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HSAs, COBRA: Do They Mesh With Obamacare?

This is a critical moment in the evolution of Obamacare – and of this column. Tens of thousands of you already have enrolled in health plans that will kick in a few days from now, if they haven’t already.

Many more of you, I’m willing to bet, remain on the sidelines waiting for the drop-dead open-enrollment deadline of March 31, 2014.

For those of you who still have decisions to make, I’m devoting this column to three questions that have been popular among Ask Emily readers, but have remained unanswered (by me) until now. They have implications for a broad range of Californians.

For those of you who will be testing your new health plans in the coming weeks, please tell me how it goes, both the good and the bad. I especially want to know if you have been able to find – and see – a doctor.

Q: Is it possible to pair an HSA account with the high-deductible plans coming out under Covered California? 

A: What, my dear Ask Emily readers, you haven’t committed the dozens of maddening Obamacare-related acronyms to memory? ACA, COBRA, MAGI, ACO, FPL. The list goes on. And on.

In this case, Roger of Altadena is asking about HSAs, or health savings accounts. Like many acronyms on that list, HSAs predate Obamacare.

HSAs resemble 401(k)s and come with certain benefits and requirements: Your contributions to the accounts are sheltered from income taxes, but can only be used for health care expenses. If you withdraw money for anything other than medical expenses, you’ll pay taxes on those funds. Those under 65 also will face a hefty penalty.

HSAs must be used in conjunction with high-deductible health plans. That’s defined, in part, as plans with annual deductibles of at least $1,250 for an individual or $2,500 for a family.

No worries there with Covered California, which offers plenty of high-deductible plans, including ones that are specifically designated for use with HSAs.

All of the HSA-eligible plans are “bronze-level” policies, which have the highest out-of-pocket costs of all the plans offered through the exchange. (Bronze-level plans pay 60 percent of covered medical costs, leaving 40 percent to the consumer.) The deductibles are $4,500 for an individual and $9,000 for a family.

The HSA-eligible plans are offered by Anthem, Blue Shield, Kaiser and Western Health Advantage in various parts of the state, says Covered California’s Larry Hicks. There are at least two HSA options in each region, he says.

So yes, Roger, you can pair an HSA with a Covered California plan. But beware that the Affordable Care Act (ACA!) has changed a few HSA rules for everyone.

According to The Tax Institute at H&R Block, the law prohibits using HSA funds to buy nonprescription medications and raises the penalty for using HSA money for nonmedical purposes from 10 percent to 20 percent.

Q: Under Obamacare, it appears that there will be no asset test for Medi-Cal eligibility. Does this mean that my estate won’t be subject to Medi-Cal’s estate recovery program after I die?

For some reason, Obamacare’s expansion of Medi-Cal doesn’t attract the same kind of attention as Covered California. But it’s a big deal. Medi-Cal, the state’s version of the federal Medicaid program, provides coverage to low-income residents. More than 1 million additional Californians will be able to join the program starting Jan. 1.

Kim is right. As part of the expansion, the asset and property limits that have limited eligibility will go away for most new applicants (With some exceptions. Of course.)

The Estate Recovery Program she mentions is something different. In a nutshell, Medi-Cal pays for medical services for people who don’t have enough money to pay for it themselves. In some cases, the program asks members to pay it back. After they die.

There are limitations on who can be asked. Under the following circumstances, the Department of Health Care Services (DHCS), which administers Medi-Cal, cannot require reimbursement:

  • As long as a spouse is still alive.
  • When Medi-Cal services are provided before the member’s 55th birthday, unless the member is cared for in an institution such as a nursing home. (A hospital is not considered an institution.)
  • If the member is survived by a child under 21, or a child who is blind or has a disability.

If the department opts to seek reimbursement after a member dies, it will determine how much is left in that person’s estate.

That could include someone’s home. “The Department may allow a voluntary lien to be placed on the house to ensure payment of its claim,” according to a DHCS fact sheet.

So under Obamacare, will the Estate Recovery Program go away, like the asset and property limit tests?


Well, at least not yet.

The federal government has told states that it will weigh in on this issue after Jan. 1, says Lisa Gray of DHCS.

That means things may change. Or they could stay the same. For now, the program remains.

Q: I was laid off a while ago and though I have found some work as a consultant, it has no benefits. I have been getting my health care through Cal-COBRA. This will run out next year after the open-enrollment period ends. I am satisfied with this coverage for now, so I don’t want to change it. What happens in this situation?

A: Yay, another acronym. COBRA (you don’t want to know what it stands for) is a federal law that allows workers and their families who lose their job-based health benefits (under certain circumstances, such as getting laid off) to keep them for a limited time.

The catch is that they usually have to pay the entire premium themselves, without the employer contribution.

Read: expensive.

COBRA is for employers and health plans that cover 20 or more employees. Cal-COBRA is a state law that extends similar benefits to workers at businesses with two to 19 employees.

Martha from San Diego – and others with COBRA or Cal-COBRA coverage – are considered covered under the Obamacare requirement to have health coverage.

So, yes, you can keep it until it runs out. When your coverage ends, that will trigger a special enrollment period for you outside of regular open enrollment, which will allow you to sign up for a new plan.

But what about those who want to ditch their COBRA coverage now? You can do that, too.

If you have COBRA or Cal-COBRA, you can shop for a plan from Covered California or the open market. If your income qualifies, you also can receive tax credits through Covered California.

Just make sure to drop your COBRA coverage effective on the start date of your new plan.

However, be warned, if you miss open enrollment and decide to drop your coverage before your benefits run out, you won’t be eligible for a special open-enrollment period like Martha will be.

And that’s nothing to LOL about.

Provided by the Center for Health Reporting at the University of Southern California.

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