Among the bills approved by the House Ways and Means Committee is one that would qualify significantly more health treatments, services and over-the-counter drugs for HSA spending.
The House Ways and Means Committee has approved a package of bills that would expand benefits of health savings accounts (HSAs) and reduce employer health benefit costs.
H.R. 6301, which provides that a plan shall not be fail to be treated as a high deductible health plan (HDHP) by reason of failing to have a deductible for not more than $250 of specified services (twice such amount in the case of family coverage) during a plan year, was ordered favorably reported to the House of Representatives. The term ‘specified services’ means, with respect to a plan, services other than preventive care.
Another bill would let Medicare Part A beneficiaries currently prohibited from contributing to their existing HSAs once they turn 65 to continue to contribute.
Other bills would qualify significantly more health treatments, services and over-the-counter drugs for HSA spending and expand the definition of HDHPs to include Affordable Care Act (ACA) bronze plans and catastrophic plans.
The House also approved H.R. 6317, a bill to amend the Internal Revenue Code of 1986 to provide that direct primary care service arrangements do not disqualify deductible health savings account contributions, and for other purposes.
After a two-day markup session, the committee also moved to the House legislation providing retroactive relief from the ACA’s employer mandate from 2015 through 2018 and delay for one additional year (until 2023) the 40% Cadillac Tax.
More about the bills referred to the House can be found here.
Asset Class Returns Account for Disparity in Public DB Plan Performance Results
However, the Center for Retirement Research (CRR) at Boston College found portfolio allocation did account for about one-quarter of the total 16-year underperformance for bottom quartile plans.
On average, the annualized return for public defined benefit (DB) plans from 2001 to 2016 was 5.5%—well below the typical actuarially assumed return, the Center for Retirement Research (CRR) at Boston College notes in an Issue Brief.
However, the returns for plans in the top and bottom quartiles were 6.3% and 4.6% respectively—a difference the CRR says could account for roughly a 20-percentage-point disparity in their funded ratios. The differences in overall portfolio returns could result from differences in asset allocation and/or asset class returns. To understand how each factor contributed to the lower performance of plans in the bottom three quartiles, the CRR performed an analysis based on newly collected data from the Public Plans Data (PPD) website.
The analysis found that asset allocation of each group converged to be about the same over time. As of 2016, the quartile allocations to equities fell into two groups. Both the top and bottom quartiles held similar allocations—44% and 42%, respectively—while the second and third quartiles held 49% and 52%, respectively. In 2001, the allocation to fixed income ranged from 29% to 35% across the four quartiles. According to the Issue Brief, today, they all hold about 23%. In earlier years, allocations to alternatives fell into two groups. The top two quartiles each held about 12% of their assets in alternatives, while the bottom two quartiles each held about 7%. The allocation of the bottom quartile increased dramatically—to 33% today—and now aligns with the top quartile’s allocation of 32%. The second quartile increased from 6% to 27% and aligns closely with the third quartile’s allocation of 24%.
Next, the analysis looked at returns by asset class. Two key takeaways emerged. First, long-term returns for each asset class differ. For example, private equity and real estate had higher average returns than public equities over the period. The researchers say this variability suggests that the differences in asset allocation, although small, may be a factor in the quartiles’ different returns. The second takeaway is that the three lower quartiles underperform the top quartile in many asset classes—most clearly in public equities, which is the largest asset class. According to the researchers, this finding suggests that asset class returns are likely an important factor in the underperformance of lower-quartile plans.
The analysis showed the average change in the annual return when plans in the bottom quartile use the average allocation of plans in the top quartile. The researchers found no clear pattern—in some years, using the average allocation of top-quartile plans produces lower returns for the plans in the bottom quartile and, in other years, it results in higher returns. On balance, however, the gains appear to be slightly larger than the losses, suggesting that asset allocation likely played some role in the poorer performance of the bottom-quartile plans from 2001 to 2016.
The analysis also showed the average change in the annual return when plans in the bottom quartile keep their own asset allocation but achieve the average asset class returns of plans in the top quartile. The consistently higher outcome suggests that differences in returns within asset classes are a major factor in the poorer overall performance of the bottom quartile relative to the top.
When a new 16-year return is calculated based on the plan’s own asset class returns, but assuming the plan mimics the average asset allocation of plans in the top quartile, the results for the bottom quartile show that the annualized 16-year return for the top quartile was 1.54 percentage points greater than the average annualized return for plans in the bottom quartile. Applying the top quartile’s allocation to the bottom quartile increases the bottom quartile’s 16-year return by 0.38 percentage points—accounting for about 25% of the overall difference. Applying the top quartile’s asset class returns to the bottom quartile increases the 16-year return by the 1.16 percentage points.
In conclusion, the Issue Brief says, “In terms of explaining the underperformance of plans in the lower quartiles, the small differences in allocation among plans were secondary to the differences in asset class returns. While allocation did account for about one-quarter of the total 16-year underperformance for bottom quartile plans (with returns accounting for the remaining three quarters), returns accounted for almost the entire underperformance for the middle two quartiles.”