislative sniping at red-head ideology). In that case, I could instead rephrase the law to say, “We will deport everyone with the exception of [list of favored demographics]“. Once there is a positive list? The aims of my law are complete, and red heads are shipped abroad.
Outsourcing the Controversial Decisions
There is actually a third option. I could leave the full details of the law incomplete by using ambiguous language, so that the outcome that I desire – red-head deportation – can be blamed on a bureaucratic process, subordinate, or computer. Let’s switch back to reality here, since obviously the Constitution won’t let me get rid of our red-headed friends: HSAs, or Health Savings Accounts are greatly popular amongst people who have the option and have elected to participate.
A HSA, or Health Savings Account, is best compared to an IRA for medical spending. Contributions up to a (legally-defined) maximum and distributions to pay for medical care are tax-free at the federal level, so long as the expense was incurred after the account was opened. You see the benefit – you could pay immediately from the account, or engage in HSA arbitrage to effectively open a shadow IRA – shielding money from taxes for years.
So, how does that work out in 2012 (I’m using real numbers here):
My wife and I had medical benefits with a cost of around $9,300 in 2012, according to my employer (a high deductible health plan, no children, employer paid). We contributed $6,250, and our family deductible was $2,400. We made it into the second tier, spending around $2,700 or so, and the second tier of coverage is split 90/10 with the insurer picking up the lion’s share – so we consumed about $5,100 in medical care in the year.
Win-win, right? We had a plan we were very happy with, and the grand total was ~ $10,000 employer contribution for a benefit of $5,100. We also contributed $6,250 to an H.S.A. Therein lies the problem – even though a $10,000 account would not be classified as a ‘Cadillac Plan’ (incurring additional taxes on family plans over $27,500), the plan runs up against an issue with the value we calculated earlier.
On Actuarial Values and Backdoor HSA Bans
So you can follow along, here’s a link to the law from the Government Printing Office. We are concerned with the ‘tiers’ of coverage, specifically the lowest tier (akin to the minimum necessary coverage), which states (page 167 in the PDF):
“(A) BRONZE LEVEL.—A plan in the bronze level shall provide a level of coverage that is designed to provide benefits that are actuarially equivalent to 60 percent [emphasis mine] of the full actuarial value of the benefits provided under the plan.” – page 167
And, for good measure, what demographic can avoid those requirements?
“(1) IN GENERAL.—A health plan not providing a bronze, silver, gold, or platinum level of coverage shall be treated as meeting the requirements of subsection (d) with respect to any plan year if—
(A) the only individuals who are eligible to enroll in the plan are individuals described in paragraph (2);” – page 168
“(2) INDIVIDUALS ELIGIBLE FOR ENROLLMENT.—An individual is described in this paragraph for any plan year if the individual—
(A) has not attained the age of 30 [emphasis mine] before the beginning
of the plan year;” – page 168
Now, I may hail from a lawyer-heavy family, (and a lawyer-heavy group of friends) but I am not a lawyer. Even if I was, the language of the law is ambiguous specifically to allow regulations to be made to cover the gaps – and no one can predict entirely how those gaps will be filled. Regardless, the text of that paragraph is stating that if you are under 30 at the start of a year you can avoid the requirements of the ‘bronze’ coverage. And what’s the issue? My insurance may have provided 54.8% value to me, and maybe that translates into 60% actuarial value across the population enrolled, but we are ignoring a very important, undefined distinction: How will HSA contributions be treated?
And that treatment, of course, falls to the Secretary of Health and Human Services or her subordinates to define. If they decide to define HSA contributions not as a benefit to me but as a ‘cost of insurance’? Suddenly the value of my plan falls to 32.8% – and the actuarial value of the plan as well! This is no doubt by design – the majority of HDHP/HSA participants are younger and healthier, thus have lower health spending (even lower than our moderate spending). Shifting those participants off consumer driven plans like HDHPs would be an effective boon for ‘Full Cost’ plans, and an effective subsidy for older, more expensive (medically, in this instance) demographics.
The End is Nigh?
So, if you’re under 30? You’ll probably still have access to those HSAs for a few more years. If you are over 30 with a HDHP/HSA combination, or if you will be by the time 2014 rolls around – the flick of an unelected official’s pen might end your opportunity to participate.
So your guess is as good as mine – all of the provisions which might possibly end HSAs (at least for people over 30) are already encoded into law, and everything is set up for politicians to shift the blame to unnamed bureaucratic subordinates from themselves. That doesn’t mean that HHS will necessary do that – but Democratic administrations have historically been against the HSA, so if you’re betting against it, make sure you get odds.
How do you think this will play out? Will you be able to keep your HSA and HDHP combination beyond 2014?