Full Summary of Health Care Reform Changes

As you will see below, many of the PPACA’s new rules for what health plans must cover may result in less need for you to spend the money in your health care accounts.

How the law affects the way you use your HSA, FSA, or HRA depends on what kind of insurance you have. Be sure to contact your insurance company if you have questions about changes in your coverage.

2010

Pre-existing condition exclusions for children are eliminated. (Effective Sept. 23, 2010.)

Health insurance companies cannot exclude children from coverage based on pre-existing conditions. This applies to all employer plans and new plans in the individual market. It will apply to everyone in 2014.

If you were using your health care account to pay for medical care for an excluded child, you will have coverage from your health plan instead once this rule comes into effect. Contact your health plan to find out when and how they will implement this change.

Lifetime benefit limits are eliminated. (Effective Sept. 23, 2010.)

Previously, if you exceeded your plan’s lifetime benefit limit for a medical condition, you had to use your health care account to make up the difference.

The PPACA prohibits insurers from imposing lifetime limits on benefits for expensive catastrophic illnesses such as cancer. It goes into effect in late Sept. 2010, and affects all existing insurance plans.

Annual limits for care will be tightly regulated. (Effective Sept. 23, 2010.)

This is one of the areas that are still to be defined by HHS regulation. The intent is to regulate health plans’ use of annual limits so patients get access to needed care. It is supposed to affect all new plans in the individual market and all employer plans.

If you have been using your health care account to pay for treatments that exceeded your plan’s annual limits, you may be able to stop and have the plan pick up the cost again. Contact your insurance company to find out when they will put this into effect.

HealthEquity will keep watch on this and send an update to all members when we receive more information from HHS. We don’t yet know how far the regulation will reach – i.e., which health conditions these regulations will apply to and what percentage the plans will have to pay.

In 2014, when health exchanges are fully operational, these yearly limits won’t just be regulated – they will be banned altogether.

Some health plans will have to pay 100% for preventive services, whether you have met your deductible or not. (Effective Sept. 23, 2010.)

The PPACA says that as of Sept. 23, 2010, all new group health plans and those in the individual market must provide first-dollar coverage for preventive services. (“First-dollar coverage” means 100% coverage without having the patient share the cost through a co-pay or deductible.) This will not apply to older grandfathered group plans until 2014.

The US Preventive Care Task Force and the Secretary of HHS still have to define what is meant by “preventive care.” They also have to define the word “new” as it applies to group plans. (“New” as of what date?)

Previous legislation allowed HSA-qualified health plans to offer first-dollar coverage for preventive care without disqualifying them for use with an HSA. We do not expect this to change.

Employers will have help paying the cost of insuring early retirees. (Effective Jun. 21, 2010 to Jan. 1, 2014.)

The PPACA provides for a new temporary reinsurance program to help companies that provide early retiree health benefits for people ages 55 to 64. This also provides reimbursement for coverage for the early retirees’ eligible spouses, surviving spouses, and dependents.

There is not a lot of money set aside for this, and companies will be competing for whatever funds are available. One way they can make the money go farther is to offer lower-premium, higher-deductible health plans that meet the requirements for pairing with an HSA. If your former employer adopts that strategy, it will be to your advantage.

Even if you are retired, having an HSA-qualified health plan will let you keep contributing to your HSA. This is an ideal time to have an active HSA because you can contribute the full amount allowed by the IRS for individual or family coverage, plus the $1,000 yearly catch-up contribution allowed for people ages 55 to 64.

Remember, your HSA is more flexible and more liquid than a 401k. You can withdraw your money at any time to pay for qualified medical expenses, without having to pay the 10% penalty* and income tax.

After age 65, you can use the money for anything you want without the 10% penalty. You only pay income tax if you use the money for something other than a qualified medical expense.

An HSA is one of the best retirement savings opportunities available.

*The 10% penalty will be increased to 20% on Jan. 1, 2011.

Group health plans (including grandfathered plans) that provide dependent coverage of children must continue to make that coverage available until they turn age 26. (Effective Sept. 23, 2010.)

For employer plans in existence prior to the date of enactment, young adults qualify for dependent coverage only if ineligible for an employment-based health insurance plan until 2014. Beginning in 2014, young adults can choose to stay on their parent’s health plan until age 26, even if eligible for their own employer-sponsored insurance plan.

This law doesn't require a plan or issuer to offer dependent coverage, but if coverage is offered, it must be extended to young adults up to age 26.

There are two areas to watch out for here:

1. There may be a gap in coverage for your adult child because of your health plan’s enrollment window for dependents.

Even though the PPACA says health plans have to extend coverage to adult children up to age 26, it doesn’t say the coverage has to be continuous or immediate.

Some health plans are only letting parents add their adult children to their plans during their standard enrollment periods, with coverage starting the next plan year. For some plans, the next plan year starts Jan. 1, 2011, and for others it could be as late as July 1, 2011. You may have to purchase COBRA coverage for your child while they are waiting for the new plan year to start. Be sure to contact your health plan or insurance broker to discuss your own situation.

2. "Dependent" doesn’t mean the same thing for IRS deductions as it does for insurance plans.

Not all IRS dependents can be covered under your family health plan.

Not all the dependents in your family health plan are eligible to have their medical expenses deducted from your tax return, or to have their expenses paid for out of your health care account.

Here are some sample situations to show how complex this can be. You should make sure to discuss this with your tax adviser because the rules can be changed by HHS and the IRS at any time:

Adult child’s situation

You can deduct this person’s medical expenses from your tax return

You can use your health care account for this person’s qualified medical expenses

This person can be covered by your health plan

My child is 25, married, has his own job, and lives out of state — but he does not have access to his own health insurance

But he can open his own HSA and make the full yearly contribution for an individual - $3,050.*

Yes

My child is 25, married, and has his own job — but he does have access to health insurance on his job

My child is 26, disabled, and living under my roof. I am providing all his support.

Yes

My child is 23, is going to school, and is living in our home with her baby. I am supporting her.

Yes – This applies to both your child and her baby.

When your child turns 24, if she and her baby are still being supported by you in your home, only her baby will continue to be your dependent.

Yes – This applies to both your child and her baby.

When your child turns 24, if she and her baby are still being supported by you in your home, you can only use your HSA funds for her baby’s qualified medical expenses.

However, after she turns 24, you can help your child set up her own HSA now that she is no longer your dependent, but is still covered by your qualifying health plan. You can even fund her HSA up to the full individual yearly amount of $3,050.* (If you weren’t claiming her baby as a dependent on your own tax return, her HSA could be funded to the full family amount of $6,150.*)

Your child only — and only until she turns 26.

Most plans will not let you add a grandchild to your family policy.

You can cover the baby’s qualified medical expenses out of your HSA.

If your daughter has her own HSA, she cannot use it for her baby because the baby is being claimed by you as your dependent.

*If your child is not eligible to own an HSA for the full calendar year, use this formula to determine how much he or she can contribute:

($3,050/12) x number of months of eligibility = amount your child can contribute

Example: Your child turns 24 in October, so eligibility for an HSA starts on the first day of the following month. That makes two months of eligibility for the tax year.

($3,050/12) x 2 months = $508.33

2011

Over-the-counter medications will no longer be qualified medical expenses for HSAs, FSAs, and HRAs.

There will be exceptions: Insulin and any over-the-counter medicines that are prescribed by a provider as treatment for a specific medical condition will still qualify for use with HSAs, FSAs, and HRAs.

Be sure to keep your receipts and copies of your prescriptions for use at tax time.

The penalty increases from 10% to 20% for using HSA funds for non-qualified medical expenses.

After you turn 65, this penalty will disappear; but you will still have to pay income tax on any health care account money you spend on non-qualified medical expenses.

All health plans must spend a higher percentage of their premium dollars on actual medical care rather than on administrative costs.

In 2011, health plans will have to start reporting on the share of premium dollars they spend on medical care. They will have to provide rebates to consumers if they don’t meet the guidelines set by the PPACA.

This may affect the eligibility of some HSA-qualified health plans. HealthEquity is keeping watch on this, and we will keep you informed about how it could affect your HSAs.

New voluntary options for long-term care insurance are being provided.

The PPACA has created long-term care insurance programs to be financed by voluntary payroll deductions as a way to provide benefits to adults who become disabled.

You will be able to participate in this insurance program without losing your HSA eligibility. You may also be able to pay for the premiums from your HSA.

HealthEquity will keep watch on the regulations that HHS publishes on this, and we will let you know if there are any changes in this area.

2012

To date, we have not identified any provisions of the PPACA that will directly affect HSAs, FSAs, and HRAs in 2012.

2013

Flexible savings account (FSA) contributions will be limited to $2,500 per year for individuals.

This limit will be indexed to the Consumer Price Index in subsequent years.

The threshold for claiming itemized deductions for medical expense will increase from 7.5% to 10%.

If you don’t have an HSA or another health care account, you can use itemized deductions to reduce the taxes on money you spend for medical expenses. Right now, your medical expenses need to add up to at least 7.5% of your adjusted gross income before you can start to itemize them as deductions. In 2013, that threshold increases to 10%.

This makes an HSA even more valuable to you, since it lets you pay for all of your qualified medical expenses with tax-free dollars. You don’t have to worry about that 7.5% or 10% threshold before you can have tax benefits.

2014-2017

Health Insurance Exchanges in each state will provide insurance to individuals and small groups.

By this time, most states will be setting up a network of health insurance exchanges. These exchanges will enable people to comparison shop for standardized health packages. The health care reform law will also facilitate enrollment and administer tax credits so that people of all incomes can obtain affordable coverage.

HealthEquity is currently active in the design and development of these health insurance exchanges. We will keep you informed on ways that health care accounts will enable to get the most out of benefits of these exchanges.

In 2014, most individuals will be required to obtain an acceptable level of health insurance coverage or pay a penalty.

The penalty for not having coverage will be $95 in 2014, $325 in 2015, $695 or up to 2.5% of income in 2016, up to a cap of the national average bronze plan premium. Families will pay half the amount for children, up to a cap of $2,250 per family. After 2016, dollar amounts will be indexed for inflation.

If affordable coverage is not available to an individual, they will not be penalized.

HealthEquity is watching the development of regulations regarding these required levels of coverage and all new laws that affect the eligibility of HSA-qualified health plans. We are dedicated to adapting to the new laws and finding effective ways to help you keep as much control as possible of the funds in your health care accounts.

Insurers can no longer exclude coverage for treatments based on pre-existing health conditions. They are also prohibited from charging higher rates due to health status, gender, or other factors.

Starting in 2014, these requirements will apply to all health plans. All “grandfathering” or exceptions will be eliminated. Premiums will vary only on age (no more than 3:1), geography, family size, and tobacco use.

It is likely that health plans will phase out family rates and charge separate premiums for each dependent. Higher-deductible plans coupled with HSAs will become even more important as strategies for keeping your premium costs down.

There will be no more annual limits on the amount of coverage an individual may receive.

This elimination of annual limits started with some plans in 2010. In 2014, this will apply to all health plans without exception.

This will eliminate the need to pay for supplemental coverage from your HSA or other health care account.

Insurance companies will not be able to drop you from coverage for routine care if you are enrolled in a clinical trial.

In 2014, the PPACA will prohibit insurers from dropping coverage because an individual chooses to participate in a clinical trial and from denying coverage for routine care that they would otherwise. This will apply to all clinical trials that treat cancer or other life-threatening diseases.

Until that goes into effect, your health care account will be an important safety net for you. If you have to pay for coverage out-of-pocket while in a clinical trial, you could at least reduce some of the costs by paying with tax-free dollars.

2018

An excise tax of 40% will be applied to excess premiums for high-cost health plans.

Starting in 2018, a 40% excise tax will be charged on top of any amount that exceeds a premium cost of $10,200 for individual coverage or $27,500 for family plans.

That sounds like a high threshold, but medical costs are skyrocketing in spite of health care reform, and many economists are predicting that high inflation is likely to kick in as well. What is now a “Cadillac” plan could become the norm by 2018 – even with the PPACA’s planned indexing for inflation.

Any strategy that keeps premiums low will help you in the long run. A lower-premium, HSA-qualified health plan paired with a health savings account will not only help you avoid being caught by that 40% “Cadillac Tax,” it will also represent a large portion of a healthy retirement nest egg – especially if you start saving right now.

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