What is a high-deductible health plan?
HDHPs are defined by Healthcare.gov as a health coverage plan that comes with a lower than usual monthly premium but a higher deductible than a traditional health plan. That means consumers must pay for health care costs on their own before insurance starts covering costs.
HDHPs are often combined with health savings accounts (HSAs), which allows beneficiaries to set aside tax-exempt money for medical expenses. Because HDHP-HSAs involve more decision-making, they are sometimes referred to as consumer-directed health plans (CDHPs).
What’s the challenge?
An HDHP may pose little challenge to beneficiaries who have few health care needs or high incomes. It’s a different story for people who need more health care services or may have lower incomes.
For these patients, high upfront costs can create barriers in accessing needed care. Avoiding care because of out-of-pocket costs can harm patient health, especially those with chronic conditions. For employers, those health harms may come with worse health and productivity among their employees, over the long-term. Avoided health care that translates into poorer patient health can create long-term health system costs.
How high is “high”?
In 2020, the Internal Revenue Service (IRS) defined an HDHP as any plan with at least a $1,400 individual deductible or a $2,800 family deductible. But according to Kaiser Family Foundation’s 2020 Employer Health Benefits Survey, deductibles can vary. For example, about half of single beneficiaries had a deductible between $1,000 and $1,999, but about 1 in 5 beneficiaries had a deductible that exceeded $3,000. For families, the average aggregate deductibles were $4,601 for HSA-qualified HDHPs and about one in five had a deductible of $6,000 dollars or more.
How can employers limit unintended consequences?
Research has found that some employers are establishing “better practices” in overall design of consumer-directed health plans and in their approach to prescription benefits. For example, some are working to mitigate the harmful impacts of barriers to access, by designing their prescription benefit plan to encourage better access and medication adherence among high health care need/low-income employees.
Based on updates to Internal Revenue Service (IRS) rules, HDHPs with health savings accounts can now cover an expanded list of preventive services and medications before patients meet their plan’s annual out-of-pocket deductible. The Kaiser Family Foundation’s 2020 Employer Health Benefits Annual Survey revealed significant interest among employers in implementing these innovative benefit designs that promote improved patient access to high-value care. The survey found that one in five employers waived some cost-sharing for prescription drugs to encourage employees with chronic illnesses to adhere to their treatment plan.
What role does regulation play?
NPC partnered with VBID Health to explore the role of IRS regulations and how potential updates could lower barriers to care for patients covered under HDHP-HSAs. Researchers focused on a key IRS code indicating what kind of health care was considered “preventive.”
Under earlier versions of the IRS's Safe Harbor section of the Internal Revenue Code, only certain types of preventive services could be covered by a health care plan prior to meeting the plan deductible. Notably, the code excluded any service or benefit intended to treat an existing illness, injury or condition, including drugs or medications. For patients with chronic disease, this regulation meant that their regular care or medication might cost nearly nothing in December, and with the new year, they could face thousands of dollars in costs to meet their deductible.
The VBID Health issue brief, Financial Impact of HSA-HDHP Reform to Improve Access to Chronic Disease Management Medications highlighted a key finding: providing pre-deductible coverage for medicines used to treat common chronic conditions could lower out-of-pocket costs and increase medication adherence for patients. A subsequent issue brief, Uptake and Federal Budgetary Impact of Allowing Health Savings Account-eligible High Deductible Health Plans to Cover Chronic Disease Drugs and Services Pre-deductible, provided a cost-analysis and found that allowing pre-deductible coverage for services or drugs intended to treat an existing illness, injury or condition could be cost-neutral to the U.S. government, or potentially even offer cost savings, over current high-deductible health plans that do not have such flexibility.
The research conducted by VBID Health demonstrated that expanding coverage of preventive services under HSA-qualified HDHPs could benefit millions of Americans suffering from chronic conditions.
In the report, the researchers recommend that the IRS change its current guidance on "prevention" for insurers and employers so that targeted secondary preventive benefits could be covered under the deductible in HSA-HDHPs. This would provide HSA-HDHPs with greater flexibility in designing plans better tailored to the needs of the chronically ill and those at risk.
NPC, among other stakeholder groups, offered public comment on rulemaking efforts. In 2019, the U.S. Department of Treasury announced in a guidance document that it would allow HSA-eligible HDHPs the flexibility to cover essential medications and services used to treat chronic diseases prior to meeting the plan deductible.Download HDHP issue brief.