Obamacare Could Kill One Type of Cheap Health Insurance

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Insurance
One of the biggest challenges facing the country right now is getting skyrocketing medical costs under control. The hope of proponents of the health care reform law that the Supreme Court upheld last month was that it would help reduce overall costs.

But it now appears that one of the effects of the Affordable Care Act will be to eliminate a popular method of cutting health insurance costs. High-deductible health plans won't be able to meet regulations set by the Department of Health and Human Services, which means the use of such plans in conjunction with health savings accounts could disappear.

What HDHPs Do

With homeowners insurance and many other types of coverage, customers can choose from plans with a range of deductibles that apply before benefits kick in. The higher the deductible, the cheaper the policy -- but the more you have to pay out of pocket before the insurance company starts to pick up the bill. The idea behind high-deductible health plans is the same.

HDHPs got a big boost in 2003, when the government created health savings accounts. HSAs allowed people to set money aside to help cover deductible payments and reap tax benefits, in the form of a tax deduction for money contributed to the HSA. According to the HSA Coalition, 11.4 million people had HSA plans as of January.

Why HDHPs Could Go Away

The problem with the new law, as the HSA Coalition sees it, is in the way that it calculates medical loss ratios. Under health care reform, insurance companies in the small group or individual market have to spend 80% of the premiums they collect on medical costs, with only 20% going to administrative and other costs. Another section of the law addresses plans that are eligible for exchanges, which many individuals and small businesses will rely on for coverage.

As you might expect, the calculations get complicated in a hurry. But the big issue is that under regulations from HHS, the amount that patients spend out-of-pocket to pay their deductibles on HDHPs isn't included as a medical cost for purposes of determining the medical loss ratio. Rather, only expenses that the insurance company pays count as medical losses to meet the guidelines.

Under most health-insurance plans, the HHS regulations would make sense. Counting copayments or other out-of-pocket costs under plans designed to provide comprehensive coverage would make the entire idea of a medical loss ratio meaningless.

But with health insurance that carries high deductibles, the intent is a lot different. These policies used to be called "catastrophic health insurance" because their initial purpose was only to cover costly injuries and illnesses that most people wouldn't face in any given year. The HSA Coalition cites figures that only 5% of policies end up with claims that exceed the deductible amount.

Unintended Consequences

Massachusetts residents have already seen changes to HDHPs under Romneycare, the state health insurance reform plan which many say provided the model for the federal plan. Under Massachusetts law, high-deductible plans only meet standards for minimum creditable coverage if they go beyond federal requirements in several ways, including offering preventive care visits that aren't subject to the deductible, covering a broad range of medical benefits, and not imposing limits on certain services. Moreover, HDHPs must be offered alongside HSAs or health reimbursement arrangements.

At best, as Forbes observed when an early version of the regulations was floated, costs for high-deductible health plans could rise significantly. At worst, insurers may simply choose not to offer them.

Losing HDHPs might not seem like a huge deal. But they actually represent one of the best chances to rein in health-care costs over the long haul, for one key reason: They give you the patient an economic incentive to pay more attention to what you spend on your care. Without such incentives, the current system, in which it's almost impossible even to find out what you'll pay for care -- let alone try to negotiate more reasonable charges -- will continue to lead to the inefficiencies that made reform necessary in the first place.

For more on health care:


Motley Fool contributor Dan Caplinger was annoyed to lose his high-deductible plan when he moved to Massachusetts, although he's fortunate enough to have decent coverage (at least for now). You can follow him on Twitter here.

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171 Comments

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Jack

I am trying to figure out the impact of the new certainty of the ACA upon High Deductable Health Plans. I switched to a HDHP one year ago for the primary reasons of lower premiums, potential tax benefits, and the concept that the consumer can control spending. I assumed that I would be able to negotiate lower cash rates. The reality has been disappointing. Doctors and denstists office staff are geared toward insurance payments. I have never been able to negotiate a cash price that was lower than just submitting the bill to the HDHP insurance plan because the plan imposes service cost caps very similar to PPO insurance. I had a slightly higher medical cost year, but the bottom line was not signifficantly different than if I was still with a PPO.

My point is this. The premise that HDHPs incentivize consumers to pay more attention to costs and negotiate lower prices is flawed. Combined with the well known conflict between free market competition and the necessity for most health care service, as noted by Kenneth Arrow (Ref. a.), I feel that HDHPs will not be an effective strategy for lowering national health care costs. They are great if your family is healthy and wealthy enough to take advantage of the tax benefits, but otherwise the bottom line is not significantly better.

a) http://www.newyorker.com/talk/financial/2012/10/29/121029ta_talk_surowiecki

November 07 2012 at 6:55 PM Report abuse rate up rate down Reply
bcrnbs2

I WANT IT ALL AND I WANT IT NOW..
I WANT THE SAME HELATH CARE OBAMA HAS..

THE VERY SAME, 100 PERCNET COVERAGE INCLUDING HAIRCUTS..

WHAT MAKES IT FAIR THAT THE ELECTED CONGRESS, SENATE, PRESIDENT , REP ALL
HAVE TOTAL FREE HELATH CARE... AND MOST OF US HAVE NONE.. YET WE ARE PAYING FOR IT

THAT 1.3 BILLION OBAMA HAVE HIS BUDDIES IN THE MSULIM BROTHER HOOD WOUDL HAVE PAYED A LOT OF MEDICAL BILLS. I KNOW ITS A DIP IN THE BUCKET, BUT BETTER SPENT ON AMERICANS THAN PEOPEL WHO HATE US, THE MSULIM BORHTER HOOD...

YOIU FIGURE IT OUT AND GO VOTE IN NOV...

July 16 2012 at 12:37 PM Report abuse rate up rate down Reply
Gary

They will have to pay 80% of premiums as benefits???? Back a few decades when I sold group insurance, we paid out oveer 90% and made a profit. Of course the CEO didn't get a 20 milion bonus. It is my understanding that countries with "socialized medicine" commonly pay out 90 -95% in benefits.

July 16 2012 at 11:04 AM Report abuse +1 rate up rate down Reply
bcrnbs2

GEE, WHAT WILL THE HOMELESS PEOPLE DO.. I KNOW, THEY CAN JUST PROCLAIM THEMSELF SICK, MOVE INTO A HOSPITAL AND LIVE THEIR LIVES IN LIEASURE...

THATS, WHAT I WOULD DOI, AND WHY NOT. ISNT OBAMA AND BIG GOVERNMENT GOING TO TAKE CARE OF US.

July 16 2012 at 10:58 AM Report abuse +1 rate up rate down Reply
2 replies to bcrnbs2's comment
Gary

Same thing they are doing now, go to the emergency room and let us pay for it with our taxes and higher insuracne premiums.

July 16 2012 at 12:16 PM Report abuse rate up rate down Reply
Gary

Same thing they are doing now thanks to Reagans emergency care law from '86. Go to the emergency room, as many as 3 or 400 times a year and let us pay for it with our taxes and higher insurance scosts.

July 16 2012 at 12:33 PM Report abuse rate up rate down Reply
bcrnbs2

FIRST THINGS FRIST.

LESS GET THIS STRIGHT. ITS NOT HELATH CARE...
OBAMA NEVER PASSED HELATH CARE... ITS INSURANCE AND YOU HAVE TO BUY IT OR DEAL WITH THE IRS AT THE END OF THE YEAR..
THIS IS RIGHT UP THE IRS ALLEY, NOW THEY ARE GOING TO BE IN YOUR LIFE A HELL OF A LOT MORE THAN BEFORE...
GET READY PEOPLE ... GET ONE THING STRIGHT. ITS NOT HELATH CARE.
IT HAS NOTHING TO DO WITH HEALTH CARE...
THE POLICY YOU BUY WILL BE IN DIRECT POTION TO WHAT SERVICE YOU GET..

YOUR NOT GOING TO GET, OH DEAR I FEEL BAD, OFF TO THE DOCTOR, NOT TO WORRY
I HAVE HEALTH CARE.... ITS ALL COVERED... BETTER HAVE YOUR CHECK BOOK WITH YOU.

July 16 2012 at 10:55 AM Report abuse +1 rate up rate down Reply
franky732

OBAMA IS A BIG CRYBABY AMONG THE
GREATEST LIAR I EVER SAW IN DC
HE IS SO OUT OF TOUCH
HE HATES ALL RICH PEOPLE
HOW ABOUT HIMSELF?

July 16 2012 at 9:25 AM Report abuse -1 rate up rate down Reply
1 reply to franky732's comment
ohmyboehnertwo

OBAMA IS A CRY BABY?........THE WEEPER OF THE HOUSE REPUBLICANS IS A CRY BABY AND A COWARD. JUST TAKE A LOOK AT THIS PHOTO OF HIM. HOW PATHETIC. OBAMA ONLY HATES RICH PEOPLE WHO DON'T PAY THEIR FARE SHARE OF TAXES. MITT ROMNEY ONLY PAID 13% IN TAXES WHILE BARACK OBAMA PAID 28% IN TAXES. NOW WHO IS PAYING THEIR FARE SHARE?

July 16 2012 at 10:33 AM Report abuse +1 rate up rate down Reply
David

Obamacare will kill everything!!!

July 16 2012 at 9:24 AM Report abuse -1 rate up rate down Reply
1 reply to David's comment
bcrnbs2

AND PEOPLE EXPECTED WHAT FROM A SELF PROCLAIM MARXIST..
A MAN WHO THINKS THE SAME WAY AMERICANS DO...

LOL

July 16 2012 at 10:56 AM Report abuse +1 rate up rate down Reply
Welcome Mr. Robb

Yeah, lets talk about High Deductible Health Insurance like its some 'sacred cow' but reality is that this and many other plans don't cover diddly squat! I hope that Obamacare, although no where near a perfect plan. will eveuntually lead to an expansion of Medicare for all Americans who want it and then they can choose a supplemental plan to cover the 20% not covered. Nothing is free in America, not even being without health insurance because someone pays in the end.

July 16 2012 at 8:17 AM Report abuse rate up rate down Reply
2 replies to Welcome Mr. Robb's comment
bcrnbs2

20 oer]

July 16 2012 at 10:47 AM Report abuse rate up rate down Reply
bcrnbs2

20 percent not covered.. what ever made you think your going the insurance you buy will cover 80 percent of your medical bills. if you think that, your in for a surprise..

their will be policy with deductable and you have to choice.. and its not going to be any cheaper than it is now... people yoiu need to wake up..

July 16 2012 at 10:49 AM Report abuse +1 rate up rate down Reply
sastroz1

Who in the hell can afford the HSA plan in addition to premiums,co-pays, and high deductables. My last two employers eliminated the HSA plan under our group policy because so few could afford to add it to the benefit plan. This article is not really relavent to many,but I'm sure will fuel more fire from opponents to the very necessary changes needed in our health care reform.

July 16 2012 at 7:48 AM Report abuse rate up rate down Reply
summerctz

Yep, so now that plans with higher deductibles will be off the table, we will be forced into purchasing policies with higher premiums. Like I said a while ago, Obamacare is a win for the insurance companies, not the average schmoe like you and me.....

July 16 2012 at 6:58 AM Report abuse rate up rate down Reply
2 replies to summerctz's comment
ETazelaar

A "win for the insurance companies" you say... how about the health insurance companies being forced (mandated by federl law) to provide survice to their clients on 20% of the individual/family health insurance premium they take in and only 15% on the group health insurance premium that they take in? How about the other mandates such as forcing health insurance companies to provide insurance coverage to children up to the age of 19 that have pre-existing conditions and adults with pre-existing conditions starting 1/1/2014? Do you think you can go without car insurance, have a car accident and then be able to get an auto insurance policy to cover your "pre-existing condition" car accident? Too many Americans just don't understand the downsides to "Obamacare" and what it already has forced health insurance companies to do, including no longer selling child only health insurance policies, no matter that the child already has a pre-existing condion or is healthy.... health insurance companies no longer cover children only.

Health insurance premiums are going to continue to rise until the government focuses their attention on Tort Reform and forcing providers, such as hospitals, doctors, medical labs and the drug companies to cut back on their own "profits" as the govenment did to the health insurance companies. Time for Americans to wake up and realize that Obama is pushing America more and more into socialism and taking our freedoms away, one by one without too many Americans realizing it.

July 16 2012 at 8:40 AM Report abuse -2 rate up rate down Reply
bcrnbs2

you hit it on the head. its not going to be any cheaper than it is now.... and folks, yoiu have to get over
one fact. the fact of free...
most of you people are still thinking , free, i will have free insuranc.e

folks its not free... and it wont be cheap

July 16 2012 at 10:51 AM Report abuse rate up rate down Reply