HB Counsel Client Alert – IRS Expands Preventive Care Benefits Permitted to be Provided by HSA-Compatible HDHPs
A recent Executive Order directed the Internal Revenue Service (“IRS”) and Treasury Department to expand the list of preventive care services that a high deductible health plan (“HDHP”) can cover before the participant or beneficiary has met the plan’s deductible, without jeopardizing the participant or beneficiary’s eligibility to establish a Health Savings Account (“HSA”). In response to President Trump’s Executive Order 13877, “Improving Price and Quality Transparency in American Healthcare to Put Patients First,” and in consultation with the Department of Health and Human Services, the IRS issued Notice 2019-45 on July 17, 2019. IRS Notice 2019-45 expands the preventive care safe harbor to include a specific list of medical services received and items purchased, including prescription drugs, for individuals with certain chronic conditions.
Participants in an HDHP may be eligible to establish an HSA if certain restrictions are met. An HSA is a trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary, his or her spouse, and/or his or her tax dependents under an HDHP.
An “eligible individual” for purposes of establishing an HSA is, with respect to any month, any individual who:
- is covered under an HDHP on the first day of such month;
- is not covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage);
- is not enrolled in Medicare (mere eligibility is disregarded); and
- may not be claimed as a dependent on another person’s tax return (not including the spouse).
An eligible individual may also be covered by a health plan that is not an HDHP provided that the deductible is equal to or greater than the statutory minimum HDHP deductible.
A participant in an HDHP generally must pay for all services received under the plan until the plan’s minimum deductible is satisfied. For 2019, the statutory minimum deductible for HDHP coverage is $1,350 for individuals with single coverage, and $2,700 for those with family coverage. The limits increase in 2020 to $1,400 and $2,800, respectively. An HDHP may have a higher deductible but may not have a lower deductible than the statutory minimum level. Individuals who are enrolled in the HDHP coverage and who are not covered by any other disqualifying coverage may fund an HSA to help pay for the out of pocket medical costs they incur before meeting their deductibles, as well as copayments and coinsurance due under the plan.
Advocates who were concerned about individuals with chronic conditions failing to seek effective and necessary disease management care due to the pre-deductible cost urged the IRS and Treasury to expand the preventive services safe harbor to include items and services that help individuals manage chronic conditions. Advocates argued that declining pre-deductible disease management treatment would ultimately lead to higher medical costs. For example, an individual with congestive heart failure who fails to continue utilization of the treatments outlined in IRS Notice 2019-45 would ultimately require emergency room visits or more extensive medical care that could have been avoided had the individual followed a pre-deductible disease management regimen.
Specific Services and Items Classified as Preventive Care
Under an exception to the general rule, an HDHP may provide coverage for preventive care benefits before the deductible is satisfied. For this purpose, the scope of preventive care is determined by guidance issued by the Department of the Treasury and the IRS. Under guidance issued prior to Notice 2019-45, preventive care benefits generally will include: periodic health evaluations, including annual physicals; routine prenatal and well-child care; immunizations, tobacco cessation programs; obesity weight-loss program; and specific screening services. Preventive care benefits also include all of the preventive services that plans and issuers are required to provide at no cost to participants under the Patient Protection and Affordable Care Act (“ACA”), in addition to drugs or medications when they are taken by a person who has developed risk factors for a disease that has not manifested itself or become clinically apparent, or to prevent the reoccurrence of a disease from which a person has recovered.
Notice 2019-45 provides that certain medical care services and certain items, including prescription drugs, prescribed for specific chronic conditions will be classified as preventive care for someone with that condition. The care and items may be treated as preventive (and thus may be covered prior to satisfaction of the HDHP deductible) only when they are prescribed to treat an individual diagnosed with a listed chronic condition and only if prescribed to prevent the exacerbation or development of a secondary condition. Specific treatment for an individual with more than one chronic condition would still be considered preventive, but preventive coverage will not include treatment for secondary conditions or complications that might occur notwithstanding the preventive care.
Only the specific care and conditions noted in the guidance are considered preventive for individuals with the chronic conditions. Designated chronic conditions include congestive heart failure, heart disease, diabetes, coronary artery disease, osteoporosis, osteopenia, hypertension, asthma, liver disease, bleeding disorders, and depression. The Departments indicate that they will periodically (every 5 to 10 years) revisit and update the list of preventive care services and items.
Notice 2019-45 includes as an Appendix of the preventive care for specified chronic conditions. The Appendix includes a list of the medical services and items used to treat the chronic conditions that are recognized as preventive care eligible for pre-deductible HDHP coverage. The Appendix is attached as part of this Alert.
Although IRS Notice 2019-45 guidance is effective immediately, plan sponsors are not required to act on it right away. It may make sense to wait for the next plan year to expand preventive coverage since plan documentation and employee communications will need to be amended. The guidance does not require HDHPs to cover all of the conditions and treatments listed, or to cover the treatments listed at no cost to participants.
Plan sponsors must decide which preventive care items permitted pre-deductible, under the preventive care safe harbor, are appropriate after assessing its employee needs and potential costs to the plan. Plan sponsors should consider whether these preventive treatments should be covered at 100% or some other cost-sharing percentage. Expanding pre-deductible coverage for items and services related to chronic conditions could increase enrollment in and utilization of the HDHP. Expanded preventive care coverage could initially spell increased plan costs. However, proponents of covering treatment for chronic conditions as preventive care argue that doing so will give individuals an incentive to actively manage their chronic conditions and thus ultimately drive down the cost of care.
Plan sponsors must consider the timing of the new change in pre-deductible coverage. Mid-year changes to plan coverages are possible if allowed under the plan document and summary plan description (“SPD”). However, the plan may have to provide notice in advance if the change affects information in the plan’s summary of benefits and coverage to the participants, particularly if eliminating items or services from the plan’s preventive care category. Consult with vendors like third party administrators or pharmacy benefit managers to identify other administrative challenges to implementing mid-year changes.
Plan sponsors should review any wellness and disease management programs, and consult with any third party administrators of these programs to determine if treatment for these conditions should be coordinated and/or incorporated with the current wellness or disease management programs.
This guidance provides an opportunity, for plan sponsors who were concerned about implementing HSA-qualified HDHPs due to a potential health impact for the employee population, to reconsider this as a plan option. HSA-qualified HDHPs offer tax advantages for employees and employers. An HSA is one of the few savings vehicles that offers a triple tax advantage to the owner: pretax or tax deductible contributions; tax free earnings (investment interest) on accumulated funds; and tax free distributions for qualified medical expenses. On an employee’s behalf, those amounts are excluded from the employee’s gross wages and are deductible by the employer as a business expense. An employer’s HSA contributions (including an employee’s pretax contributions through a cafeteria plan) are not subject to federal income tax withholding or Social Security, Medicare, federal unemployment (“FUTA”) or railroad retirement taxes if the employer reasonably believes at the time of payment that the contribution would be excludable from the employee’s income.
In light of this new guidance, plan sponsors should carefully review current preventive care coverage in any HSA-qualified HDHP, keeping these points in mind:
- HDHPs must cover ACA-required preventive care at no cost to participants who have yet to meet the deductible;
- HDHPs are allowed, but not required, to provide pre-deductible preventive care benefits meeting the IRS safe harbor; and
- If an HDHP covers items or services that are not specified as preventive in official guidance, then there is heightened risk of violating the HSA eligibility criteria.
The content herein is provided for educational and information purposes only and does not contain legal advice. Please contact our office if you have any questions about HSA-qualified HDHP options, or making preventive care coverage changes to any current HSA-qualified HDHP.
Dated: August 28, 2019
|Preventive Care for Specified Conditions||For Individuals Diagnosed with|
|Angiotensin Converting Enzyme (ACE) inhibitors||Congestive heart failure, diabetes, and/or coronary artery disease|
|Anti-resorptive therapy||Osteoporosis and/or osteopenia|
|Beta-blockers||Congestive heart failure and/or coronary artery disease|
|Blood pressure monitor||Hypertension|
|Insulin and other glucose lowering agents||Diabetes|
|Peak flow meter||Asthma|
|Hemoglobin A1c testing||Diabetes|
|International Normalized Ratio (INR) testing||Liver disease and/or bleeding disorders|
|Low-density Lipoprotein (LDL) testing||Heart disease|
|Selective Serotonin Reuptake Inhibitors (SSRIs)||Depression|
|Statins||Heart disease and/or diabetes|