What Effect Will Obamacare Have On Health Savings Accounts?
It is the rare individual that doesn't have a strong opinion regarding the healthcare system in the United States.
It has long been recognized as a mess that needs to be cleaned up.
Obamacare is the first serious attempt to do so, but it is producing many unintended consequences.
One is the effect it may have on the health savings account and high deductible health insurance package that has become so popular with Americans.
HSA / HDHP To understand the impact of Obamacare on these programs, we need to first review them.
The health savings account is a unique account designed to help individuals handle the higher deductibles associated with HDHP insurance plans.
A person is allowed to contribute money to the account tax free and invest it.
At the same time, the individual must by a high deductible health insurance policy to supplement the account.
Any medical fees incurred during the year are deducted directly from the account.
These payments are applied against the deductible for the policy.
Once that deductible is met, the insurance policy kicks in and covers all additional charges for the year.
Obamacare Impact There is a significant amount of politically charged hype being published on the impact Obamacare will have on health savings accounts and high deductible health insurance policies.
Contrary to what you may read, Obamacare does not terminate either of these.
There simply is no language in the legislation that states as much.
Having said that, Obamacare may well produce such a result indirectly when it is applied to the HSA/HDHI program in the real world.
It all comes down to something known as the "medical loss ratio.
" Medical Loss Ratio The medical loss ratio has been touted as one of the more positive aspects of Obamacare.
It is a somewhat complex calculation regarding how insurance premiums paid by insureds can be used by an insurance company.
The key thing to know is Obamacare requires that 80 percent of the premium payment must go to the payment of medical costs with the remaining 20 percent going to administrative costs.
If this does not happen, the difference must be rebated to the patient.
All and all, this rule seems fairly logical on the surface, but it causes haywire with the HSA/HDHI program.
The problem is Obamacare doesn't take into account the payments made by the insured through their health savings account.
As a result, the numbers as applied to the high deductible health insurance policy are thrown completely out of whack.
An example can help show why this is the case.
Let's assume I start an HSA and buy a high deductible insurance policy that runs me $300 a month.
Over the year, I will pay $3,600 in total premiums.
Now let's assume I have a deductible of $1,200 before the insurance kicks in and I incur only $360 in medical expenses during the year.
This represents only 10 percent of the total premium I paid in, not 80 percent.
Under the law, this means the insurance company is in violation of the law.
It isn't that the insurance is excessively expensive.
The problem is that trying to apply Obamacare to this approach is similar to trying to put a square peg in a round hole.
It just doesn't work.
In Closing Does this mean that we will see the health savings account and high deductible health insurance policy program become a thing of the past? It is possible, but this program has been so successful that there is a move afoot to try to amend Obamacare to resolve the problem.
Given the current political environment, it is doubtful anything will occur in 2012.
Once the election season is over, however, we should see movement on the issue as there is no particular partisan aspect to making a change.
It has long been recognized as a mess that needs to be cleaned up.
Obamacare is the first serious attempt to do so, but it is producing many unintended consequences.
One is the effect it may have on the health savings account and high deductible health insurance package that has become so popular with Americans.
HSA / HDHP To understand the impact of Obamacare on these programs, we need to first review them.
The health savings account is a unique account designed to help individuals handle the higher deductibles associated with HDHP insurance plans.
A person is allowed to contribute money to the account tax free and invest it.
At the same time, the individual must by a high deductible health insurance policy to supplement the account.
Any medical fees incurred during the year are deducted directly from the account.
These payments are applied against the deductible for the policy.
Once that deductible is met, the insurance policy kicks in and covers all additional charges for the year.
Obamacare Impact There is a significant amount of politically charged hype being published on the impact Obamacare will have on health savings accounts and high deductible health insurance policies.
Contrary to what you may read, Obamacare does not terminate either of these.
There simply is no language in the legislation that states as much.
Having said that, Obamacare may well produce such a result indirectly when it is applied to the HSA/HDHI program in the real world.
It all comes down to something known as the "medical loss ratio.
" Medical Loss Ratio The medical loss ratio has been touted as one of the more positive aspects of Obamacare.
It is a somewhat complex calculation regarding how insurance premiums paid by insureds can be used by an insurance company.
The key thing to know is Obamacare requires that 80 percent of the premium payment must go to the payment of medical costs with the remaining 20 percent going to administrative costs.
If this does not happen, the difference must be rebated to the patient.
All and all, this rule seems fairly logical on the surface, but it causes haywire with the HSA/HDHI program.
The problem is Obamacare doesn't take into account the payments made by the insured through their health savings account.
As a result, the numbers as applied to the high deductible health insurance policy are thrown completely out of whack.
An example can help show why this is the case.
Let's assume I start an HSA and buy a high deductible insurance policy that runs me $300 a month.
Over the year, I will pay $3,600 in total premiums.
Now let's assume I have a deductible of $1,200 before the insurance kicks in and I incur only $360 in medical expenses during the year.
This represents only 10 percent of the total premium I paid in, not 80 percent.
Under the law, this means the insurance company is in violation of the law.
It isn't that the insurance is excessively expensive.
The problem is that trying to apply Obamacare to this approach is similar to trying to put a square peg in a round hole.
It just doesn't work.
In Closing Does this mean that we will see the health savings account and high deductible health insurance policy program become a thing of the past? It is possible, but this program has been so successful that there is a move afoot to try to amend Obamacare to resolve the problem.
Given the current political environment, it is doubtful anything will occur in 2012.
Once the election season is over, however, we should see movement on the issue as there is no particular partisan aspect to making a change.
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