Thursday, December 06, 2012

Why HSA's are ObamaDoomed

Had an interesting discussion yesterday with a North Carolinian colleague. He asked me to share my thoughts on the future of Health Savings Account (HSA) high deductible plans, and it occurred to me that I should probably also share these thoughts with the wider IB audience.

It goes something like this:

Back when HIPAA (remember HIPAA? aka Kennedy-Kassebaum?) was first passed, the focus was almost exclusively on its impact on health insurance. But buried deep within, there was a little provision that would have a great impact on another line of business: long term care insurance.

Nutshell: Pre-HIPAA, long term care insurance (LTCi) benefits were received tax-free. These plans were non-standardized, but had to be approved for sale by state insurance departments.

HIPAA standardized language and benefits, and conferred tax-free benefits status only (and specifically) on plans that met the criteria (ie were standardized). The problem was that it didn't specifically state that non-standardized ("compliant") plans' benefits were tax-free (or taxable).

Carriers decided that it wasn't worth the headache to offer both compliant and non-compliant-plans (guess which ones they chose to market).

The same thing will happen with HDHP's (High Deductible Health Plans). Under the ObamaTax Exchange rules, all plans are standardized ("Platinum, Gold," etc). There's nothing that prohibits carriers from offering non-compliant plans outside the Exchanges, but why would they?

Hence, HSA-compliant plans go by-bye.

Which brings up several interesting questions:

First, what happens to the HSA funds you've already accumulated? No one really knows, but my best-guesstimate is that they'll freeze (no more funds may be contributed), but you'll still be able to withdraw them for eligible expenses (or roll them into an IRA). YMMV.

But what will happen to in-force HDHP's? Or, for that matter, any existing health plan? So-called "grandfathered" plans will be exempted, but the reality is that very few of these will exist come 2014 (and they'll all be gone a year or so later). Carriers will not offer any but "compliant" plans at all (inside or outside the Exchanges). The administrative and accounting burdens would be too great (see: non-HIPAA compliant LTCi plans above). My educated guess is that we'll see this:

Mid to late 2013, all non-compliant plans will be withdrawn from the market.

Beginning with 2014 renewals, insureds (group and individual) will be offered the choice of keeping their non-grandfathered plans for another year (and be subject to the whopping $95 ObamaTax) or be "mapped" (re-written) to a comparable compliant plan with no underwriting (or a richer, underwritten compliant plan).

In 2015, all non-complaint plans will be mapped (transitioned) to comparable compliant plans.

Since HSA's are, by definition, non-compliant (their out-of-pocket maximums exceed those allowable under the ObamaTax), they'll be gone by 2015, latest.

What was that?

"If you like your current health insurance plan, you can keep you're current health insurance plan?"

What moron told you that?
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