On July 17th, 2019, in response to a June executive order, the U.S. Department of Treasury released Notice 2019-45, allowing HSA-HDHP plans the flexibility to cover specified medications and services used to treat chronic diseases prior to meeting the plan deductible.  The long-awaited announcement is the result of over a decade of advocacy by the University of Michigan V-BID Center and its many collaborators.

Smarter Deductibles, Better Value: Expanding Coverage in HSA-HDHPs

High-deductible health plans paired with a tax-free health savings account (HSA-HDHP) represent a growing percentage of plans offered on the individual and group market.  HDHPs have defined minimum deductibles and maximum out-of-pocket limits.  As of 2017, 43% of Americans were enrolled in plans with high deductibles, which represents a nearly threefold increase from 2007.  Employers, in particular, are increasingly offering Health Savings Account-eligible HDHPs (HSA-HDHP), which provide tax-free accounts for employers in conjunction with an HDHP, to expand coverage options, lower their health care spending, and promote proactive consumer engagement.  President Trump’s and Congressional Republicans’ health care reform proposals emphasize HSA-HDHPs.  However, in these plans, enrollees with existing conditions are required to pay out-of-pocket for necessary services prior to meeting the plan deductible, resulting in lower utilization of care, and potentially poorer health outcomes and higher costs.

As directed by an executive order issued in June 2019, the U.S. Department of Treasury issued Notice 2019-45, which allows HSA-HDHP plans the flexibility to cover specified medications and services used to treat chronic diseases prior to meeting the plan deductible.  Primary prevention, while important, is a small component of overall health spending.  By contrast, spending on chronic disease encompasses 78% of total U.S. health care expenditures.  A previous guidance from the IRS allowed HSA-eligible HDHPs the ability to provide select preventive care benefits prior to satisfaction of the plan deductible, but services and medications used to treat chronic conditions were excluded.

Under the guidance issued in July 2019, plans will have the flexibility to cover certain medications and services used to treat chronic diseases on a pre-deductible basis.  The guidance states that the Treasury Department and the IRS:

      • Are aware that the cost barriers for care have resulted in some individuals who are diagnosed with certain chronic conditions failing to seek or utilize effective and necessary care that would prevent exacerbation of the chronic condition.  Failure to address these chronic conditions has been demonstrated to lead to consequences, such as amputation, blindness, heart attacks, and strokes that require considerably more extensive medical intervention.
      • In consultation with HHS, have determined that certain medical care services received and items purchased, including prescription drugs, for certain chronic conditions should be classified as preventive care for someone with that chronic condition.
    • Noted that each medical service or item, when prescribed for an individual with the related chronic condition, evidences the following characteristics:
      • The service or item is low-cost;
      • There is medical evidence supporting high cost efficiency (a large expected impact) of preventing exacerbation of the chronic condition or the development of a secondary condition; and
      • There is a strong likelihood, documented by clinical evidence, that with respect to the class of individuals prescribed the item or service, the specific service or use of the item will prevent the exacerbation of the chronic condition or the development of a secondary condition that requires significantly higher cost treatments

With these policies in place, all high-deductible plans are now able to adopt a more flexible benefit design offering more protection for certain medical services through a value-based insurance design plan structure.  As the market for HSA-eligible HDHPs grows, it is important that these plans use this flexibility to allow for effective health management for all beneficiaries.  A targeted strategy exploring coverage for certain high-value, clinically-indicated health services prior to meeting the deductible will produce more effective clinically-nuanced designs, without fundamentally altering the original intent and spirit of these plans.  

By expanding the IRS “safe harbor” to include certain chronic disease management care, the recent IRS guidance increases the attractiveness and clinical effectiveness of HSA-HDHPs and better aligns consumer engagement with provider payment reform initiatives.  Adoption of this voluntary, clinically-nuanced expanded HDHP has the potential to mitigate cost-related non-adherence, enhance patient-centered outcomes, allow for lower premiums than most PPOs and HMOs, and substantially reduce aggregate health care expenditures.  The clinically-nuanced HDHP would provide millions of Americans a plan option that better meets their clinical and financial needs.

Table 1. Chronic Disease Management Services in the Expanded Safe Harbor

Preventive Care Service For Individuals Diagnosed With
Angiotensin Converting Enzyme (ACE) inhibitors
Congestive heart failure, diabetes, and/or coronary artery disease
Anti-resorptive therapy
Osteoporosis and/or osteopenia
Congestive heart failure and/or coronary artery disease
Blood pressure monitor
Inhaled corticosteroids
Insulin and other glucose lowering agents
Retinopathy screening
Peak flow meter
Hemoglobin A1c testing
International Normalized Ratio (INR) testing
Liver disease and/or bleeding disorders
Low-density Lipoprotein (LDL) testing
Heart disease
Selective Serotonin Reuptake Inhibitors (SSRIs)
Heart disease and/or diabetes

Congressional Efforts to Further Expand Pre-Deductible Coverage

On June 24, 2019, President Trump signed Executive Order 13877, instructing the Secretary of the Treasury to issue guidance allowing HSA-Eligible HDHPs to provide specified care for chronic diseases pre-deductible.  In response, on July 17th, 2019, the U.S. Department of Treasury issued Notice 2019-45.

Senators John Thune (R-SD) and Tom Carper (D-DE), introduced the Chronic Disease Management Act of 2019 in the Senate (S. 1948), followed by the introduction of the companion bill in the House of Representatives (H.R. 3709) by Representatives Earl Blumenauer (D-OR) and Tom Reed (R-NY).  This bipartisan, bicameral legislation, in support of the same goal of the executive order and subsequent IRS guidance, provides high-deductible health plans the flexibility to provide coverage for services that manage chronic diseases prior to meeting the plan deductible.  This bill was reintroduced in the Senate in January 2020 (S. 3200) and builds on the IRS guidance and its previous versions to further increase pre-deductible coverage for chronic disease management.

Rising health care spending has created serious fiscal challenges that emphasize the need to better engage consumers in their health care decisions.  Smarter deductibles might be a natural evolution of health plans, in that consumer cost-sharing would be reduced for the clinical services that are encouraged under many alternative payment models.  As value-based reimbursement promotes the delivery of evidence-based, high-quality care, consumer-facing initiatives must encourage—not create barriers—to these high-value services.  Interventions that improve patient-centered outcomes while maintaining affordability are needed.  The alignment of clinically nuanced provider-facing and consumer engagement initiatives is a necessary and critical step to reduce health care spending, improve quality of care, and enhance patient experience.

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