Pre-Deductible Coverage Expansion in HSAs Might Slightly Boost Premiums

Expanding the services that are eligible for pre-deductible coverage in a health savings account (HSA) health plan would slightly boost premiums, experts found in an EBRI Issue Brief.

In 2019, IRS Notice 2019-45 expanded the number of HSA-eligible preventive services using value-based care. HSAs, which are consumer-driven health plans, can cover 14 medications and services under the current model. Each of the 14 services and medications requires that the employee have a specific diagnosis in order for the employer to extend coverage.

“Expanding the generosity of coverage shifts spending from enrollees to the plan. Enrollees may increase services utilization when their cost-share declines, leading to higher health care costs and—as a result—higher premiums. However, there might be cost offsets from increased use of other services,” the researchers summarized. 

“Despite these theories, there is limited empirical evidence on the impact of expanding pre-deductible coverage on insurance premiums.”

The report leveraged data from the IBM Marketscan Commercial Claims and Encounters (CCAE) database and IBM’s Benefit Plan Design (BPD) database from 2018, prior to IRS Notice 2019-45 implementation.

The researchers pulled together claims data such as deductibles, coinsurance, and copayment. Based on previous analyses and trends, they assumed that utilization would increase 20 percent once a service became covered as a pre-deductible service. They also assumed that employers would assign some level of cost-sharing since that is an established trend for some of the pre-deductible services.

Increasing pre-deductible coverage in health savings accounts may boost premiums by anywhere from 0.03 percent to 1.5 percent.

A low impact on premiums could be due to one of three factors. When the employee is diagnosed with a condition that is related to one of the 14 covered pre-deductible services, the premium might be lower. 

Second, premiums might be lower if an employer imposes cost-sharing. If the employer does not impose cost-sharing, premiums rise 0.3 percent.

Finally, premiums might be lower if care utilization does not increase. Care utilization might be tied to cost-sharing policies. If an employer requires employees to share the costs of the service or medication, the employee might be less likely to use it.

The lowest premium impact was present among enrollees who were diagnosed with a covered condition, whose use remained low, and who had average coinsurance. Their premiums only rose 0.03 percent.

The covered services and medications are often not strictly applied to the diagnosis required, the researchers pointed out. Employers may choose to expand coverage to all uses of the service or medication, without abiding by a diagnosis requirement. In such cases, premiums go up 1.5 percent.

“Our finding that premiums increased very little due to the expansion of pre-deductible coverage is related to the relatively high percentage of users of the 14 services meeting their deductible,” the report stated.

Individuals who used the 14 health services and medications that the Notice listed were more likely to meet their deductibles than those who did not use those services and medications. The researchers found that expanding the services that were covered on a pre-deductible basis without cost-sharing, employers would face less of a financial impact.

Employers were quick to expand pre-deductible covered services when the Notice allowed them to do so, but it has been unclear whether higher use of preventive care services led to higher premiums. This report identified that there might be a correlation between the utilization of preventive care services and premium increases.

The Notice can be updated every five to ten years, but experts have pointed out that this may be too long of a cycle to address chronic disease prevention and management needs.