By Cathy Miller, Business Writer
This is the last in our 3-Part series on the consumer plans, the Health Savings Account (HSA) and Health Reimbursement Arrangement (HRA).
In Part 1, we reviewed what the consumer plans are and how they work. With Part 2, we reviewed the participation and asset numbers associated with various consumer plans.
In this last part, we pull out our crystal ball and speculate on the future of consumer plans. We’ll start with provisions in the health reform law affecting these plans.
Part 3: Continuing Education on Consumer Plans: The Future
Health Reform Impact
There were many discussions surrounding consumer plans during the health reform debate. Some of the changes made by the health reform law impact all types of personal health care accounts, while other provisions target specific accounts. Here are some of those changes.
Impacts All Personal Health Care Accounts
This series focused on two types of personal health care accounts: HSAs and HRAs. For purposes of background information, the following is a brief definition of the other accounts impacted by the changes discussed in this section.
- Flexible Spending Accounts (FSAs) – offered to employees by employers – allows employees to set aside a fixed amount of their wages on a pre-tax basis for qualified medical expenses and child care. The fixed amount occurs at the beginning of the benefit period and employees lose any unused funds at the end of the year.
- Archer Medical Savings Accounts (MSAs) – authorized prior to HSAs, MSAs were savings accounts limited to self-employed individuals and employers with fewer than 50 employees. New Archer MSA accounts were not permitted (with limited exceptions) after December 31, 2007.
The following are the health reform provisions affecting HSAs, HRAs, FSAs and Archer MSAs:
Qualified Medical Expense – the definition changed, it no longer includes over-the-counter (OTC) medications, unless a prescription accompanies the purchase. Previously, this was an attractive, qualified expense for individuals with an FSA, where funds are lost if not used by the end of the year. Account holders shopped at the local drug store to stock up on items like aspirin, band-aids and cold remedies to use up their funds. Not surprisingly, there was some abuse, which prompted this change.
Effective Date of Change: 2011
Excise Tax - The much-talked about cadillac plans, with the 40 percent excise tax, include the employer’s contributions to HSAs, HRAs and FSAs, when calculating the benefit value. The excise tax applies to employer-sponsored benefits in excess of $10,200 for single coverage and $27,500 for family coverage. The good news/bad news is this change doesn’t take place until 2018. That could be a good thing, if the provision undergoes changes, so the forecast of the tax impacting 60 percent of large employers does not come true. The bad news is if the provision stays the same, it could have a huge impact on most employer-sponsored health plans.
Effective Date of Change: 2018
Impact to HSAs and MSAs
The only other change related to HSAs and MSAs is the tax penalty on funds used for non-qualified medical or non-medical expenses. The penalty increases from 10 percent to 20 percent.
Effective Date of Change: 2011
Impact to FSAs only
Currently, FSAs have no maximum contribution limit for health care accounts (there is a $5,000 limit for child care). The health reform changes that with a cap of $2,500 annually in FSA contributions to health care accounts.
Effective Date of Change: 2013
Polishing the Crystal Ball
There you have the changes from the health reform law. Since new legislation seldom looks exactly the same on the effective dates, expect more changes.
HSAs appear to be the front-runner in consumer-directed health plans (CDHPs). FSAs and HRAs cannot be coupled with an HSA (except for a limited purpose FSA or HRA).
The complexity of dealing with multiple personal health care accounts has critics amongst many employers and taxpayers, as well. The speculation is for the elimination of FSAs and HRAs. Perhaps that is why the primary focus on change targeted HSAs.
State health insurance exchanges start operation in 2014. At this point, the word is CDHP policies will still be available. Other provisions of the health reform law could impact the high deductible health plans (HDHP) required for HSAs. Some of those provisions include:
- Preventive care – requires new health plans to cover preventive services with no co-payments and it exempts the services from deductibles. Yet to be determined is the definition of what services fall under “preventive.”
- Essential health benefits package – set by Health and Human Services (HHS), health plans must have services with an actuarial value of at least 60 percent.
The health reform changes and the tweaking of those provisions will certainly affect consumer plans. Other provisions that require careful attention are the medical loss ratio and excise tax requirements. All of these changes set the course for the future of CDHPs.
At least in the immediate future, I believe consumer plans survive; however, the products are already much too complex for consumers. The layering of even more regulations present many challenges. On a positive note, that strengthens the role of the insurance professional.
What is your prediction for the future of consumer plans?
Sources: The Henry J. Kaiser Family Foundation and Council for Affordable Health Insurance
Notice of Disclaimer –Cathy Miller and InternetCE are not attorneys and cannot provide legal advice. The information provided is for your general background only, and is not intended to constitute legal advice as to your specific circumstances. We recommend you review legislation with legal counsel.
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Cathy Miller, Business Writer/Consultant has over 30 years of professional writing with a specialty in health care, employee benefits and wellness. Cathy also has an active Life/Accident/Health insurance license. Visit Cathy at her business writing blog, Simply stated business to Keep it simple, clear & uniquely yours