HDHPs with HSAs: Growth slows but changes may be ahead

Coupling a high-deductible health plan (HDHP) with a Health Savings Account (HSA) has been a popular approach for many employers in the wake of the Affordable Care Act.

Approximately 20 million Americans are enrolled in plans following the HDHP+HSA model, according to various estimates. But recent studies show that its growth appears to be tapering off somewhat, even as efforts are underway in Congress to ramp it up again.

Cadillac tax

The slow growth is a bit of a surprise. One might reasonably expect that the looming “Cadillac tax” would prompt more employers to aggressively promote HDHPs+HSAs — or even make them an employee’s only plan option, thereby boosting enrollment dramatically.

In January, Congress pushed back the 2020 effective date for the Cadillac tax to 2022. But that’s still not far into the future. If the tax isn’t further delayed or killed outright, the value of health benefits exceeding inflation-adjusted thresholds of around $10,200 for individual coverage and $27,500 for family coverage will be taxed at a whopping 40%.

Meanwhile, any significant changes in the power dynamics in Washington resulting from the November election could impact the HDHP+HSA landscape, with critical legislation now pending in Congress. (See “Legislation would make HDHPs more flexible.”)

“Stalled” growth

A study published earlier this year by the Employee Benefit Research Institute (EBRI) provides insight on where HDHPs may be headed. The EBRI study, Has Enrollment in HSA-Eligible Health Plans Stalled?, was based on five surveys, including one commissioned by EBRI itself.

Although the various polls came up with different estimates of HDHP enrollment numbers because of differing survey samples, they drew similar conclusions on growth trends. “The surveys consistently find that there was very little growth in HSA-eligible health plan enrollment from 2014 to 2017,” the study concluded.

One survey cited in the EBRI study showed HDHP+HSA enrollment rocketing up at a 20% annual clip between 2010 and 2016, but then growing at only half that pace the following year. Another survey showed enrollment entirely flat between 2013 and 2017.

The number of HDHP enrollees as a percentage of all health plan enrollees was little changed in 2016 and 2017 in the surveys incorporated into the EBRI report. At the same time, the research showed growth in the number of HSA accounts in existence. For example, one of the underlying surveys reported a 20% growth in the number of HSA accounts in existence between 2015 and 2017.

EBRI suggests that the apparent inconsistency might stem from the fact that many HSA accounts remain in existence after an employee has disenrolled in an HDHP, even though employees cannot add new dollars to their HSAs after switching to other health plans. More than one-third (36%) of HSA accounts in EBRI’s database didn’t take in any new dollars in 2016. So, even if net growth of HDHP enrollment is relatively modest, total HSAs in existence could ratchet up.

3 reasons for the slowdown

What’s behind the apparent slowdown in HDHP+HSA enrollment? The EBRI study suggests three possibilities, some of which would be addressed by the aforementioned pending legislation: 

  1. A recent moderation in annual health plan premium increases is dampening employer enthusiasm for HDHPs as a cost-savings strategy.
  2. There is evidence that HDHPs+HSAs “may be associated with a reduction in appropriate preventive care and medication adherence.” 
  3. Under current rules, many employers believe that HDHPs+HSAs “do not provide employers with their desired level of flexibility around design of the health plan.”

Regarding the third possibility, the EBRI study points out that, under current IRS rules, the deductible under the HDHP+HSA model must apply to all health care services, except for certain preventive services. More employers might offer HDHPs if they “had more discretion over which services could be excluded from the deductible,” according to the study.

Potential savings remain

They say every bubble must eventually burst — perhaps the trend toward offering HDHPs+HSAs has simply run its course. But, even if so, this doesn’t nullify the potential cost savings of the model. Don’t dismiss it entirely if you’re considering a change for your organization.

Sidebar: Legislation would make HDHPs more flexible

Back in July, a pair of legislative proposals to broaden the appeal of high-deductible health plans (HDHPs) cleared the House of Representatives with bipartisan support. As of this writing, the Senate has yet to take up the legislation, though the Trump administration has indicated it supports the goals behind the proposals.

One of the measures, H.R. 6311, would, among other things:

  • Allow health plans qualified as “bronze” and catastrophic, as well as “copper” level plans, to offer Health Savings Accounts (HSAs) in conjunction with those plans,
  • Nearly double the amount of money employees could put into an HSA each year, by linking the limit to the sum of the ceiling for plan deductibles and out-of-pocket expenditures, and
  • Allow for a 60-day grace period between the time an employee is eligible to open an HSA and when he or she opens it, enabling employees to use HSA funds to help cover the cost of medical bills incurred before the creation of their HSAs.

The other measure, H.R. 6199, includes provisions that would:

  • Allow first-dollar coverage (limited to $250 for individuals and $500 for family coverage) for whatever medical services the employer chooses to cover, instead of limiting first-dollar coverage to preventive services,
  • Keep direct primary care service arrangements and on-site or retail medical clinics features within a health plan from disqualifying the plan from HDHP+HSA status,
  • Consider certain over-the-counter medical items, including “menstrual care products,” eligible for payment via HSAs, and
  • Allow payment from HSAs for “qualified sports and fitness expenses,” up to $500 for individual coverage and $1,000 annually on a joint tax return.

This or similar legislation, should it ultimately become law, could have a “large impact” on the formation of the HDHP+HSA model, said Paul Fronstin, Ph.D., who’s EBRI’s Director of the Health Research and Education Program and recently authored the Has Enrollment in HSA-Eligible Plans Stalled? study.

© 2018

Published in Healthcare

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