The Patient Protection and Affordable Care Act (also known as ObamaCare) will make a big change for the millions of individuals who have chosen to use High Deductible Health Plans (HDHPs) and Health Savings Accounts (HSAs) to pay for their medical care.
HDHPs reduce the cost of health insurance by increasing the annual deductible for all medical services. This dramatically lowers the monthly insurance premiums while still providing major medical insurance protection.
HSAs have been around for nearly a decade. They allow individuals with HDHPs to save as much as $6,000 per year (pre-tax) in a savings or investment account to pay for the higher cost deductibles and expenses associated with their medical costs. They are treated much like IRAs.
These plans have recently become more popular as many larger companies, faced with large increases in health care premiums, have stopped allowing their employees to participate in “regular” health insurance plans and have migrated them to these high deductible plans and health savings accounts.
This will have to change, however, when ObamaCare is implemented.
As it is currently written, ObamaCare will require each medical insurance company to pay out 60% or more of its premiums to its insureds each year. If this amount drops below the 60% level, then a penalty will be assessed.
The problem is that the deductibles paid by individuals who have HDHPs won’t count toward this 60% level.
So, if I break my arm, and the total bill is $5,000 and I spend $4,000 of my health savings account on this expense, the insurance company has paid $1,000 toward my bill and I have paid $4,000 toward it. My expense is 80% of the total and the insurance carrier’s expense is 20% plus the amount that I have paid in monthly premiums toward my health insurance.
If the health insurance carrier can’t make this 60% actuarial benefit percentage, then they will have to change the model of the coverage that they offer. The easiest way to do this is to make it look much more like the insurance model of the past—higher insurance costs, lower deductibles and higher levels of insurance benefits.
For many, they will be going back to the past, and health insurance will be less affordable than ever.
~ Allyn Hughes, CFP, ChFC, CLU — Brooks, Hughes & Jones, Partners in Wealth Management Tacoma, WA