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Covered California Q&A

Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Covered California Health Savings Account?

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Question: I wish to open a health savings account with $5500 from a retirement fund. If I use pretax funds (which are fully tax deductible), must I report this as income to Covered CA, because if I must, then I would most certainly exceed the threshold for a subsidy. My actual question is this: Would I have to repay the entire subsidy for the year or only from the point at which my income exceeded the threshold (that is, December 2015, the month I intend to open the HSA)?

Answer: Your plan won't fly. You can only open a health savings account (HSA) if you have a HSA qualified high-deductible health plan. That would be a Covered California plan labeled "Bronze 60 HSA". If you do not already have such a plan, you will not be able to change for one until 1/1/16. Secondly, if you take a $5,500 withdrawal from a qualified retirement account, the income will be reflected in your AGI and, whether or not you report it to Covered California, the IRS will adjust your tax due to reflect the added income and some of your premium tax credits will have to be repaid. If your AGI is above the subsidy threshold (400% FPL), then you would repay all of the subsidy you received.

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Without commenting on the other aspects of this, it should be noted that it is possible to do a one-time rollover from a pretax IRA to fund a HSA without increasing your AGI. Of course, the amount rolled over from a pretax IRA to fund the HSA cannot be deducted from your income as most HSA contributions would but at least it won’t add to your income nor would there be any early withdrawal penalty if it would otherwise apply.

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