Enhancing Flexibility in HSA-HDHP Design by Applying VBID & Clinical Nuance
Principles to Better Align the “Preventive Services Safe Harbor”
Shifting the health care system from “volume to value” has become a common theme in health care reform
discussions. Benefit designs that engage consumers in their health care, while also encouraging access to highvalue and appropriate care, are of particular interest.
Value-based insurance design (VBID) seeks to achieve this by
connecting benefit design with high-value care. VBID refers
to health insurance benefit design and payment models that
attempt to engage consumers by encouraging them to
become more active in their health care choices by
providing flexibility to align out-of-pocket costs, such as
deductibles, copayments, and coinsurance, with the value of
services. In this way, VBID furthers consumer access to highvalue clinical services while recognizing the importance of
maintaining and promoting affordability.
Regulatory challenges with incorporating VBID into
High Deductible Health Plans
A broad range of stakeholders spanning employers, payers,
providers, consumer and patient groups, as well as academic
centers have expressed interest in addressing regulatory
challenges with incorporating the principles of VBID and the
related concept of “clinical nuance” into the context of high
deductible health plans (HDHPs) by re-aligning what is
known as the “preventive care safe harbor.” As discussed
below in more detail, current regulatory guidance generally
excludes services from the safe harbor if they are meant to
treat “an existing illness, injury, or condition.”
An HDHP, as defined in the Internal Revenue Code (“Code”),
is a health plan that satisfies certain requirements regarding
minimum deductibles and maximum out-of-pocket
expenses.1 HDHPs can be paired with Health Savings
Accounts (HSAs) that allow consumers and employers to
save pre-tax dollars to pay for eligible health care services
and can be carried over year-to-year.2 (We refer to these
HSA-eligible plans as HSA-HDHPs). HSA-HDHPs have grown
dramatically in popularity,3 as they provide for affordable
coverage and as noted are designed to engage consumers in
their health care.
Value, “Clinical Nuance,” and
Engaging Consumers in their
Health Care Decisions
An important aspect of VBID is the
concept of “clinical nuance.” At its
core, clinical nuance implies that
medical services differ in the level of
health and clinical value they produce.
Clinical nuance also recognizes the
benefit derived from a specific service
depends on several factors, including
who receives it, and when and where
the service is provided.
Incorporating clinical nuance in
coverage design through VBID can
improve access to services producing
“high value” clinical benefits, based on
accepted, evidence-based measures.
Clinical nuance is an essential part of
health care’s broader movement from
“volume to value” as it helps to define
and describe the appropriate clinical
circumstances for care. In this way, an
understanding of clinical nuance can
help connect reform initiatives focused
on benefit design with reform efforts
focused on care delivery and delivery
system transformation.
1
26 U.S.C. §223(c)(2).
Other plans with high deductibles that don’t meet the specific requirements can also be offered, provided that they meet
other regulatory requirements, such as those that might apply under the Affordable Care Act – but these would not qualify
as HDHPs under the Code and consumers could not couple these with an HSA.
3
See http://ahip.org/press-room/2014/hsa-census-survey/.
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HSA-HDHPs are required to have defined minimum deductibles, and in general, are not allowed to provide
benefits for any year until the deductible for that year is satisfied.4 While the “preventive care safe harbor”
provides some exceptions to this rule, the limitations of this safe harbor combined with the minimum deductible
requirements may limit the ability of HDHPs to offer many evidence-based, high value services on a predeductible basis. Consequently, for regulatory reasons, services that are recommended to help effectively
manage an existing chronic condition often cannot be covered in an HSA-HDHP until the deductible has been
met. For example, HDHPs may be prevented from providing benefits for certain evidence-based disease
management services such as insulin, eye and foot exams, and glucose monitoring supplies for patients with
diabetes prior to the deductible being met. There is growing public interest in addressing this concern by
incorporating the principles of VBID into the context of an HSA-HDHP.
The specific challenge with offering these high value services pre-deductible in an HSA-HDHP comes from a
current interpretation of the scope of the preventive care safe harbor under the Code. The Code provides a safe
harbor that allows plans to voluntarily cover some preventive services prior to a deductible being met. The
Code states that “[a] plan shall not fail to be treated as a high deductible health plan for reason of failing to have
a deductible for preventive care . . . .”5
The concern is that the regulatory definition of preventive services may exclude many high-value services that
could otherwise be encouraged through VBID.6 Currently, the guidance regarding the safe harbor excludes
services or benefits meant to treat “an existing illness, injury or condition.”7 Taken literally, this can be read to
suggest that management of a chronic condition is not “preventive” within the meaning of the safe harbor
because management of the condition might be said to reflect treatment of an existing illness. In turn, this
limits the flexibility for HDHPs to encourage the cost-effective use of high-value services related to many chronic
conditions. This raises an important policy issue given that chronic conditions are estimated to account for close
to 86 percent of total U.S. health spending.8
Broad Stakeholder Coalition Effort
A range of stakeholders – including employers, providers, health plans, health and life sciences companies,
consumer and patient groups, think tanks, and academic centers – are supportive of and interested in
addressing these issues in order to provide those creating HSA-HDHPs greater flexibility to adopt innovative
benefit designs that improve consumers access to care while still providing for affordability, taking into account
both premiums and cost sharing. Interest has also been raised among regulators in further exploring the issue
as well as on Capitol Hill to possibly create a solution through legislation.
Additionally, this collaboration can potentially serve as a constructive platform to promote the tenets of VBID
more generally and to encourage their adoption in other contexts, such as in Medicare Advantage (where the
Administration and Congress have both expressed interest), and to emphasize its clear synergies with valuebased payment reform initiatives. More broadly, it is also an important opportunity to encourage the
integration of health reform approaches that focus on harnessing the power of the consumer experience
through coverage and benefit design with reforms focused on improving quality of care and efficiency through
delivery system transformation.
To learn more about this effort, please contact the coalition at http://smarterhc.org, or by emailing
[email protected].
4
See IRS Notice 2004-23.
26 USC Section 223(c)(2)(C)
6
Michael Chernew, J. Sanford Schwartz, and Mark Fendrick, “Reconciling Prevention And Value In The Health Care System,” Health
Affairs Blog, March 11, 2015, http://healthaffairs.org/blog/2015/03/11/reconciling-prevention-and-value-in-the-health-care-system/.
7 IRS Notice 2004-23. See also IRS Notice 2013-57, where the IRS additionally clarifies that preventive services required to be covered
without cost sharing under the ACA are also treated as preventive services under this safe harbor.
8 Centers for Disease Control and Prevention, http://www.cdc.gov/chronicdisease/.
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