Do Employers Want to Cover More Services Pre-Deductible?

A Trump Administration initiative gives insurers and employers permission to cover more services below the deductible. Do they want to? Does it make a difference to patients?

Do employers believe that they can reduce claims (and thus future premiums) by designing medical plans that cover a broad range of preventive services below the deductible? Or are they concerned that the additional up-front cost of covering more of or all the cost of these services will drive up premiums because the tests won't produce saving by reducing more expensive acute care?

The Employee Benefits Research Institute (EBRI) recently answered these questions in a comprehensive study of employer and employee behavior before and after the 2019 guidance.

In last week's HSA Wednesday Wisdom column, we discussed approaches to making HSA-qualified medical coverage more accommodating to patients with chronic conditions.

This week, we look at one particular approach - the 2019 guidance - and see how it has affected the plan designs that companies offer and the behavior of patients.

The Shortcoming of Deductibles

Deductibles are a blunt instrument. When a medical plan requires patients to pay the first portion of their cumulative claims in a plan year, it draws no distinction between high-value and low-value care. This distinction is often important for patients with chronic conditions. For example, an annual podiatric and routine annual eye exam on a diabetic patient can identify complications from the disease in their early stages, when more conservative (and less expensive) treatment can effectively treat the condition. But HSA-qualified plans can't remove financial barriers for patients for whom these services represent high-value care.

Yes, employers can offer other plans that can cover these services with no or lower patient cost-sharing. But many small companies, without the dedicated resources to manage a broad employee-benefit program or the budget to offer higher-premium plans, consolidate their medical plans into a single offering. Leaders in small companies often know their employees and their families well. They may face the dilemma between avoiding an HSA-qualified plan (thus denying workers the opportunity to fund a Health Savings Account and increasing everyone's premiums) or offering just an HSA-qualified plan and realizing that it will have a negative financial (and perhaps health-related) effect on certain employees. That's the dilemma that employers face when the range of services that can be covered below the deductible is so narrow.

HSA-qualified Plans and Care for Chronic Conditions

The federal tax code allows insurers and employers a degree of flexibility in covering certain high-value preventive services below the deductible at either no patient responsibility or with a copay (a fixed dollar amount, like $20 or $25, regardless of the price) or coinsurance (the patient is responsible for paying a percentage of the total price and the insurer pays the balance). That safe harbor is found in Section 223 (c)(2)(C) of the Internal Revenue Code and IRS Notice 2004-23:

Preventive care for purposes of section 223(c)(2)(C) includes, but is not limited to, the following:

• Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals.
• Routine prenatal and well-child care.
• Child and adult immunizations.
• Tobacco cessation programs.
• Obesity weight-loss programs.
• Screening services (see attached APPENDIX).

(Note: The Affordable Care Act mandated that some of these services be covered in full, with no patient cost-sharing in any form.)

This guidance helps, but the list is short. And the phrase "includes, but is not limited to" indicates that plans may cover other services below the deductible, but no additional guidance is provided. In the absence of guidance, insurers and employers adopted lists of additional preventive services ranging from conservative (easy to justify under a traditional definition of preventive, as in treatment of a patient without symptoms) to expansive (services that prevent a diagnosed condition from becoming worse).

In IRS Notice 2019-45, the Internal Revenue Service, following an administrative order by the Trump Administration, expanded the list of preventive care, permitting (but not requiring) insurers and employers to cover additional services below the deductible (with or without patient cost-sharing). The list is restrictive in that it ties drugs and other treatments to specific diagnoses, and it permits below-the-deductible coverage for only certain drugs and other treatments under those diagnostic codes.

Example: Patients with congestive heart failure or coronary artery disease can be prescribed Angiotensin Converting Enzyme (ACE) inhibitors or anti-restorative therapy. But these treatments can't be covered below the deductible for patients with other conditions. Similarly, inhaled corticosteroids can be covered below the deductible only for a diagnosis of asthma.

This approach is welcome, but it has its shortcomings. First, although the guidance anticipates that the agency will review the list every five years or so, there is no formal schedule to consider new tests and treatments or tie emerging treatments to a broader range of diagnostic codes. For example, the EBRI study points out that patients with coronary artery disease, diabetes, and congestive heart failure who don't respond to ACE inhibitors are often prescribed angiotensin receptor blockers (ARBs) to prevent the same exacerbations of their disease. Yet ARBs can't be covered below the deductible.

Second, even if there were, innovations in treatment always move faster than people who need to draft guidance, submit it for comment, finalize it based on public feedback, and formally issue it.

The Effect of Additional Flexibility

What's the practical effect of permitting this additional flexibility? That's the question that EBRI answered in its recent analysis. Here are some answers:

Effect of additional coverage on premiums. EBRI cites several studies that show little or no effect on premiums when these services are covered below the deductible. A 2021 study by America's Health Insurance Plans (AHIP) found that most insurers reported premium differences of 0% to 1% higher. A 2022 EBRI study showed premium increases ranged from virtually zero to 1.5%, depending on certain assumptions about money saved later by avoiding more acute episodes. As EBIR notes, "Peer-reviewed literature has demonstrated that selectively lowering cost-sharing for high-value chronic disease management medications can meaningfully improve adherence, reduce the risk of adverse health outcomes, and, in some cases, reduce expenditures."

Researchers admit that it's difficult to isolate the cost differences across a large number of variables, and many employers provided anecdotal observations rather than quantifiable results. Still, the fact that most reported or calculated minimal increases suggests that firms can adopt this flexibility and offer an HSA-qualified plan as its only employer-sponsored coverage with less concern that patients with these chronic conditions will compromise their health or bank accounts.

Patient responsibility for services covered pre-deductible. In many cases, insurers and employers didn't see total patient cost-sharing decline for these services. Why? Plans often imposed some cost-sharing - a deductible or coinsurance - rather than provide full coverage. This approach may have struck an effective balance: patients were more inclined to adhere to a preventive schedule because they weren't required to pay 100% of the contracted amount up-front, but rather were charged only a portion of the cost through the introduction of a copay or coinsurance. During the course of the year, they may have spent as much out-of-pocket as they would have when the services were applied to the deductible. But the difference in cash flow - say, paying a $25 copay or $40 coinsurance rather than a $200 contracted rate made early preventive care more affordable.

Employer interest in expanding pre-deductible coverage. A 2021 AHIP survey showed that three-quarters of plans expanded pre-deductible coverage as a result of the clarifications in the 2019 guidance. Clearly employers prefer spending a small amount on prevention now versus more for acute treatment later. What's unclear without further quantifiable research is more precise savings for the 14 tests and treatments (as employers can vary cost-sharing for each service based on the return on investment).

HSA-qualified plans still have a long way to go. The 2019 guidance has reduced the percentage of the cost of these preventive services paid by patients. But among six highlighted treatments, HSA-qualified plans applied deductibles far more often than other coverage:

• Statins for heart disease applied to the deductible on HSA-qualified plans declined from 49% in 2018 to 32% in 2021, but other plans applied statins to the deductible only 10% of the time in 2021.
• Inhaled corticosteroids for asthma were applied to the deductible on HSA-qualified plans 54% of the time in 2018 and only 45% in 2021, but these figures are far less than the 14% of the time they were applied to the deductible on other coverage.
• HSA-qualified plans applied beta blockers for heart disease to the deductible 43% of the time in 2018 and only 36% in 2021, but other plans applied them to the deductible only 9% of the time in 2021.

The Bottom Line

The rules for HSA-qualified plans are very prescriptive and, in most cases, don't permit insurers or employers to cover high-value services below the deductible. The original 2004 safe-harbor for preventive care, the Affordable Care Act's expanded (with a mechanism for continued updating), and the 2019 guidance allow plans to cover more preventive services pre-deductible. It's a step in the right direction. But medical science moves far faster than legislation or regulations, leaving insurers and employers with no opportunity to evaluate advances promptly and cover them below the deductible on HSA-qualified plans.

#HSAWednesdayWisdom #HSAMondayMythbuster #HSA #HealthSavingsAccount #TaxPerfect Coming soon: #ICHRAinsights

The content of this column is informational only. It is not intended, nor should the reader construe the content, as legal advice. Please consult your personal legal, tax, or financial counsel for information about how this information applies to you or your entity.