HHS issues draft bulletin defining Actuarial Value for Health Plans

The HHS has just issued their draft bulletin on defining the “actuarial value” methodology that will be used to calculate AV for health plans, and it is good news for HSAs and HRAs! The rules DO include the employer contributions to accounts in the calculations, which is tremendously beneficial to the attractiveness of the plans. An excerpt from HHS document is below.

The key text is below:

Treatment of Health Savings Accounts and Health Reimbursement Arrangements in Calculating Actuarial Value Section 1302(d)(2)(B) of the Affordable Care Act directs the Secretary to issue regulations under which employer contributions to a health savings account (within the meaning of section 223 of the Internal Revenue Code of 1986) may be taken into account in determining the level of coverage for a plan of the employer. Calculation of the AV of high-deductible health plans (HDHP) linked to a health savings account (HSA) or a health plan linked to a health reimbursement arrangement (HRA) poses a special challenge. Simply calculating the AV of the HDHP based on the insurance product could understate the value of coverage and some HDHPs could fall below the level of a bronze plan based on the HDHP alone. Yet accounting for the total coverage provided by the combination of the HDHP and the full value of the HSA or HRA could overstate the AV because, empirically, only a portion of these accounts are used toward health in a given year. The AV calculation should, therefore, reflect an appropriate adjustment to these contributions. We intend to propose that for purposes of calculating the AV of an employer health benefit plan, the annual employer contribution to the employee’s HSA associated with a qualifying HDHP and the amount made available for the first time in a given year under a HRA that is linked to an employer health benefit plan shall be considered part of the benefit design of the health plan. In calculating the AV of the combined HDHP and HSA or combined employer health benefit plan and HRA, the calculation would assume that the employer contribution to the HSA or HRA is used by the employee to pay for cost-sharing. Accordingly, these amounts would be credited to the numerator of the AV calculation. This means that the AV calculator would include any current year HSA contributions and amounts first made available under an HRA as an input into the calculator that can be used to determine the AV of an employer health benefit plan. For example, if a HDHP with a $3,000 deductible has an AV of 55 percent and the employer provides an HSA contribution of $1,000, that contribution would be applied towards the numerator of the AV calculation. However, because generally only a portion of an HSA is used in a year for health services, HSA contributions would be adjusted so that the employer receives the same credit for HSA contributions in the numerator of the AV calculation as it would receive for the same amount of first-dollar insurance coverage. The same rule would apply for amounts first made available under an HRA. In the individual market, we intend to propose that HSA contributions paid directly by the individual would not count towards AV. Finally, we note that the method used to evaluate the HSA or HRA impact on health plan AV has no bearing on the opportunity of employers to offer HSAs or HRAs, or the tax treatment of HSA contributions or amounts made available under an HRA.