Summer Update

“[These] tests are a qualified expense . . . only to the extent that the testing is for medical purposes . . . rather than learning whether you’re related to Leif Erickson or want to pull the  “family-discount” card when ordering a bottle of Sam Adams.”

William G. (Bill) Stuart

Director of Strategy and Compliance

August 22, 2019

During the past month I’ve been quite busy with traveling to Capitol Hill, attending a Compliance Conference, and a college graduation. Who knew that Cincinnati was the fifth largest city in the country in 1860? Or that John Roebling designed and built suspension bridges across both the Ohio River (Cincinnati – I walked over it) and Brazos River (Waco, TX – I boated under it).

But enough trivia. Let’s focus on information that’s relevant to you as a benefits advisor, insurer, or employer:


Cadillac Tax. Despite the House of Representatives’ recent 419-6 vote to repeal the Cadillac Tax, the levy on high-cost medical coverage, it’s unlikely that the Senate will follow suit. After conferring with a dozen legislative aides and House members the overwhelming sentiment is the tax will never be applied. This Cadillac Tax has been delayed twice, and Congress should simply eliminate it. Rather than delaying the tax every couple of years they should focus their attention on more important legislation.

While meeting with aides in the Senate office I learned there is serious concern about abolishing the tax without a proposal. And, to make up the projected lost revenue there could be spending cuts or increases in other taxes. The revenue projection is severely flawed and dramatically overstated as I’ve discussed here, but the concept of paying for legislation is still a concern in the Senate. The House dismissed this concern because members simply don’t believe that the tax will be imposed, and thus the government will never collect revenue.

What’s more likely than repeal is another delay beyond the current Jan. 1, 2022, implementation date. That provision could be attached to a healthcare, tax, or spending bill passed later this year. And it probably would include delays in the medical-device tax and Health Insurance Tax (HIT) – two other unpopular Affordable Care Act levies that have been paired together in prior delay and repeal legislation.

Health Savings for Seniors Act. This bill, recently introduced in the House (read more here), allows Medicare enrollees to open and make or receive contributions to a Health Savings Account. This bill would overrule current government regulations that discriminate against certain working seniors enrolled in employers’ Health Savings Account programs and allow anyone enrolled in Medicare who meets other Health savings Account requirements to open and contribute to an account.

This bill faces several hurdles. First, it doesn’t have a Democrat sponsor on the House Ways and Means Committee, to which the bill has been assigned. The Democrat sponsor, Dr. Ami Bera (D-CA), a physician, doesn’t sit on the committee, which limits his ability to advocate for the bill. Second, there is no companion Senate bill at this point.

This bill isn’t likely to pass this year. But its supporters – I’m in that camp – have put forward an important idea that likely will be debated more robustly in the future.

Medicare for All. The idea of a federal government take-over of the design, delivery, and financing of medical care – long considered a fantasy supported by extremists – has become more mainstream. But don’t expect any action in the near-term, despite strong support for the concept among most of the top tier Democrats seeking the White House and more than 100 co-sponsors of legislation in the House of Representatives.

There are many issues here. There is no single definition of “Medicare for All.” That’s just a term for the concept of much greater government involvement in the design, delivery, and financing of care. Some plans have a role for private insurers and some abolish them or limit them to providing care for cosmetic surgery and any benefits not covered by the government plan. Some plans cover medical services only and some add dental, vision, and long-term care. None provides a clear picture of total cost, sources of funding, medical management, or administration.

And then there’s the politics. The Democrats regained control of the House of Representatives last November by winning a number (roughly 30) districts carried by President Trump in 2016 by running moderate candidates. Those freshmen are vulnerable to strong challenges in 2020, especially with the president on the ballot again. Democrats risk losing control of the House – as they did in 2010 after passing the Affordable Care Act without a single Republican vote – if they veer too far to the left on medical coverage.

Healthcare will be a major topic in the 2020 campaign. But understand that most of the 60 million or so Americans on Medicare like their coverage. Most of the 170 million or so covered by employer-sponsored insurance like their plans (although a growing number complain that higher out-of-pocket costs create a financial barrier to care). Affordability is an issue, but the federal government has a very poor track record of reducing costs in any market that it enters.

Regulatory and Legal

Association Health Plans. The Trump Administration issued regulations allowing a second path to creating Association Health Plans – programs that allow small employers to band together to purchase medical coverage as a single large group. The administration recently lost a court case challenging the regulations. Central to the case is the concept of redefining the word employer to include a collection of employers. The judge said the regulations were an “end-run” around the Affordable Care Act. The administration has appealed the ruling.

Affordable Care Act. A federal district court in Texas ruled last December that the individual mandate was unconstitutional and that the entire Affordable Care Act was therefore invalid. The judge issued a stay, allowing all provisions of the act to remain in place pending appeal. The federal court of appeals heard arguments last month in New Orleans and is expected to issue a ruling later this year. If the court of appeals upholds the district judge’s ruling and invalidates the law, expect the Supreme Court to consider the case and rule by June 2020 – just a couple of months before the presidential campaign begins in earnest.

Individual-coverage HRAs. The Trump Administration recently issued final regulations that allow employers to give employees a tax-free stipend to shop for nongroup coverage. Read more here and here.

These regulations don’t create a clear path for this approach across the nation, however. About half the states have laws prohibiting employers from paying employees’ nongroup premiums. It’s unclear how the new regulations affect these laws. Will some states assume that the federal law invalidates their state laws? Will other states challenge the federal regulations? Also, many states have laws that prohibit employers or insurers from discriminating against certain classes of employees or dumping sick patients into state nongroup markets. It’s unclear how these laws interact with the administration regulations. So stay tuned.

Chronic Conditions and Health Savings Accounts. The Trump Administration recently issued guidance that allows insurers to cover an expanded list of preventive services and prescription drugs below the deductible on HSA-qualified plans. These regs make Health Saving Account programs more attractive because they recognize that certain high-value services can save money for both insurers/employers and patients by treating chronic conditions before they become acute.

This new flexibility is welcome news to many, though some details still need to be ironed out with further guidance.

Health FSA carryovers. The president has ordered guidance on Health FSA carryovers. Under current law, employers can elect to allow employees to carry over up to $500 of unused balances into the following plan year. Increasing the carryover limit makes participation more attractive – the fear of the  dreaded use-it-or-lose-it provision paralyzes some employees who could benefit by enrolling from doing so. That guidance will come before the end of the year.


Marijuana. Looking to buy pot with Health Savings Account or Health FSA funds? Marijuana remains illegal under federal law, even if your state allows the use of recreational or medicinal pot. The same goes for CBD oil, the cannabis extract that has been touted as a treatment for a variety of conditions. The US Food and Drug Administration hasn’t approved a marketing application for cannabis, although it has approved a handful of cannabis-derived or -related products for certain specific indication – but probably not yours. Learn more here.

DNA tests. DNA tests are a qualified expense for distributions from a Health Savings Account or Health FSA. A qualified expense to the extent that the testing is for medical purposes like testing for a specific hereditary condition. Learning whether you’re related to Leif Erickson or want to pull the  “family-discount” card when ordering a bottle of Sam Adams would not be a qualified expense. The price of the test needs to break down the relative price of medical and non-medical components. The industry hasn’t done so until now. But you can bet that you’ll see this breakdown in the future – with the price heavily skewed toward medical.

Feminine products. In the interest of equal time, feminine sanitary products aren’t qualified expenses, either, despite some industry lobbying of Congress and the administration to include them. It seems inconsistent to some people that bandages and gauze pads to stop the flow of bleeding on an arm or leg are qualified, but sanitary products aren’t. But under current law, these products are considered to be a treatment for a normal body function (compare them with facial tissue and handkerchiefs for a common cold) rather than the treatment of an injury, illness, or condition.

What We’re Reading

Most readers understand Health Savings Accounts. But you’re an exclusive group. A recent survey shows that more than a third of financial advisors admit that they don’t understand Health Savings Accounts – and self-reported figures tend to underestimate the truth. And among those who understand them and discuss Health Savings Accounts with clients, most position them as spending or short-term savings accounts. This is the new audience that I’m trying to reach with my book  on the intersection of Health Savings Accounts, Medicare, and retirement savings.

As Democrats unveil their healthcare plans, what can we expect President Trump to incorporate into his 2020 strategy? No need to speculate, says economist John Goodman, a good friend of this column – we already know. Read more here.

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