On Oct. 8, 2015, California Gov. Jerry Brown signed AB 1305 into law. This law imposes a maximum out-of-pocket (OOP) limit for an in individual participant enrolled in family coverage that is no greater than the maximum OOP limit for self-only coverage for that insurance product. Essentially, this means that for all fully-insured plans sitused in California, an individual enrolled in family coverage will not be required to pay more than what he/she would pay in OOP expenses if he/she were enrolled in self-only coverage under the same insurance product. In other words, the self-only OOP maximum is “embedded” in the family coverage. This OOP maximum requirement went into effect on Jan. 1, 2016.
Additionally, AB 1305 requires embedded deductibles. This means that if a family plan includes a deductible, the plan may not impose a greater deductible on an individual participant in family coverage than the deductible for self-only coverage. For individual and small group plans, the embedded deductible requirement became effective Jan. 1, 2016, and for large group plans, this requirement becomes effective Jan. 1, 2017.
AB 1305 does pose a compliance concern for employers offering fully-insured HSA-compatible HDHP coverage in California if that coverage offers a self-only deductible or OOP maximum amount that is below the minimum federal deductible required for family HDHP coverage.
As background, PPACA imposes OOP maximums on individual and group health plans. For 2016, those maximum limits are $6,850 for self-only coverage, and $13,700 for family coverage. Furthermore, to be eligible to contribute to an HSA, federal law requires that an individual be covered under an HDHP that meets certain deductible thresholds (and those are indexed each year). For 2016, an HDHP must have a minimum deductible of $1,300 for self-only coverage and $2,600 for family coverage.
However, in light of this new law, let’s consider a fully-insured HSA-compatible plan with a deductible and OOP maximum of $1,500 for individual coverage and $3,000 for family coverage. AB 1305 requires that the family HSA benefit have an embedded OOP maximum of $1,500 for individuals since the OOP maximum is $1,500 for individuals; despite the fact that federal law requires that in order to be considered as a qualified HDHP for HSA purposes, the family deductible has to be no lower than $2,600. This contradicts federal rules. Therefore, in order to satisfy AB 1305 requirements and at the same time comply with federal HSA-HDHP rules, fully-insured HSA-compatible HDHP plans in California have increased their self-only OOP maximums to meet the family $2,600 deductible threshold.
Changes may be forthcoming to resolve this potential problem, and NFP Benefits Compliance will provide an update if the legislation is revised. Also, it’s worth noting that AB 1305 does not apply to grandfathered plans; rather it applies to non-grandfathered individual and group health care service plan contracts that provide for essential health benefits.
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