On October 8, 2015, California Governor Jerry Brown signed into law Assembly Bill 1305, which effectively invalidates some Health Savings Account (HSA)-eligible plans. Absent an amendment, these plans will no longer be eligible to allow contributions into an HSA as of January 1, 2016. For large group plans, this effective date was amended to require embedded deductibles for plans issued, amended, or renewed on or after 1/1/17.

 The problem lies in that AB 1305 mandates fully-insured plans sitused in California to embed deductibles and Out-Of-Pocket Maximums (OOPM) at amounts that are lower than federal language requires for plans to be eligible to have an HSA component. Federal law requires a minimum deductible of at least $1,300 (individual) / $2,600 (family). This California law requires a family HSA have an individual embedded OOPM of no more than the single OOPM offered – which for 2016 is $6,550 (individual) or $13,100 (family).

 Although we have already experienced a delayed effective date for the embedded deductibles, this delay was missing for the embedded OOPM. In other words, the embedded OOPM rules for applicable California insured plans applies the first day of the plan year on/after January 1, 2016.

For Example

  • An HSA plan with a deductible and OOPM of $1,500 for single employees / $3,000 for families. 
  • California AB 1305 requires that the family HSA benefit have an embedded OOPM of $1,500 for individuals since the OOPM is $1,500 for individuals; despite the fact that federal law requires that in order to qualify as an HSA, the family deductible has to be no lower than $2,600. This contradicts federal rules.

Since AB 1305 was passed just about four months ago, with an effective date of January 1, 2016, in order comply with California law and federal HSA rules, the employer in the example above would have to make a mid-year change to its plan effective January 1, 2016 (even if they have a non-calendar year plan) and increase the individual deductible and OOPM to $2,600.

Next Steps

  • Employers with insured, nonspecialized coverage written in California are subject to this new mandate, potentially even for coverage provided outside of California if the insured contract is sitused in that state.
  • Changes may result in coming months to resolve this potential problem. Be on the lookout for HUB International’s future newsletter guidance.
  • California AB 1305 does not apply to grandfathered plans, rather only non-grandfathered individual and group health care service plan contracts that provide for Essential Health Benefits (EHB).
  • For complete details, click here for AB 1305.