Congress is Trying to Have it Both Ways with Telehealth
6/26/23 Update: The Congressional Budget Office released a cost estimate of the legislation allowing telehealth to be covered pre-deductible in HDHPs, projecting a loss of revenue of $5.1 billion from 2024-2033.
There is revived discussion on Capitol Hill about making authorities for telehealth services, first expanded at the start of the COVID-19 pandemic and renewed multiple times since, permanent prior to their expiration at the end of 2024. As we discussed in our paper “Fiscal Considerations for the Future of Telehealth,” telehealth is likely to remain an important part of the health care system going forward. The concern is its widespread availability could lead to increased health care costs due to higher utilization of medical services, misaligned payment incentives, and opportunities for fraud and abuse. Additionally, a hastened permanent extension of telehealth authorities is fiscally imprudent given the lack of guardrails and the limited amount of post-pandemic evidence on utilization and costs.
The more concerning development is a provision, passed in June by the House Ways and Means Committee, that would permanently allow telehealth services to be covered without triggering the deductible for individuals with high deductible health insurance plans (HDHPs). Supporters are pushing for this provision while also insisting that telehealth services are equivalent to in-person medical services and that physicians should get paid at parity for these services.
Thus, this exemption sets up a huge loophole within the structure of HDHPs. The argument for HDHPs is to reduce utilization of medical services by giving patients “skin in the game” in choosing when to engage health care services because they are more price sensitive to medical costs. And, the evidence shows clearly that is what happens in the real world, as HDHPs do lead to reduced health care spending. However, the movement to allow pre-deductible telehealth flies in the face of that argument, reducing price sensitivity and incentivizing the use of telehealth services over in-person care (without addressing that for now, there are no cost differences between the two.)
The tradeoff for beneficiaries in HDHPs is that in exchange for substantially higher deductibles they get lower insurance premiums and tax benefits through Health Savings Accounts (HSAs). These accounts collect tax-exempt contributions from employers and individuals, and users may invest the contributions into stocks, bonds, and other investments with earnings accrued tax-free. Individuals may use the accounts to pay medical expenses, including premiums and deductibles, as long as they are enrolled in an HDHP.
The government tax expenditure for HSAs is substantial: the Joint Committee for Taxation (JCT) estimates a cost of $11 billion in 2023 and $62 billion in lost revenue for the 2022 to 2026 period.
The proposal for pre-deductible telehealth creates inequity between those with HSAs and those with more traditionally designed employer-sponsored insurance (plans not eligible to be used with an HSA). When introduced initially in 2003, the HDHPs tied to HSAs had much larger deductibles and out-of-pocket expenses. Since then, traditional employer-sponsored deductibles have risen significantly to where the average annual deductible for non-HSA-qualified plans was only slightly under the minimum threshold for an HSA-qualified plan. In 2023, the minimum deductible for an HSA-eligible HDHP is $1,500 for individuals and $3,000 for families.
This narrowing gap between the insurance products means that the tax and savings benefits of the HSAs have grown, while the utilization impact on health spending has shrunk – calling into question the large tax preference for HSAs. Allowing pre-deductible telehealth services exacerbates that problem.
While it makes sense for Congress to eventually set up permanent rules for telehealth, doing so without a more comprehensive understanding of the impacts on utilization and costs will be a lost opportunity to tie those rules to mechanisms that can address the problems of high and growing health care costs. Instead, Congress is pushing forward in ways that will likely exacerbate those problems.