Health Care Reform Impacts CDHPs at Many Points

Consumer-directed plans have experienced rapid growth since reform, but regulatory hurdles loom

By Stephen Miller, CEBS March 21, 2012

The rate at which U.S. employers are adopting consumer-directed health plans (CDHPs) as an option—and increasingly as their sole offering—for their employer-provided coverage has accelerated since passage of health care reform in 2010, said William Giaconia, insurance provider Cigna's vice president for consumerism products. "CDHPs are growing because they work" to promote cost consciousness among plan members, according to Giaconia, who spoke at the Business Health Agenda 2012 conference, sponsored by the National Business Group on Health on March 7-9 in Washington, D.C.

CDHPs refer to health savings accounts (HSAs) funded by employers or employees, which must be linked to high-deductible health plans with lower premiums than traditional plans, and to employer-funded health reimbursement arrangements (HRAs), which are not required to be linked to high-deductible plans but often are. (To learn more, see the SHRM Online article "Consumer-Driven Decision: Weighing HSAs vs. HRAs.")

"Health care reform's impact on CDHPs has so far encouraged more employers to consider account-based plans to lessen consumers’ insulation from actual health care costs," explained Giaconia, who noted findings from the 2011 Kaiser Family Foundation/Health Research & Educational Trust Health Benefits Survey showing that 17 percent of covered workers in the U.S. were enrolled in a high-deductible health plan with a savings option in 2011, up from 13 percent in 2010 and 8 percent in 2009.

Giaconia's optimism about the future of CDHPs under the Patient Protection and Affordable Care Act (PPACA) echoes that of other health care experts, includingStephen T. Parente, director of the University of Minnesota’s Medical Industry Leadership Institute. In an interview with HR Magazine, Parente said that "mandates within the legislation will lead employers to favor reduced-premium plans" (see "Unexpected Boost for Consumer-Directed Health Plans.")

Regulatory Burdens

However, others foresee possible hurdles for CDHPs under the PPACA and its accompanying rules, depending on how the regulations are written and whether the relevant provisions of the law are upheld or stricken down by the U.S. Supreme Court. Some of these concerns were addressed by Amy Bergner, a partner at HR consultancy Mercer, during a presentation at the 2012 SHRM Employment Law & Legislative Conference, held March 4-7 in Washington D.C.

Among the regulatory issues that will impact CDHPs, favorably or unfavorably, and in ways not yet known:

Starting in 2011, health plans were required to satisfy the medical loss ratio (MLR) regulations, which determine what percentage of every insurance premium dollar is spent on health benefits. Under the regulation, health insurers must spend no less than 80 to 85 percent of every premium dollar on “health improvement activities," such as medical claims paid by the insurer. In any given year, plans that fall below the MLR threshold are required to pay rebates. However, the MLR calculation currently does not reflect funds contributed to an employee's HSA. This could make it harder for high-deductible plans to meet the MLR threshold compared to low-deductible plans, according toresearchby consulting firm Milliman. "For high-deductible and HSA plans to be viable, both from a consumer and carrier perspective under the PPACA, an adjustment to the MLR formula for the impact of HSAs may be necessary," Milliman concluded.

For tax year 2012, employers must report the value of employer-sponsored health coverageon employee W-2 forms that will be issued in early 2013. Excluded from the disclosure requirements are HSAs, HRAs, health care flexible spending accounts (FSAs) and stand-alone vision and dental plans. While this exclusion could lessen the administrative burden somewhat, it obscures the value that employers add to health benefits through contributions to these accounts.

In 2018, high-value or "Cadillac" plans will be subject to a 40 percent excise tax. The tax is calculated based on an amount in excess of a threshold applied to each employee’s aggregated employee sponsored health benefits, including the value of health insurance premiums; vision, dental and other supplemental insurance premiums; and the employer’s contribution to HSAs, HRAs and FSAs. That could be a disincentive to employers making contributions to these accounts.

Other questions regarding health care reform and CDHPs remain to be determined by future guidance, including:

In 2014, under the "affordability" test, an employee's required contribution for self-only coverage cannot exceed 9.5 percent of the employee's household income (federal agencies have issued guidance allowing employers to use an employee's W-2 wages as a proxy for household income). Still unknown is whether an employer's contributions to an employee's HSA or HRA can be included in the calculation for the affordability test.

In 2014, individual and small group health plans must meet one of four actuarial value levels: 60 percent (a bronze plan), 70 percent (a silver plan), 80 percent (a gold plan) and 90 percent (a platinum plan). Actuarial valuerefers to the percentage of expected costs for benefits covered by the plan. In a February 2012 bulletin, the U.S. Department of Health and Human Services said it is considering using only a portion of an employer's contribution to an HSA or HRA in calculating a plan's actuarial value because only a "portion of these accounts are used towards health in a given year." However,others contend (as Business Insurance reported in March 2012) that all employer contributions to an HSA or HRA should count in the year of the contribution because they can all be spent in that year and that to do otherwise puts high-deductible plans at a competitive disadvantage.

In 2014, state-run health care exchanges are scheduled to become available to individuals and employers in the U.S. with fewer than 100 employees. Still unclear is whether high-deductible, HSA-eligible plans will be offered as an option on the exchanges. A positive sign is that Vermont announced it will include high-deductible plans in its exchange.

Small Group Plans and Essential Health Benefits

The Affordable Care Act defines a small employer as having at least one but no more than 100 employees. However, it provides states the option of defining small employers as having at least one but not more than 50 employees in plan years beginning before Jan. 1, 2016.

Generally, if you have fewer than 100 employees (using the definition for full-time equivalents) you will be purchasing coverage in the small group market.

Starting Jan. 1, 2014, nongrandfathered, fully insured plans in the individual and small group markets and those in the exchanges are required to provide coverage of benefits or services in 10 separate categories that reflect the scope of benefits covered by a typical employer plan.

Self-insured small group plans, large group plans, and grandfathered plans are not required to offer essential health benefits.

Stephen Miller, CEBS, is an online editor/manager for SHRM.​

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