There are many questions about how the healthcare act will actually work, but complex regs just released seem likely to doom the very programs that help us pay for our integrative medical treatments. New Action Alert!
An important provision of President Obama’s Patient Protection and Affordable Care Act (PPACA) requires insurance companies to use at least 80% of premium dollars (85% for large employer plans) on healthcare expenses and quality improvement, rather than on sales, overhead, and profits. If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012.
This requirement is called the Medical Loss Ratio, or MLR. The government estimates that up to 9 million Americans could be eligible for rebates starting in 2012, worth up to $1.4 billion—which is intended to put pressure on the insurance companies to keep their administrative and sales costs as low as possible.
The Department of Health and Human Services (HHS) recently issued its final standards on how to rebate money from insurance carriers that fail to reach the MLR standards. In essence, the new rules of how MLR is computed discriminate against health plans with higher deductibles. Particularly hard hit will be the Health Savings Accounts (HSAs) that help so many of us pay for complementary and alternative medical (CAM) treatments not covered by regular insurance.
A bit of background: The advantage of HSAs for those of us relying on integrative medicine is that we control how the HSA money is used. We don’t need insurance company approval. So we can use that money to pay an integrative doctor whose services would not be reimbursable under a conventional insurance policy. We can then add to the HSA a high-deductible (low-cost) conventional medical policy to cover us in case we need those services—for example, if we are injured in an auto accident.
If high-deductible plans are eliminated, then our only option is to combine an HSA with a much more expensive conventional policy. That will make integrative care completely unaffordable for many. It will also lead to less demand for HSAs. Before long, they would probably disappear. If HSAs disappear, direct consumer control over healthcare would suffer yet another blow. As many analysts have suggested, the fact that consumers do not directly buy medical services explains much of what is wrong with medicine today.
With this background, let’s now return to the new regulations and see why they are a threat to high deductible medical policies and thus to HSAs. The problem is that under the new regulation, any payment for a healthcare service that an individual or family makes, either directly or through an HSA—that is, any payment that’s part of the deductible—doesn’t count toward the requirement that your medical insurer must spend 80 to 85% of all insurance premiums on medical treatments. Only payments for healthcare services that are made by insurers count, not payments by individuals or through HSAs. As with many government regulations, the implications of this may not be readily apparent. Here’s a helpful illustration:
- Let’s say I pay $5,000 for in premium insurance policy which has no deductible. I have $4,000 in medical expenses, which the health plan pays. Because the insurer’s payment comes to 80% of my premium, my health plan is in compliance.
- However, let’s say I pay $4,000 in premium for a policy with a $1,000 deductible, and I still have $4,000 in medical expenses. I pay the first $1,000 directly to meet my deductible, and the health plan pays the remaining $3,000. That’s only 75% of my $4,000 premium, so the plan is not in compliance with the new MLR regulations, and the insurance company would have to give me a rebate, even though I spent $5,000 out of pocket and received $4,000 in medical care in both scenarios.
Sounds like a win-win situation, right? Except that under these circumstances, insurance companies will simply drop plans that have high deductibles.
Only five percent of consumers who have an HSA health plan will have any claims paid by their insurance in the course of a year. Therefore, it is a mathematical impossibility for HSAs to meet the MLR limits when the new HHS rule allows only five percent of HSA payments for health care services to count towards their MLR limit.
This means that HSAs will disappear from the insurance marketplace (the state Health Insurance Exchanges) because they rely on higher deductible policies.
HSAs, FSAs (Flexible Spending Arrangements), and lower-cost plans were specifically mentioned in the PPACA bill—Congress therefore appeared to want them to be available to the public. To further complicate the picture, the Act itself also endangered HSAs, as we have pointed out in earlier articles, by saying that deductibles in all plans would be limited.
The statute says that deductibles cannot exceed $5,000 for an individual under age 30 or $10,000 for a family with parents under 30, and cannot exceed $2,000 for an individual over 30 or $4,000 for a family with parents over 30. However, the statute also says that medical insurance must cover at least 65% of our medical expenses, so even these reduced allowable deductible levels may be reduced further when the 65% requirement is better defined. These provisions of the Act already threatened the existence of HSAs.
The new HHS regulations come along and twist the knife in further by interpreting the Medical Loss Ratio requirement in a way that is completely inconsistent with the continued existence of HSAs. Whether the destruction of HSAs was intended or not, we would argue that these new rules are absolutely contrary to congressional intent.
The good news is that since HSAs are specifically mentioned in the PPACA legislation, they can’t legally be killed by agency regulations, over and above the injury already received from the statute. Please contact your senators and representatives immediately and ask them to intervene to change these new regulations and help save Health Savings Accounts. Please take action today!
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