Important Health Plan Information

by Ron Lang, CEO of CalCPA Health

This time of the year, with most firms renewing their employee benefit plans, there is a big uptick in questions regarding managing health plans. For CalCPA members, CalCPA Health is an available resource; our tag line is “we answer questions for your firm, your clients and your family” (or at least try to answer anyway).

Health plans are a unique blend of Internal Revenue Service, Department of Health and Human Services, Department of Labor, California Department of Insurance, and other California agencies regulations. Buried in each of these, is the Affordable Care Act’s (ACA) code. Because of this complexity and liability, when providing answers and insights we always must disclose that we do not provide tax or legal advice (lol).

The pandemic has created a higher volume than normal of COBRA inquiries. Continuation of health plan coverage, known as COBRA, was created by provisions in the Consolidated Omnibus Budget Reconciliation Act of 1985. COBRA applies to firms with over 19 employees; not to be outdone, California augmented the federal law with CalCOBRA that applies to smaller firms (2+) and provides longer benefit extension periods. Also, the President’s emergency COVID-19 declaration includes an extension of COBRA timelines. The covered employee and the employer both have responsibilities under COBRA/CalCOBRA to notify, provide documents, and make payments. Questions have come from employees and employers trying to figure out how best to navigate unchartered COBRA waters.

The COBRA timeline extensions may create their own issues, so we recommend employers try to stick to the standard, non-emergency regulations; it may alleviate potential problems when the emergency declaration is lifted. Same for employees, there are no provisions to provide reminder notices of requirements once the extensions are lifted, which could result in oversights and loss of coverage.

I will mention, at the onset, as part of CalCPA Health’s pandemic response, we allowed laid-off/furloughed employees to remain on their health plan without invoking COBRA, hopefully reducing stress, and saving money.

Annual open enrollment always generates inquiries around “how do I/we lower our cost of health insurance.” The answer usually begins with a Health Savings Account (HSA) plan. The ACA and continued high medical cost inflation have resulted in ever increasing health insurance costs. While employers’ costs are their premium contribution, employees’ cost increases are two-fold, the increase in their premium and out-of-pocket costs (OOP). HSA plans typically have lower premiums but their boom in popularity over recent years is in part driven by employees being able to pay these higher deductibles and other OOP costs with tax preferred dollars

Why are premiums lower? You are trading benefits, (higher deductible) for premiums. The health insurance premiums are usually tax deductible while employee OOP costs are not. The HSA allows these medical plans and other qualified health care expenses (dental, vision, etc.) to be paid with tax preferred dollars, without the “use-it-or-lose-it” restrictions of Flexible Spending Account (FSA’s).

How about a simple example on how HSA plans can reduce the effective plan deductible? Let’s take an employee in the 22% federal marginal tax bracket and enrolled in a $1,900 deductible HSA plan. If they incurred $1,900 of medical claims under the plan, paying the deductible with HSA dollars would have the effect of reducing the deductible to below $1,500. And for people incurring additional costs over the deductible the tax advantaged benefit continues. Owners, partners and staff in higher tax brackets benefit accordingly.

In addition to one-off technical questions on how to address a specific issue, we are also regularly asked how to make employee benefit packages more attractive, to help attract and retain scarce employee talent. HSA’s can also serve in this role as an important employee benefit enhancement.   HSA’s allow federal tax-deductible contribution maximums between $3,600 and $8,200 annually, depending on age and family status. Like 401K’s, employers and employees can both contribute to the employee’s HSA account and we have client stories of contribution strategies making a win for both. While regular 401K distributions are taxed, HSA funds distributed to pay qualifying medical expenses, are not. HSA’s are attractive to employees because the account stays with them throughout their career and into retirement. This is particularly important for retirement years when healthcare costs (not covered by Medicare) are typically at their highest.  CalCPA Health has almost half its members enrolled in HSA plans. With these HSA positives, we often wonder why all are not enrolled. HSA plans can start at any month of the year, but there is still time to get a quote and start an HSA plan for January 2021.

CalCPA Health operates the Employee Benefits Hotline to answer questions and help steer you in the right direction. You can email us at info@calcpahealth.com or call 650-522-3258.