Draft Executive Order Would Expand High-Deductible Coverage for Chronic Conditions

If signed, prescription drugs for chronic diseases could be covered outside the deductible

Stephen Miller, CEBS By Stephen Miller, CEBS July 14, 2017
Draft Executive Order Would Expand High-Deductible Coverage for Chronic Conditions

President Donald Trump's administration is considering a draft executive order that would allow enrollees in high-deductible health plans (HDHPs) to receive insurance payment for the treatment of chronic conditions—including prescription medications—before meeting their plan deductible.

The order "would make HSAs more attractive to millions of people, improve patient outcomes and lower total health care costs in the U.S.," by directing the IRS to allow HDHPs the flexibility to cover health services for chronic conditions, said Mark Fendrick, M.D., director of the University of Michigan's Center for Value-Based Insurance Design, who spoke on July 12 at the Employee Benefits Research Institute's (EBRI's) Policy Forum on HSA-Eligible Health Plan Enrollment in Washington, D.C.

The directive is one section in a larger draft order on prescription pricing and innovation that was "leaked" on June 20 and has not yet been formally issued.


Source: EBRI Policy Forum, HSA-Eligible Health Plan Enrollment (July 12, 2017).

While Senate Republicans try to cobble together a majority to pass their bill to repeal and replace the Affordable Care Act (ACA), the draft order wouldn't require congressional approval.

Under current IRS rules, an HDHP that can be linked to a health savings account (HSA) is only permitted to cover preventive care outside the deductible. Even though chronic conditions, such as diabetes and heart disease, are likely to worsen if untreated, HDHPs can't pay for their ongoing treatment until the deductible has been met. For 2017, HDHP minimum deductibles are $1,300 for self-only coverage and $2,600 for family coverage, and many HDHP plans set their deductibles much higher than the baseline minimum.

If signed by President Trump, the executive order "would allow HSA-eligible health plans to provide first-dollar coverage for the chronically ill," said Tracy Watts, U.S. leader for health care reform at Mercer, an HR consultancy in Washington, D.C. "Expenses for services to manage chronic illnesses would not be subject to the deductible."

Such a change "would go a long way toward encouraging more employers to offer these plans and would boost enrollment" in HDHPs, Watts said. But since the executive order is only a draft at this point, "the timing is uncertain," she noted. Also, details on the drugs and services that would qualify under the order's safe harbor provision would come from the IRS after the order is signed.

This possible change would be popular with plan sponsors and employees, Watts said. According to Mercer's data:

  • 53 percent of large employers (500-plus employees) and 21 percent of small employers in the U.S. offer HSA-eligible HDHPs.

  • 24 percent of employees with employer-sponsored health care are enrolled in HDHP plans.

If the executive order is signed, coverage of chronic conditions outside of the deductible would help to accelerate offerings of HDHPs by employers and make these plans more attractive to employees, Watts said. "Coverage for chronic conditions helps address concerns that people don't get care they need with HDHPs," she noted. "Chronic condition management is a good investment. It can prevent the need for more costly care and support productivity."

But would expanded coverage for chronically ill plan members drive up the cost of HDHP plans, whose chief attraction is that their premiums are considerably lower than traditional health plans?

It would depend on the plan design and how many new enrollees in the plan have chronic conditions, Watts said.

"HSA-eligible plan premiums could increase," but would still be lower than premiums in a traditional plan, and "there would be the offsetting value" for employers if more employees choose to enroll in a lower-cost HDHP plan option.

Employees with chronic conditions who are covered by an HSA-eligible HDHP would also face the same disincentives to seeking unnecessary health care services—in their case, services unrelated to their chronic conditions—that all HDHP enrollees encounter: out-of-pocket spending for health care services until the deductible is met. "Overall, this provision [in the executive order] looks as if it could be a net saver," Watts said.

'First-Dollar' vs. Just 'Pre-Deductible'

Preventive care under the ACA is covered on a first-dollar basis with no cost-sharing with enrollees, and there is some confusion about whether the executive order calls for paying for chronic care treatment on a first-dollar basis or not.

During a panel discussion at the EBRI forum, Fendrick expressed his view that "when we're talking about expanding coverage in high-deductible health plans, it is not first-dollar. We argue that you should be able to have coverage of chronic condition services [but] that doesn't mean there has to be zero cost to the patient. They should be covered the same way as my patients who are in PPOs, with a co-payment or co-insurance." In other words, "just pre-deductible coverage, that's what we're trying to change in the IRS safe harbor."

Fendrick also called for "smarter deductibles" targeting over-used, low-value services on which consumers spend billions each year but which "don't make Americans any healthier."

Greater Employer Flexibility

"As health care costs continue to rise, there has been an uptick in employers modifying their health care benefit offerings to include high-deductible health plans to manage costs," said Chatrane Birbal, senior advisor, government relations, at the Society for Human Resource Management. "The change to the IRS rules included in the draft order would allow employers to continue to implement strategies to improve health benefit offerings in addition to lowering overall health care costs."

In addition, other proposals that would repeal restrictions on the use of, and limits on, contributions to health savings accounts, flexible spending accounts and HDHPs "would enable employers to design and implement health benefit plans that meet the needs of the workforce."

A number of HSA and FSA reforms are included in the Republican House and Senate bills to repeal and replace the ACA. If the GOP effort to replace the ACA fails, those proposals and others could be introduced in separate legislation, or as part of a bipartisan effort to shore up the ACA, Birbal noted.

[SHRM members-only toolkit: Managing Health Care Costs]

Medication Compliance Concerns

An indication of how the change described in the draft order would promote adoption of HDHPs was provided by Bob Foley, director of employee benefits at Mutual of Omaha in Omaha, Neb., who discussed at the EBRI forum why his company does not currently provide an HDHP-HSA option for its employees.

"We could certainly do an HSA-qualified plan," he remarked, noting that Mutual of Omaha offers several traditional preferred-provider organization health plans plus a flexible spending account (FSA). Forty-four percent of the company's employees participate in the FSA, with an average employee contribution of $1,600 per year, "so I could very easily switch this over to an HSA," he said.

Among the reasons he hasn't done so, Foley explained, is that under an HDHP-HSA plan, aside from preventive care, "everything has to be covered after the deductible. A major issue for us is that plan members would have to meet a deductible before they got pharmacy coverage," including for chronic conditions. "That was huge to us."

He added, "our conclusion was that people wouldn't be compliant with their meds, and I think we're seeing that happening with [other] HSA plans."

A related issue, Foley pointed out, is that "when pharmacy out-of-pocket spending is counted under the deductible threshold and the out-of-pocket maximum, people who have large pharmacy needs"—such as plan enrollees with chronic conditions—"meet their deductibles and their out-of-pocket limits faster." 

Once enrollees surpass the plan's annual out-of-pocket limit, it removes any further incentive for cost-conscious use of health services. "There's no consumerism going on because everything's now paid at 100 percent," he noted. "That was another thing that we didn't like."

Next Steps?

"The timing for finalization of this draft provision is not clear," according to an online post by Conduent HR Services, which also pointed out that:

The draft is designated “**INTERNAL, DELIBERATIVE, PRE-DECISIONAL, CONFIDENTIAL, PRIVILEGED**,” indicating that the content may change before it is finalized, or that it may not even be finalized.

Nevertheless, "This draft executive order, if finalized as proposed, may address some plan sponsors’ concerns about offering HDHP plans," Conduent noted.

Related SHRM Articles:

How HR Can Help Control Prescription Drug CostsHR Magazine, June/July 2017

HSA Enrollment Rises but Misunderstanding Still Common, SHRM Online Benefits, May 2017

IRS Sets 2018 HSA Contribution Limits, SHRM Online Benefits, May 2017

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