The IRS issued guidance in July expanding the preventive care benefits that can be provided by a high-deductible health plan (HDHP) on a no-deductible or low-deductible basis without any adverse effect on Health Savings Account (HSA) eligibility. Here are some details.
Under the HSA rules, preventive care generally excludes services or benefits intended to treat existing illnesses, injuries or conditions. But a June 2019 executive order called for changes to those rules that would allow HDHPs to provide low-cost preventive care to help maintain the health of individuals with chronic conditions. For cost reasons, those individuals might not obtain care needed to prevent their conditions from worsening, resulting in consequences — such as heart attacks and strokes — that require more extensive medical intervention.
Under the guidance, specified services and items that are used for certain chronic conditions are considered preventive care for HSA purposes when prescribed for individuals diagnosed with the associated condition to prevent exacerbation of the condition or the development of a secondary condition. (The guidance clarifies that it doesn't affect the definition of preventive care under the Affordable Care Act.)
Those services and items, along with the conditions for which they must be prescribed to qualify as preventive care, are listed in an appendix to the guidance. The list includes 14 medical services or items for individuals with 11 specified chronic conditions. The guidance explains the criteria that the IRS used to determine the listed services and items but cautions that services and items not on the list may not be treated as preventive even if they meet the same criteria. Services or items that treat complications or secondary conditions that occur, notwithstanding the preventive care, also aren't treated as preventive care under the HSA rules.
The guidance is effective immediately. The IRS and the U.S. Department of the Treasury, in consultation with the Department of Health and Human Services, will review the list approximately every five to 10 years to determine whether any items or services should be removed or added.
The guidance addresses an issue that has long concerned employers and service providers. Note that the additional benefits that will qualify as preventive care are limited to the listed items and services when prescribed under the circumstances required in the guidance (for example, to treat a specified, diagnosed condition). When prescribed under other circumstances, these benefits ― like benefits not on the list ― remain subject to the general HSA rules regarding preventive care.
In some respects, the guidance provides helpful clarification. Many health care plans already treat similar expenses for chronic conditions as preventive care for HSA purposes. However, some plans may have used a broader list of benefits or conditions than the IRS guidance. Moreover, pharmacy benefits managers might not ask why a specific drug was prescribed before processing the claim.
Thus, the guidance may ultimately contract the scope of expenses being treated as preventive care for some plans, and the lengthy period between reviews means that new treatments and conditions may not be added for quite some time. Some level of transition relief would be a welcome addition for these plans.
If your organization offers an "HDHP+HSA," this guidance is important news. Be sure you're clear on all the details and the ultimate impact on your plan. Your benefits advisors can help.
Under Internal Revenue Code Section 4980H, applicable large employers (ALEs) that don't offer qualified health care coverage to substantially all full-time employees may be liable for an employer shared responsibility payment (ESRP). Generally, an ALE is an employer with at least 50 full-time employees, including full-time equivalent employees, on business days in the preceding calendar year. An ALE will owe an ESRP if either:
1. The ALE fails to offer minimum essential coverage to substantially all its full-time employees (and their dependents), and at least one full-time employee successfully claims the premium tax credit, or
2. The ALE offers minimum essential coverage to substantially all its full-time employees (and their dependents), but at least one of the full-time employees was allowed the premium tax credit because the coverage doesn't provide minimum value, isn't affordable or the full-time employee wasn't offered coverage.
The ESRP was generally first effective in 2015, but certain employers were provided transitional relief for 2015 and 2016. In 2017, President Trump signed an executive order directing the IRS to use its authority to waive, defer, grant exemptions from or delay implementation of any provision or requirement of the Affordable Care Act (ACA) that would impose a regulatory burden on, among others, purchasers of health insurance.
The IRS issued an Information Letter in July that discusses whether the ESRP may be waived or reduced for hardship and whether the IRS will extend transitional relief for certain employers. The letter notes:
Therefore, Sec. 4980H remains in force, and ALEs that don't provide qualified health care coverage to substantially all their full-time employees must pay an ESRP. (The Information Letter didn't address the issue of transitional relief except to say that relief was provided to certain employers through 2016.)
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