Expand the health savings account ‘safe harbor’ to reduce healthcare costs
A. Mark Fendrick, MD and
As the health reform debate continues, partisans in both parties should adhere to a simple, overarching principle: help people who were hurt by Obamacare, but don’t hurt those who were helped by the law.
In other words, policymakers ought to focus on reducing the rising premiums and deductibles that have harmed millions while still preserving the coverage that’s now guaranteed to people with pre-existing conditions.
Fortunately, the Trump administration is considering an executive order that would accomplish both goals. Specifically, the administration may allow high-deductible health insurance plans to cover services used to manage chronic diseases before customers have reached their deductibles. The plan already has broad, bipartisan support.
High-deductible health insurance plans surged in popularity in the early aughts after health savings accounts, or HSAs, were established in the tax code. HSAs offer a triple tax advantage. Deposits are made with pre-tax income. Savings grow tax-free. And people can withdraw from their accounts without paying any taxes, so long as they’re using the money to pay for a qualified medical expense.
The kicker? HSAs are only available to consumers who enroll high-deductible health plans. This year, individual consumers with such plans are on the hook for the first $1,350 in healthcare expenses.
The sole exception to this mandatory out-of-pocket spending is for preventive care services, such as screenings and vaccinations. A “safe harbor”provision in the tax code requires insurers to cover these services, even if individuals or families have not reached their deductibles.
The administration’s efforts to improve the nation’s health insurance offerings would expand this “safe harbor.”
Right now, medical services used to treat any “existing illness, injury or condition” are excluded from the safe harbor. So the 133 million Americans with diabetes, HIV, depression, and other pre-existing conditions must pay the entire cost of their doctor visits, tests, and prescriptions until they reach their plan’s deductible. This lack of pre-deductible coverage discourages people with pre-existing conditions from opening HSAs.
When Americans are asked to pay more for medical care, they buy fewer services. About one in three Americans with a high-deductible plan admits to delaying or avoiding care for chronic conditions. Nearly 50 percent of enrollees with a chronically ill family member report problems paying for medical care or other bills.
It’s senseless to prohibit high-deductible health plans from covering services that prevent the chronically ill from growing even sicker.
This new generation of high-value health plans would offer lower premiums than most existing health plans, bringing relief to those burdened by rising premiums, and more generous coverage for pre-existing conditions than current high-deductible plans.
Leaders in both parties support this reform.
In 2016, Reps. Diane Black (R-TN) and Earl Blumenauer (D-OR) came together to introduce the Access to Better Care Act, which would direct the IRS to expand the safe harbor. And Sens. Thomas R. Carper (D-DE) and John Thune (R-SD) sent a letter to the Secretary of the Treasury urging the IRS to modify the safe harbor provision to ensure patients “have full access to adequate preventive care and chronic care management services.”
By giving insurers the flexibility to expand the safe harbor, the Trump administration would make HSAs more attractive -- and boost the medical effectiveness of high-deductible plans. As a result, millions more Americans could find insurance that matches their financial and medical needs.
A. Mark Fendrick, M.D., is a professor at the University of Michigan School of Public Health and the director of the University of Michigan Center for Value-Based Insurance Design. Rashna Soonavala is a sophomore at the University of Michigan and an intern with the Center for Value-Based Insurance Design.