Side Effects: If You Like Your HSA, Get Ready to Lose It

Alyene Senger / February 24, 2012

Everyone remembers President Obama’s repeated promise, “If you like your health care plan, you’ll be able to keep your health care plan, period.” Unfortunately, Obamacare breaks this promise many times over. One way is through its medical loss ratio (MLR) requirement and the impact it will have on consumer-driven, high-deductible health plans (HDHP) that include health savings accounts (HSA) in individual and small group markets, a new report from Milliman shows.

The MLR requires that insurance companies spend 80 percent of revenue from premiums on medical claims or anything that improves the quality of health care. The additional 20 percent is for administrative and other non-medically related expenses. If the minimum of 80 percent is not met, the insurer must issue a rebate to the consumer.

Obamacare will damage these health plans, even though they’re becoming increasingly popular. According to America’s Health Insurance Plans, “The number of people with HSA/HDHP coverage rose to 11.4 million in January 2011.”

High-deductible plans are typically combined with HSAs, which are used to cover costs before a plan’s deductible is reached. These plans are increasingly popular with consumers, but their structure makes them incompatible with the new MLR rules, since the formula does not take into account contributions to HSAs. The Milliman report explains, “For high-deductible and HSA plans to be viable, both from a consumer and carrier perspective under [Obamacare], an adjustment to the MLR formula for the impact of HSAs may be necessary.” Without recognizing the HSA contribution, HDHPs won’t meet the MLR rules.

Another reason it’s hard for HDHPs with HSAs to meet the MLR requirement is their lower premiums. A reduced revenue from premiums means plans have less to pay for what are generally fixed expenses, making it difficult to keep its non-claim expenses below 20 percent. The HSA Council explains, “For example, $400 of fixed expenses represents 40 percent of a $1,000 premium, but only 20 percent of a $2,000 premium and just 8 percent of a $5,000 premium.”

Another problem is that HDHPs result in fewer claims per year, but those claims tend to be higher-cost. According to the Milliman study, “This lower-frequency/higher-average-cost scenario creates more variability in experience. The variability could result in high claims in one year and low claims in another. This increases the likelihood in any given year that high-deductible plans will fall below the 80% MLR threshold and be required to pay rebates.”

Finally, high-deductible plans require larger annual rate increases, because medical inflation has a greater impact on claim levels with higher-deductible plans. The larger rate increase might disqualify HDHPs in general if the increase qualifies as an “unreasonable rate increase,” which is subject to the discretion of the Secretary of Health and Human Services under Obamacare.

The obstacles Obamacare creates for consumer-driven health plans could lead to their extinction, even though they are an affordable form of coverage that is gaining in popularity.