Law Changes Needed to Fix HSAs, Advocates Tell Congress

House hearing focuses on bipartisan reform ideas

By Stephen Miller, CEBS Jun 11, 2018
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The House Ways and Means health subcommittee is examining how Congress could expand access to health savings accounts (HSAs) and remove restrictions on how these accounts are used.

Approximately 30 percent of employees are now enrolled in a consumer-directed health plan (CDHP) intended to promote health care savings and cost-conscious spending. The most common CDHP design is a high-deductible health plan (HDHP) paired with an HSA, "offered by 80 percent of employers with any type of consumer-driven health plan," HSA consultant Roy Ramthun testified before the subcommittee. In 2004, he was a Treasury Department official who led the rollout of HSA regulations.

Contributions within annual limits by employees or their employers use pretax dollars―one of several HSA tax advantages. Withdrawals for qualified medical expenses are tax free to account holders.

"Eligibility for HSAs should be expanded so that millions more Americans can take advantage of their protection against high out-of-pocket costs," Ramthun advised. "As deductibles have risen dramatically for all plans since the enactment of the Affordable Care Act [ACA], there is a greater need for helping Americans save for their out-of-pocket costs."

The simplest way to allow more U.S. workers to access HSAs, Ramthun said, "is to move to a more flexible health plan design for HSA eligibility instead of the rigid, high-deductible health plan with all its bells and whistles. Americans don't want to hear why they can't have an HSA. They want to know how they can take advantage of an HSA, too."

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

Coverage Restrictions

Since 2004, "there have been few changes to HSAs, even as other areas of the health care system have experienced vast transformation," said Matt Eyles, president and CEO of America's Health Insurance Plans, an insurance carriers' trade association.

A health plan is disqualified from HSA eligibility if it pays for many popular and cost-effective services on a first-dollar coverage or predeductible basis, Eyles said. "These services include telemedicine, second-opinion services, retail clinics, and onsite medical clinics."

Consumers are not permitted to use HSA funds to pay for over-the-counter drugs "that often cost less than prescription medications," Eyles noted. HSA funds "also may not be used to pay for coverage that positively impacts physical, mental and financial health" such as dental, vision and disability insurance.

"While many plans lower or eliminate co-pays for these services as a way of encouraging lower-cost, effective care, current federal regulations disqualify these plans from being paired with an HSA," Eyles said.

Jody Dietel, chief compliance officer at WageWorks, a provider of account-based CDHP benefits, elaborated on this point, noting that many existing HSA rules haven't kept pace with innovative design solutions employers want to use.

For instance, HSA-eligible HDHPs preclude using so-called value-based designs in which the plan pays for high-value medications and services, "such as medications to control blood pressure or diabetes, which can save money by reducing future expensive medical procedures," said Dietel, who also chairs the Employers Council on Flexible Compensation, a trade association.

(Roy Ramthun, Matt Eyles, Jody Dietel and Sherry Glied spoke at the hearing.)

A Benefit for the Rich?

Sherry Glied, dean of New York University's Robert F. Wagner Graduate School of Public Service and a critic of CDHPs, said that HSAs "offer their greatest value to the highest-income taxpayers … [who] have the most discretionary savings available." For these taxpayers, she said, "HSAs offer very valuable tax benefits." However, "high-income taxpayers in high tax brackets are not the ones facing an affordability problem. For less-affluent consumers, CDHPs have not substantially reduced the burden of out‐of‐pocket costs to date."

Given the low level of savings among less-affluent Americans, "it seems very unlikely that CDHPs will be an affordable solution for this group into the future," Glied added. "Policymakers should look to other solutions to improve financial protections from health care costs," such as limiting cost‐sharing to levels lower than now permitted by the ACA, she advised.

Dietel, however, disputed the assumption "that HSAs are primarily utilized by highly paid employees," although her argument hinged on what might be considered "highly paid." Her firm's client data, she noted, shows that the median household income for an HSA account holder is $57,060.

Eyles added that employer contributions help workers with more-modest incomes take advantage of HSAs. Research by the nonprofit Kaiser Family Foundation found, he noted, that approximately 77 percent of HSA enrollees work for a firm that makes annual contributions to employees' HSA accounts. At these firms, the average annual employer contribution is $795 for single coverage and $1,417 for family coverage.

SHRM Backs Proposed Changes

Proposals to expand access to HSAs to make health care more affordable for more people have garnered bipartisan support, according to Chatrane Birbal, the Society for Human Resource Management's director of congressional affairs for health and employee benefits policy. "Employers want to be able to offer the best consumer‐directed options possible, but some of the rules surrounding HSAs and high‐deductible plans should be updated to match the needs of a modern workforce," she told SHRM Online.

Recently introduced bills, such as the Bipartisan HSA Improvement Act, the Chronic Disease Management Act and the Health Savings Act would amend the tax code so that, among other things, HDHPs paired with HSAs could cover chronic-disease medications on a predeductible basis.

The SHRM-supported Bipartisan HSA Improvement Act, for instance, would:

  • Allow HSA-linked, high-deductible health plans to offer predeductible coverage for services and medications designed to manage chronic conditions.
  • Permit the use of HSA dollars for wellness benefits that promote general good health, such as exercise classes and other physical activities.
  • Clarify that coverage of telehealth and second-opinion services are "excepted benefits," not "disqualifying coverage," that employers can offer to employees with an HSA plan.

"As lawmakers seek to reduce health care costs and encourage consumerism, proposals to repeal restrictions on the use of and limits on contributions to HSAs are likely to receive consideration," Birbal said. "SHRM will continue to advocate in support of proposals that will strengthen and support employer-sponsored benefits."

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