HSA Silver plan with cost sharing = Big trouble!

[WestcoastRN]

Just thought I'd share our latest experience with the ACA, just in case one/some of you weren't aware of this "gotcha." After going to the ACA website checking out the few remaining plans (PPO's have all disappeared in Utah), I calculated our 2016 income which qualified us for a Silver HSA-eligible plan that resulted in cost sharing. This calculation consisted of my small pension, DH's SS, estimated ordinary dividends, and a yearly distribution from an inherited IRA. When I subtracted the pre-tax HSA contribution from this amount, it just barely placed us in cost sharing territory. Win-win I think...cost sharing AND an HSA!

Yesterday, DH and I met with a health insurance broker to help with our 2016 enrollment. Went through the enrollment screens, income info, etc. The ACA website allowed us to choose that Silver plan with an HSA. Then the broker said "I don't think this is correct, and I'm not sure why the website is letting you purchase this plan." He went on to explain that if you purchase a Silver plan with an HSA while falling in the cost sharing range, the HSA is no longer allowed. The agent then called the insurance company (Select Health through Intermountain Healthcare) to double check. The Select Health rep did indeed confirm that an HSA contribution would not be allowed for 2016 due to our income falling in the cost sharing level.

The insurance broker said the reason behind disallowing an HSA contribution while financially benefiting from a cost sharing policy is due to the rationale that if you are "wealthy enough" to contribute to an HSA, you are too wealthy to qualify for a cost sharing plan.

Long story short: In order to get an HSA Silver plan we will have to manipulate our income by taking a larger RMD from the inherited IRA. Had we finalized the purchase of the original cost sharing Silver plan, the agent thought the insurance company would have eventually contacted us regarding the HSA ineligibility, but who knows. I can just imagine contributing to the HSA in January, then finding out mid year I wasn't allowed to do that.

 

[Ian S]

If your income is low enough for cost sharing, I'm surprised the HSA deduction is really worth that much. I went with an HSA type plan with cost sharing for 2015 but knew I would lose the HSA aspect. However, I knew I would blow through the plan deductible this year and I have so it's worked well for me even without the HSA deduction.

 

[Fermion]

I already knew you could not have an HSA with substantial cost sharing plan but this is good info. My understanding is an HSA is for high deductible plans (which also have to be HSA eligible, not all high deductible are). Since cost sharing can lower your deductible to really nothing ($250 a year in extreme cases) it really is not a high deductible plan anymore.

 

[bingybear]

Long story short: In order to get an HSA Silver plan we will have to manipulate our income by taking a larger RMD from the inherited IRA. Had we finalized the purchase of the original cost sharing Silver plan, the agent thought the insurance company would have eventually contacted us regarding the HSA ineligibility, but who knows. I can just imagine contributing to the HSA in January, then finding out mid year I wasn't allowed to do that.

How would they have known you were contributing. You could set it up with any HSA administrator that handles individual plans.
But it could come up at tax time at the end of next year.

 

[WestcoastRN]

Yeah, I had no clue at all. Thought I had done all my homework, so was really surprised. The agent recommended we go with an HSA plan since DH is Medicare age in a few years, and we can use the HSA funds for Medicare premiums. And we are both healthy, didn't require any clinic visits last year, medications, etc. This is all new territory for us, this coming from someone who has worked in healthcare.

 

[audreyh1]

I already knew you could not have an HSA with substantial cost sharing plan but this is good info. My understanding is an HSA is for high deductible plans (which also have to be HSA eligible, not all high deductible are). Since cost sharing can lower your deductible to really nothing ($250 a year in extreme cases) it really is not a high deductible plan anymore.

Exactly.

 

[MBSC]

The 2016 minimum deductible for an HSA compatible plan is $1300/$2600 individual/family. There are also other requirements, such as no copays before the deductible is met. If the Silver plan cost sharing drops below these levels, it becomes non-HSA compatible. You have to weigh the value of the low cost share and premium against the HSA tax savings.

Previous E-R thread: http://www.early-retirement.org/forums/f38/hsa-and-hdhp-with-aca-cost-sharing-69905.html#post1398084

 

[WestcoastRN]

The 2016 minimum deductible for an HSA compatible plan is $1300/$2600 individual/family. There are also other requirements, such as no copays before the deductible is met. If the Silver plan cost sharing drops below these levels, it becomes non-HSA compatible. You have to weigh the value of the low cost share and premium against the HSA tax savings.

Previous E-R thread: http://www.early-retirement.org/forums/f38/hsa-and-hdhp-with-aca-cost-sharing-69905.html#post1398084

That's exactly what the agent said, weigh the cost share against the tax savings. After some calculations, he felt we would come out ahead with an HSA. But that's factoring in we don't use much healthcare (at the moment).

 

[Fermion]

The upside of going with an HSA is you don't really have to deal with the exchange folks at all. You can buy a bronze (or silver if you want) policy for full price, checking the box that you do not want a subsidy, then at tax time you get your subsidy back in the form of a refund.

I am starting to think HSA + bronze + no exchange phone calls > cost sharing silver

If I had just a bit more income where cost sharing was not as significant I would seriously consider HSA instead and just not claim cost sharing benefits.

 

[Fred123]

So what happens if you have an initial MAGI that places you in a plan that makes you eligible for an HSA and you then contribute enough to the HSA that you lower your MAGI to a level where, with cost sharing, it is no longer a HDHP? For instance, from the WA state exchange, it looks like with $35K MAGI, the deductible with a Premera HSA plan is $5200. If someone then fully funded their HSA ($6750), the MAGI would be less than $30K which, with cost sharing, would result in a non-HSA compliant $1500K deductible.

Gotta love the ridiculous complexity of the US health care system now. I'm sure that anyone who lives in Europe or Canada who is reading this is laughing right now.

 

[bingybear]

So what happens if you have an initial MAGI that places you in a plan that makes you eligible for an HSA and you then contribute enough to the HSA that you lower your MAGI to a level where, with cost sharing, it is no longer a HDHP? For instance, from the WA state exchange, it looks like with $35K MAGI, the deductible with a Premera HSA plan is $5200. If someone then fully funded their HSA ($6750), the MAGI would be less than $30K which, with cost sharing, would result in a non-HSA compliant $1500K deductible.

Gotta love the ridiculous complexity of the US health care system now. I'm sure that anyone who lives in Europe or Canada who is reading this is laughing right now.

to your last comment, I would expect so.

If you HSA contribution pushes you to where you could a different plan, I would wonder why you did not include the effect of these contributions in your estimate. Also, if you contribute by the month, you will be less likely to over contribute to your HSA if you do change plans.
If you do have a real reason to change plans mid year... remember the new plan will likely not recognize you contribution to deductibles, etc.

 

[gauss]

The upside of going with an HSA is you don't really have to deal with the exchange folks at all. You can buy a bronze (or silver if you want) policy for full price, checking the box that you do not want a subsidy, then at tax time you get your subsidy back in the form of a refund.

Someone correct me if I am wrong, but I believe that Premium Tax Credits (PTCs) (aka subsidies) are only available with policies purchased on an exchange.

It does not matter if you take the subsidy monthly or wait until the end of the year at tax time to get it.

-gauss

 

[rbmrtn]

Someone correct me if I am wrong, but I believe that Premium Tax Credits (PTCs) (aka subsidies) are only available with policies purchased on an exchange.

Correct.

 

[Fermion]

Someone correct me if I am wrong, but I believe that Premium Tax Credits (PTCs) (aka subsidies) are only available with policies purchased on an exchange.

It does not matter if you take the subsidy monthly or wait until the end of the year at tax time to get it.

-gauss

Yes, you do have to buy the policy on the exchange but you can check a box that says "I do not wish to receive subsidies" and the application turns into about three questions. No income verification or anything. Then you just get the subsidies as a lump sum at tax time (note this doesn't work for cost sharing portion).

 

[bingybear]

Someone correct me if I am wrong, but I believe that Premium Tax Credits (PTCs) (aka subsidies) are only available with policies purchased on an exchange.

It does not matter if you take the subsidy monthly or wait until the end of the year at tax time to get it.

-gauss

I think what you quoted was meant different than how you understood it.

The upside of going with an HSA is you don't really have to deal with the exchange folks at all. You can buy a bronze (or silver if you want) policy for full price, checking the box that you do not want a subsidy, then at tax time you get your subsidy back in the form of a refund.

I believe Fermion was not stating that you can buy it off exchange and get the PTC, but you can estimate your income above the subsidy limits (not sure there is a checkbox that is labelled "don't want a subsidy"). This would likely remove the requirement to produce income estimates. I believe this is the "don't really have to deal with the exchange folks at all" comment.

 

[easysurfer]

Yes, you do have to buy the policy on the exchange but you can check a box that says "I do not wish to receive subsidies" and the application turns into about three questions. No income verification or anything. Then you just get the subsidies as a lump sum at tax time (note this doesn't work for cost sharing portion).

I kinda like this approach. Wouldn't have to fool with the income verification process and at the day of reckoning (April 15) either get a refund or nothing.

 

[ziggy29]

I kinda like this approach. Wouldn't have to fool with the income verification process and at the day of reckoning (April 15) either get a refund or nothing.

Especially given today's pathetic rates on savings, if you can afford the unsubsidized monthly payments from a budgeting/cash flow perspective and you don't want the risk of an unexpected negative shock when preparing your taxes, this might not be a bad idea.

 

[easysurfer]

Especially given today's pathetic rates on savings, if you can afford the unsubsidized monthly payments from a budgeting/cash flow perspective and you don't want the risk of an unexpected negative shock when preparing your taxes, this might not be a bad idea.

Seems like a good lazy way to still get credits at tax filing time, but just let Mr. Turbotax (or competitor) do the calculations. As for budgeting, I would have paid the same or similar amount monthly anyhow had I opted to get a plan off market.

 

[zenzy]

On my state exchange, I estimated income at 144% FPL to get cost sharing reductions. If I'm later required to prove income above FPL I won't be able to. Big trouble ahead?

 

[karen1972]

The upside of going with an HSA is you don't really have to deal with the exchange folks at all. You can buy a bronze (or silver if you want) policy for full price, checking the box that you do not want a subsidy, then at tax time you get your subsidy back in the form of a refund.

I am starting to think HSA + bronze + no exchange phone calls > cost sharing silver

If I had just a bit more income where cost sharing was not as significant I would seriously consider HSA instead and just not claim cost sharing benefits.

But you still have to buy it off the exchange...if you don't get it from the exchange, it nullifies the tax qualifications.. got caught in that this year as I didn't think I would qualify but now I think I could have had I not bought direct.

 

[spncity]

Quote:
Originally Posted by ziggy29
Especially given today's pathetic rates on savings, if you can afford the unsubsidized monthly payments from a budgeting/cash flow perspective and you don't want the risk of an unexpected negative shock when preparing your taxes, this might not be a bad idea.

Seems like a good lazy way to still get credits at tax filing time, but just let Mr. Turbotax (or competitor) do the calculations. As for budgeting, I would have paid the same or similar amount monthly anyhow had I opted to get a plan off market.

So - what do you think:

1. Hypothetical question: If someone does the above, and expects to get the subsidy back at tax time - and it turns out their income would have qualified them for Medicaid - what happens then?

2. Does getting the subsidy later at tax time mean one can do an annual income withdrawal from pre-tax retirement funds (don't have to worry about having the income on a somewhat even monthly level)?

 

[easysurfer]

Quote:
Originally Posted by ziggy29
Especially given today's pathetic rates on savings, if you can afford the unsubsidized monthly payments from a budgeting/cash flow perspective and you don't want the risk of an unexpected negative shock when preparing your taxes, this might not be a bad idea.



So - what do you think:

1. Hypothetical question: If someone does the above, and expects to get the subsidy back at tax time - and it turns out their income would have qualified them for Medicaid - what happens then?

2. Does getting the subsidy later at tax time mean one can do an annual income withdrawal from pre-tax retirement funds (don't have to worry about having the income on a somewhat even monthly level)?

For me, for #1, I'd make sure to have enough income above Medicaid qualification (though don't know what happens in the case if someone should have been on Medicaid).

With this approach, I'd assume the tax software would know how to handle and not do any double dipping. For example, say in 2016, I pay out $5000 in premiums, but $3000 I get back as a refund at filing time. I wouldn't get the refund until around April 2017 when I file.

 

[ziggy29]

For me, for #1, I'd make sure to have enough income above Medicaid qualification (though don't know what happens in the case if someone should have been on Medicaid).

What one should do there might depend on whether your state expanded Medicaid. If you are in a state that did not, I'd either try to reduce income enough to qualify for it, or find a way to generate a few more bucks in taxable income to qualify for tax credits on the marketplace.

 

[Fred123]

to your last comment, I would expect so.



If you HSA contribution pushes you to where you could a different plan, I would wonder why you did not include the effect of these contributions in your estimate. Also, if you contribute by the month, you will be less likely to over contribute to your HSA if you do change plans.

If you do have a real reason to change plans mid year... remember the new plan will likely not recognize you contribution to deductibles, etc.

This wouldn't be a different plan. It would be the same plan with the MAGI change through HSA contributions changing the cost sharing subsidies which would change the plan deductible from HSA eligible to not eligible


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[Fred123]

to your last comment, I would expect so.



If you HSA contribution pushes you to where you could a different plan, I would wonder why you did not include the effect of these contributions in your estimate. Also, if you contribute by the month, you will be less likely to over contribute to your HSA if you do change plans.

If you do have a real reason to change plans mid year... remember the new plan will likely not recognize you contribution to deductibles, etc.

This wouldn't be a different plan. It would be the same plan with the MAGI change through HSA contributions changing the cost sharing subsidies which would change the plan deductible from HSA eligible to not eligible


Sent from my iPhone using Early Retirement Forum