CASE STUDY 1: THE PROBLEM OF HIGH DEDUCTIBLES AND CONSUMER DIRECTED HEALTH CARE IN U.S. HEALTH INSURANCE

Consumer-directed health plans: Do they deliver? -ROBERT WOOD JOHNSON SYNTHESES PROJECT/POLICY BRIEF NUMBER 24, OCTOBER 2012

FEDERALLY QUALIFIED CONSUMER DIRECTED HEALTH INSURANCE PLANS (CDHPs):

The definition of CDHPs is rather fluid, but they are often associated with three features:

· A relatively high annual deductible,

· A personal spending account, and

· The availability of decision support tools for enrollees.

In practice, however, not all CDHPs have all three features.

For purposes of this policy brief, a CDHP is defined as a high-deductible plan which is accompanied either by a Health Reimbursement Arrangement (HRA) or is eligible for a Health Savings Account (HSA). The majority of the research evidence on which this brief is based is from employment-based settings in which high-deductible health plans are offered with an HRA (see below).

TAX TREATMENT OF CDHPs :

The development of CDHPs was strongly influenced by federal regulations adopted in early 2000 which established favorable tax treatment for personal spending accounts. HRAs and HSAs serve similar functions, but have different rules and implications for consumers.

Health Reimbursement Arrangements: HRAs are owned by the employer and only the employer is allowed to make contributions to the account. There is no limit to employer contributions; contributions are excluded from an employee’s gross income and not subject to taxes. Although unused funds may accumulate from one year to the next, should an employee terminate employment or switch health plans, the funds may revert to the employer.

Health Savings Accounts: HSAs address one of the key limits of HRAs—a lack of portability. HSAs are owned by the individual, not the employer, making them portable across employment situations and health plans. Both employer and employee contributions to HSAs are excluded from the employee’s taxable income. Individuals and employers are allowed to establish or contribute to an HSA only when the individual is enrolled in a qualified high-deductible health plan. In 2012, the minimum qualifying deductible was $1,200 for individual and $2,400 for family coverage.

The Patient Protection and Affordable Care Act (ACA) requires the health plans to cover certain preventive services without a deductible, although some CDHPs did this prior to the ACA.