A new California law that took effect this year bars health insurers from imposing higher deductibles on an individual just because they are part of a group health plan.
But the new law contradicts federal legislation and many legal observers say the wording of it would essentially invalidate health savings account (HSA) plans that have deductibles or out-of-pocket maximums of less than $2,600 for single coverage.
While the new law has been delayed for deductibles until Jan. 1, 2017, lawmakers failed to delay the implementation for plans that have just out-of-pocket maximums, rather than deductibles.
The law ushered in by AB 1305 requires that any individual in a group family health plan cannot have an out-of-pocket or deductible limit that is greater than the out-of-pocket limit for single coverage.
In other words, if the out-of-pocket, or deductible, is $2,000 for single coverage and $4,000 for family coverage, an individual in the family plan would only be required to pay $2,000 out of pocket before health care services are paid for fully by the insurer.
While that sounds well and good, the language of the law creates problems for plans with HSA components in California.
AB 1305 mandates fully insured plans issued in the state to embed deductibles and out-of-pocket maximums at amounts that are lower than federal language requires for plans to be eligible to include an HSA.
Federal law requires a minimum deductible of at least $1,300 for individual plans and $2,600 for family plans – and that creates a problem. Here’s why:
Say you have an HSA plan with a deductible and out of pocket maximum of $2,000 for single employees and $3,000 for families. In that case, AB 1305 requires that the family HSA benefit have an embedded out-of-pocket maximum of $2,000 for individuals since the maximum is $2,000 for individuals.
But, such a plan would be considered invalid under federal law, because in order to qualify as an HSA, the family deductible has to be no lower than $2,600. This contradicts federal rules.
Rules for out-of-pocket maximums took effect in January of this year, but rules for deductibles won’t take effect until Jan. 1, 2017.
If benefits are paid after the $2,000 out-of-pocket maximum is met, but before the minimum annual deductible of $2,600 is met, the plan will not be a qualified high-deductible health plan for employees with family coverage and those employees will not be eligible to establish or contribute to an HSA.
In order to qualify as HSA-compatible family coverage, the employer in the example above would have to raise its self-only deductible/out-of-pocket limit to at least $2,600 for 2016.
But, if your plan’s deductibles or out-of-pocket maximums are more than the federal minimum, you have nothing to worry about.