One of the biggest challenges facing the country right now is getting skyrocketing medical costs under control. The hope of proponents of the health care reform law that the Supreme Court upheld last month was that it would help reduce overall costs.
But it now appears that one of the effects of the Affordable Care Act will be to eliminate a popular method of cutting health insurance costs. High-deductible health plans won’t be able to meet regulations set by the Department of Health and Human Services, which means the use of such plans in conjunction with health savings accounts could disappear.
What HDHPs Do
With homeowners insurance and many other types of coverage, customers can choose from plans with a range of deductibles that apply before benefits kick in. The higher the deductible, the cheaper the policy — but the more you have to pay out of pocket before the insurance company starts to pick up the bill. The idea behind high-deductible health plans is the same.
HDHPs got a big boost in 2003, when the government created health savings accounts. HSAs allowed people to set money aside to help cover deductible payments and reap tax benefits, in the form of a tax deduction for money contributed to the HSA. According to the HSA Coalition, 11.4 million people had HSA plans as of January.
Why HDHPs Could Go Away
The problem with the new law, as the HSA Coalition sees it, is in the way that it calculates medical loss ratios. Under health care reform, insurance companies in the small group or individual market have to spend 80% of the premiums they collect on medical costs, with only 20% going to administrative and other costs. Another section of the law addresses plans that are eligible for exchanges, which many individuals and small businesses will rely on for coverage.
As you might expect, the calculations get complicated in a hurry. But the big issue is that under regulations from HHS, the amount that patients spend out-of-pocket to pay their deductibles on HDHPs isn’t included as a medical cost for purposes of determining the medical loss ratio. Rather, only expenses that the insurance company pays count as medical losses to meet the guidelines.
Under most health-insurance plans, the HHS regulations would make sense. Counting copayments or other out-of-pocket costs under plans designed to provide comprehensive coverage would make the entire idea of a medical loss ratio meaningless.
But with health insurance that carries high deductibles, the intent is a lot different. These policies used to be called “catastrophic health insurance” because their initial purpose was only to cover costly injuries and illnesses that most people wouldn’t face in any given year. The HSA Coalition cites figures that only 5% of policies end up with claims that exceed the deductible amount.
Massachusetts residents have already seen changes to HDHPs under Romneycare, the state health insurance reform plan which many say provided the model for the federal plan. Under Massachusetts law, high-deductible plans only meet standards for minimum creditable coverage if they go beyond federal requirements in several ways, including offering preventive care visits that aren’t subject to the deductible, covering a broad range of medical benefits, and not imposing limits on certain services. Moreover, HDHPs must be offered alongside HSAs or health reimbursement arrangements.
At best, as Forbes observed when an early version of the regulations was floated, costs for high-deductible health plans could rise significantly. At worst, insurers may simply choose not to offer them.
Losing HDHPs might not seem like a huge deal. But they actually represent one of the best chances to rein in health-care costs over the long haul, for one key reason: They give you the patient an economic incentive to pay more attention to what you spend on your care. Without such incentives, the current system, in which it’s almost impossible even to find out what you’ll pay for care — let alone try to negotiate more reasonable charges — will continue to lead to the inefficiencies that made reform necessary in the first place.
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Motley Fool contributor Dan Caplinger was annoyed to lose his high-deductible plan when he moved to Massachusetts, although he’s fortunate enough to have decent coverage (at least for now). You can follow him on Twitter here.