Will the Obamacare Replacement Be Built Upon HSA Accounts?

Republicans (including Donald Trump) have indicated that Health Savings accounts will be a central part of their benefit strategy. HSA accounts have existed for some time and increasingly have been adopted in major employer offerings for their employees in recent years. HSAs allow pretax contributions to be made by the employer or employee to an account which is then used for the purchase of health services by the patient. They are used in combination with a health plan which is structured with a fairly large deductible (by current law- they must be at least $1300 for an individual and $2600 for a family) and an out of pocket maximum (no more than $6550 for an individual and $13100 for a family) which limits the total financial exposure for the consumer. In some cases the deductible is set to be the same as the out of pocket maximum (These are often referred to as “catastrophic” plans). So, a patient with medical costs will use money from the health savings account and other funds they have until they reach the deductible at which time the health plan will begin to pay. Once the out of maximum is reached, the health plan will pay all of the costs. The HSAs currently have a limit to how much can be contributed to them in a given year- $3400 for an individual and $6750 for a family. Please note that usually, the out of pocket maximum in these plans is set well above the annual HSA limit, so the theory is that individuals will build up balances over time that will allow them to have enough money to pay for all of their liability out of the account, should they have a big medical event.

Another related theory is that because the accounts are owned by the individual consumers, that they will be careful in the use of funds when they need medical care- that they will shop around looking for the best price and/or think twice about going to an emergency room instead of going to a physician’s office. And there is some evidence that this sort of thing happens in populations that have HSAs. So, should these kinds of accounts be the basis for the replacement? There are some issues. This design is built for a population that is generally well- that has low expenses in the average year an the less likely possibility of a relatively expensive acute event - like a pregnancy, an injury or some other time limited illness. That pattern fits many people, but not a whole class of people who have chronic conditions which require several thousand dollars a year of services. For example, there has been much publicity around drug pricing for conditions that often run above $500 a month. Patients who need these drugs will never be able to increase their HSA balance over time. And the lower the income, the larger problem this is. The ACA design of a choice of a much richer plan and premium support fits the needs of a patient with chronic disease much better. Another issue is that it is extremely optimistic to think that families on the lower third of the income scale are going to be able to be able to put away enough money into the HSA even if they are generally healthy. And the whole concept is a pretty sophisticated model for the average consumer. It is also important to note that the HSA funding with pretax dollars is far more valuable to high tax bracket individuals than those with low income, so if the goal is to help the needy and sick, this approach is not very efficient in its application of tax policy.

Can these problems be addressed by an approach that uses the high deductible/HSA model as a baseline? Maybe it can to some degree. I can think of a few approaches- 1) the government could deposits in the HSA for lower income people or 2) they could offer a more conventional better benefit plan for low income people with a income based tax credit to be used to offset the premiums. or 3) they could keep the current “medal” plan approach and offer high deductible/HSA model as an option.

So, this is another area to watch. Will be shortcomings of this approach for poor and chronically ill people be addressed or ignored? We will see.