There are two issues that apply to Health Savings Account compatible plans (HDHPs) when they are self-funded by the employer that are very rarely mentioned, usually because the broker|consultant is not even aware of them. Briefly they are outlined below:
Fiduciary Responsibility Abrogation: Let’s begin by seeing how the federal government handles the payment of a refund from a health plan to its client employer for not having met the ACA mandated MLR limit of 80% or 85%. When the employer or plan sponsor receives the money, it is required to make a best effort to return the money to the employees pro rata based on how much of the premium they paid. That is a simple concept: they get back their portion of the returned premium based on how much of the premium they paid. This is consistent with the government’s fiduciary mandate that the plan sponsor run the plan for the sole benefit of the employees.
Let’s now fast forward to the HSA. Presume that an employee, Charley, has a high deductible plan and goes to the pharmacy to buy a brand name drug. The pharmacist says the cost is $1,000 and Charley swipes his HSA card and leaves with his medication but is $1,000 poorer. Now the actual cost of the drug is not $1,000, but really (hypothetically for our example) $800, because the drug manufacturer will send a $200 rebate some months later to the PBM, which returns most or all of that to Charley’s employer. Let’s presume that the employer got back $200 in this example. Unlike the MLR example above, what is the likelihood that the employer will track down Charley and give him his $200 back? Despite the obvious fiduciary breach, in this day and age the answer to that is about slim to none. In fact, in PBM circles it is commonly lamented how many employers are “addicted to rebates” for their own internal spending purposes.
It should be noted, that this is not a problem for most employers because we are only talking about situations where employees or dependents pay the cost of the drug themselves and (for this discussion) the plan is self-funded. If the employee is paying copays for his or her drugs (which is true of almost all non-HSA plans), the employee is generally not harmed by the above rebate practice. What about fully insured HSA plans? Here the question is a little more complicated. In a fully insured plan, Charley could still end up paying the same $1,000, but the rebate would go to the health plan and not the employer. However, in theory at least the employer’s premiums would be reduced by virtue of the fact that when the insurance carrier receives the rebates that lowers the cost of the plan and it is able to lower the premiums. (That is how it works in theory, at least.) However, it is harder to handle that situation since in a fully insured plan the employer might not even know that Charley purchased a drug with a rebate.
Fortunately there are forward-thinking PBMs that are able to use employer money to front the money at the Point of Sale so that Charley would pay $800 at the pharmacy instead of $1,000. (This is a simplified example since the PBM might only know average rebate amounts until a reconciliation is done after the year end.) How common is this today? One PBM has said that of its thousands of employer clients, just one client is fronting money with the PBM to meet its fiduciary responsibility. The good news is that some health plans are starting to react to this problem. We have seen that UnitedHealthcare and Aetna have said they will estimate the rebate amount and front it at the point of sale. That is a good sign of progress in the industry.
HSA Risk to the Plan Sponsor: When a plan is fully insured it comes up with fixed rates for its plans. The Plan Sponsor can the use the differential between the lower cost HSA plan and the higher cost traditional plan for its advantage. Thus, for example, if the difference in cost is $125/month, the employer can reduce its premium contribution by $100 and make $25. This kind of arbitrage can be done in the fully insured world. It is harder in the self-funded world because in any given year a large majority of covered members will have little to no claims. For these members if they get a much reduced employee contribution for the HSA plan but their net costs are just the fixed administrative costs plus their small claims. Their net cost to the plan would not change much but the Plan Sponsor would receive a lot less in employee premiums. While it can be argued that the “law of large numbers” would have that work out similar to the fully insured plan, that is at best uncertain and the self-funded plan might not be in a position to estimate the correct cost for the HSA plan. At a minimum it is something the Plan Sponsor needs to consider.