Selling Health Savings Accounts to CPAs and Financial Professionals in California: A Guide for Health Insurance Brokers

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Health Savings Accounts (HSAs) are valuable for managing healthcare costs, offering tax advantages and long-term savings opportunities. As a health insurance broker in California, you can leverage HSAs to build relationships with qualified* Certified Public Accountants (CPAs) and financial professionals (wealth management, advisors, financial institutions, etc.) who advise their clients on financial matters. Here is a guide on effectively selling HSAs to CPAs and financial professionals in California.

1. Understand the Benefits of HSAs
Just because a CPA or financial professional may have a strong understanding of finances and taxes does not mean they understand the full benefits of HSAs.
Before you approach these clients, ensure you have a comprehensive understanding of HSAs and the benefits they can provide:

*Tax Advantages: Contributions to HSAs are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses. This means money can be earned (income), invested (investment returns), and used to pay expenses without ever being taxed.

*One way to look at the HSA tax advantage:
Example: An HSA subscriber in the 25% tax bracket is enrolled in a $2000 deductible qualified HDHP. Since they pay the deductible with pre-tax dollars, the $2000 deductible would be comparable to a $1500 non-HSA deductible plan. The tax-preferred effect (savings) continues beyond the deductible, all the way up to their out-of-pocket maximum. An $8,000 OOP max would behave like a $6,000 OOP max in a non-HSA plan.

*Cost Savings: HSAs are paired with qualified high-deductible health plans (HDHPs), which typically have lower premiums than comparable non-HSA plans.

*Tax-free Investment Returns: HSA funds can be invested, growing into a retirement nest egg similar to a 401K or IRA, except there are no Required Minimum Distributions, and you do not pay tax on the investment earnings when you use the money for qualified health care expenses.

*Flexibility and Ownership: The employee owns HSA funds and stays with them throughout their career (from job to job) and into retirement. There are no use-it-or-lose-it provisions like FSA’s.

Attract and Retain: HSAs have become a valuable tool in today’s tight labor market for employers to attract and retain talent. With no discrimination tests like 401K plans, employers easily add a valuable employee benefit to their benefits package.

Important Note: The tax effects mentioned above are federal taxes. California is one of only two states that do not recognize HSAs. Given this, the benefit from the federal tax effect is typically good enough to make the HSA math work for most companies and employees.

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COVID-19 Update

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At the recent CalCPA Council meeting members asked about how the CPA population was fairing health wise in the COVID pandemic. Ron Lang C.E.O. of CalCPA Health told Council that based on the data from their population of approximately 800 firms, that we are fairing a bit better than the general population. This is to be expected because COVID 19 has affected older, non-working populations more. Mr. Lang stated that to date CalCPA Health has had no fatalities and he would post a data update on clips for all members – so here it is.

As of November 2, 2020, 10.2% of CalCPA Health’s population has received at least one COVID test, with 11.6% of those tests positive. That equates to 1.2% of the total population testing positive. About a quarter of the tests and confirmed cases are antibody tests. About 3.5% of the cases have required hospitalization.

Also, more 25% of CalCPA Health’s population has used some sort of telehealth/virtual doctor visit since the pandemic started, up from less than 1% prior.

Anthem Reaches Agreement With Sutter Health Network

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Anthem Blue Cross Announces Multi-Year Agreement with Sutter Health

This week Anthem Blue Cross announced that it worked closely with Sutter Health and came to an agreement for a new multi-year contract that provides Anthem members with continued in-network access to Sutter facilities and with affiliated physicians through December 31, 2022.

This agreement means that Sutter Health will remain in the Anthem Blue Cross network, and CalCPA Health HMO, PPO and HSA members may access Sutter facilities and physicians. To learn more about this agreement, please visit Anthem’s site.

If you have any questions, call Banyan Administrators at (877) 480-7923 or email for more information.

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Understanding Premium Rating Under the Affordable Care Act (ACA)

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Applies to all small employer plans in California

Background

Two years ago the Affordable Care Act’s mandated premium rating method went into effect for small employers (under 50 employees). As of January 1, 2016, all small employers in California (under 100 employees) must be rated according to the ACA rating method. This ACA mandate applies to all insurance carriers and all groups under 100 employees in California.

Key Takeaways

  • Group and individual employee premium rates may be significantly changing due to ACA’s mandated method of calculating premiums – not due to the base cost of medical insurance.
  • The largest premium increases/decreases tend to be:
    • Younger employees (increase) / older employees (decrease)
    • Family size: one child (decrease); two or more children (increase)
    • Families with children over age 21 (large increase)
    • Spouse’s age higher than the employee (increase); lower than employee (decrease)
    • Employees over age 65 with Medicare secondary rates (increase); Medicare primary (decrease)
    • Employees in certain mandated “rating areas” (increase or decrease)

Premium Rating Rule Changes Explained

The premiums calculated under the ACA and legacy (grandmother or large group) methods can have great differences. Premium rate differences between the methods may be driven by any combination of the four rating variants detailed below.

  1. Age Rating. The ACA mandates that each age has its own specific rate and also mandates the relative premium cost between each age rate. This means that each employee has a birthday increase at the start of every plan year as compared to the legacy method which only had age increases when employees crossed an age band threshold (20-29; 30-40, etc.).Compared to the legacy rating method this mandate increases rates for younger people and lowers rates for the older ages. This can result in rates doubling in the younger ages. Many parents are shocked to learn that the ACA mandates a 57.5% premium increase when their 20 year old dependent child turns 21. This is true for all insurance companies.
  2. Family Rating. ACA mandates that each member of a family is individually age-rated and then summed to an employee total. The legacy method had four rating tiers: employee only; employee+spouse; employee+children; and family. The legacy employee+children and family rating did not consider how many or how old the enrolled children were. Under the ACA mandate, the eldest three children under age 21 in each family are age rated in addition to any dependent children age 21 and older. Families with two or more children, and older children, can see significant premium increases under the ACA method. The legacy method did not consider the spouse’s age. Employee+spouse and family categories can experience sharp differences under the ACA method if the spouse is significantly older or younger than the employee.
  3. Medicare Secondary. Under the legacy rating method employees over age 65 employed by groups with fewer than 20 employees were rated below larger firms because their coverage was secondary to Medicare. ACA’s age rating rules eliminate Medicare secondary rates so all 65+’s are rated the same, which causes the legacy secondary employees to have significant premium increases.
  4. Rating Areas. The legacy rating method had nine (9) rating areas in California. California has mandated 19 rating areas under ACA rating rules. The state did not subdivide the 9 into 19 but redrew many of the boundaries. This can create significant premium variances for certain employees that were previously in a relatively lower/higher rating area and have been assigned to relatively higher/lower premium area.

Analysis

Premiums can increase or decrease, on specific employees, on dependents and on the group in aggregate. In many instances the ACA premium increases tend to affect dependent/spouse costs. Firms typically contribute relatively less towards dependent premiums which transfers much of the increase to the employee. For analyzing premium changes, firms should calculate the amount the premium increase effects their employer contribution versus the employee’s contribution. The ACA rating method can cause disruption in the employer and employee contributions based on the change to the ACA age rates. This may require companies to restructure their employer contributions to mitigate large variations in employer or employee contributions for employee only coverage.

To mitigate the rise in premiums the law has brought about since the implementation of ACA, there has been a trend of employees migrating to lower benefit (higher deductible) plans. Migrating to lower premium plans is a tactic being used by many employers and employees.

Employees with children age 21+ may look to enrolling them in a lower benefit plan in the individual market. The individual market has limited plan choices and provider networks, but these trade-offs may yield a lower premium.

 

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