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Consumers Can Shift Health Savings Accounts For Better Options

This week, readers wrote in with questions about health savings accounts and the “Cadillac tax.” Adding grandchildren to a health plan cropped up too.

Q. Last year, my wife and I opened a health savings account. Since then, my account has been moved twice, and we have no choice as to who manages it. We can’t shop around for someone with lower fees. I think that is a big flaw in the system. Why can’t I choose to have my HSA with the same company I have my brokerage account?

A. You may be able to do just that. Any contributions you make or your employer makes to a health savings account belong to you, and you can transfer the funds to a different HSA with another HSA provider that offers lower fees or better services if you wish, say Treasury Department officials. If you want to move the money to the company where you have your brokerage account, you can, provided that company offers health savings accounts.

Health savings accounts, which were first offered in 2004, must be linked to a health plan that meets certain standards, including having a deductible of at least $1,300 for individual coverage and $2,600 for a family plan in 2015. The accounts offer people a way to save money tax free to use for medical expenses. Depending on the account, contributions may earn interest, or account holders may invest the money in the market.

Many HSA account providers charge a monthly maintenance fee that may range from a few dollars to $7 or $8, says Eric Remjeske, president of Devenir, an HSA research and consulting company.

“Some just charge a fee but don’t offer a lot of services,” Remjeske says, “while others say it’s $2 a month, but here are all the services you get,” which may include a debit card and online tools or calculators.

Q. The individual platinum plan that I purchased on the marketplace costs $12,000 a year. In 2018, I believe I’ll owe 40 percent of $1,800 in excise tax because my plan will qualify as a “Cadillac plan.” Is my calculation correct?

A. No, you won’t be subject to the tax. Although your figures are correct, only group plans –not individual plans like yours purchased on the health insurance marketplace — are subject to the health law’s so-called Cadillac tax. Group health plans are those usually offered by an employer or union.

Starting in 2018, group health plans whose premiums exceed $10,200 for single coverage or $27,500 for family coverage will be subject to an excise tax of 40 percent on the amount over those thresholds. The tax, which will be paid by insurers and employers, is intended to dissuade them from offering plans with very generous benefits. Such gold-plated plans may encourage people to get unnecessary tests and other care they may not need, which drives up spending overall. Some advocates have pointed out, however, that plans may be expensive for other reasons, for example, because they’re offered in high-cost areas or cover disproportionate numbers of old or sick people.

You’re correct that the excise tax would be 40 percent of $1,800, the amount over the $10,200 cutoff. But you won’t owe that $720 because you have an individual plan.

The tax grew out of the congressional debate over the health law. Some policy experts wanted to begin taxing workers on the value of their employer-sponsored health insurance. The excise tax on expensive plans was seen as a more palatable alternative that could accomplish some of the same goals. But it remains unpopular, and efforts to repeal it continue.

Many self-employed individuals can also reduce their taxable income by deducting the premiums they pay for health insurance from their income taxes, similar to the perk that workers with employer-sponsored coverage enjoy. However, applying the excise tax to people with individual coverage wasn’t considered during the health law debate, says Timothy Jost, a law professor at Washington and Lee University who is an expert on the health law.

Q. Can I add my newborn grandchild to my health insurance, if my son is not married and is covered under my plan?

A. It’s unlikely you’ll be able to do so. The health law requires insurers and employers that cover dependents to make coverage available until children reach age 26. But coverage is not required to be offered to grandchildren.

However, it’s still worth asking your employer if you can add your grandchild to your plan, says Cheryl Fish-Parcham, private insurance program director at Families USA, an advocacy group.

In addition, your grandchild may be eligible for Medicaid, the federal-state program for low-income people, or CHIP, which has slightly higher income limits. There are special eligibility rules for children who are tax dependents of someone who is not their parent or a spouse, says Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities. You can also purchase a “child-only” policy on the health marketplace in your state.

Please contact Kaiser Health News to send comments or ideas for future topics for the Insuring Your Health column.

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.

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