Employers Shift Health Plan Costs In Wake Of IRS Notice

When the Internal Revenue Service decided in 2019 to include more preventive services in the list of covered services for HSA health plans, the move was hailed as a step in the direction of better health outcomes for plan members. The theory: by encouraging plan members to use preventive services not just for general health but to address chronic conditions, more would take advantage of the “free” services and health outcomes would improve.

The Employee Benefits Research Institute has released a new study that examines payment trends among employer-sponsored health plans. By moving certain chronic condition treatments and medications to the covered list, the IRS gave employers the opportunity to offer more free-to-plan-member services. But it did remove those same health measures from the list of services for which employers could require copays or coinsurance.

The report, “The Impact of Expanding Pre-Deductible Coverage in HSA-Eligible Health Plans on Employee Choice of Health Plan and Cost Sharing,” analyzed claims data to measure the effect of expanding pre-deductible coverage on enrollee choice of health plan and cost-sharing. (Choice of plan impact turned out to be negligible.) The survey found that, in general, employers did as might be expected: they shifted cost-sharing from deductibles to copayments and coinsurance on other plan services.

In addition to the shift referenced above, the study found:

  • The same shift was not observed for enrollees in non-HSA health plans.
  • The new rule had little impact on overall cost sharing as a percentage of total spending on a number of services impacted by the notice.
  • Enrollment in HSA-eligible health plans among individuals with health conditions impacted by the IRS notice does not appear to have changed, as it was already trending in the direction of higher enrollment among individuals with health conditions prior to the issue of the notice.

The fact that the notice had little influence on overall cost-sharing “may be due to the fact that employers were more likely to change cost-sharing instead of eliminating it,” the report said.

“This is not a surprise, as the majority of employers interviewed in 2021 reported that they did not eliminate cost sharing when they added pre-deductible coverage. Instead, they substituted copayments and coinsurance for deductibles.”

But the spirit of the IRS notice may well have been served, the report stated. “While enrollees may not spend less money overall on health care services, the impact of changing the composition of cost-sharing may change use of health care services and improve patient outcomes. Spreading out cost sharing over the course of the year instead of requiring patients to pay a large amount at the beginning of the year may result in higher use of high-valued services early in the year, which could prevent complications due to nonadherence of treatment regimens.”

The IRS notice added several chronic condition medical measures to the HSA pre-deductible list. The notice said that list would be reviewed periodically to determine whether more items should be included if they are proven to either prevent certain conditions or improve chronic disease diagnoses.

“In response to IRS Notice 2019-45, three-quarters of large employers and health plans offering HSA-eligible health plans expanded pre-deductible coverage for medications and services that prevent the exacerbation of chronic conditions. As a result, it is not surprising that when examining medical claims, cost-sharing shifted from deductibles to copayments and coinsurance for enrollees in HSA-eligible health plans,” explained Paul Fronstin, Ph.D., director, Health Benefits Research, EBRI. “The percentage of cost sharing paid through deductibles fell for antidepressants, insulin and other glucose-lowering agents, statins, beta blockers and inhaled corticosteroids.”

Fronstin noted that a Texas judge “found a key part of the preventive service provision unconstitutional. If this court decision is upheld, employers and health plans could impose some form of cost sharing for these preventive services.”

But, he said, “Employers may continue to provide these services at no cost to members. Overall, we found that employers would add additional services if allowed by the IRS. There is also bipartisan, bicameral legislation that has been introduced in the U.S. Congress that would provide additional flexibility to extend pre-deductible coverage to services that manage chronic conditions. Employers and policymakers have an appetite for more flexible plan designs or ‘smarter’ deductibles because rising health care spending has created serious fiscal challenges.”


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