In the guide addressing COVID-19 (the disease resulting from the 2019 novel coronavirus), the I.R.S. has removed some barriers to testing and treating COVID-19 according to the Health Savings Account (H.S.A.) rules and high deductible health plans (HDHP).
The notice responds to employer uncertainty that a health plan that provides COVID-19 testing without cost-sharing for people who have not met their deductibles is still HDHP, according to the H.S.A.
HSA-Compatible HDHP preventive Care Rules
The Code allows a person to deduct H.S.A. contributions if, among other requirements, the person: is covered by an HDHP and does not have disqualifying coverage.
An HDHP is a health plan that meets the requirements of Section 223 of the Code, including minimum deductibles and maximum out-of-pocket costs (26 U.S.C. § 223 (c) (2)). Although, as a general rule, an HDHP cannot provide benefits for one year until the deduction for that year, the Code includes a shelter due to the lack of a preventive care deductible (26 U.S.C. § 223 (c ) (2) (C)). In accordance with the Safe Harbor, plans that do not have a preventive care deductible are still treated as HDHP. Safe Harbor enables HDHPs to provide preventive care: without a deductible and with a deductible lower than the minimum amount required.
The previous Internal Revenue Service guide discussed the benefits of preventive care for this purpose. However, some employers have expressed uncertainty that a health plan that provides free testing and treatment for COVID-19, when a person has not reached the applicable deductible, is HDHP, according to the H.S.A.
Notice removes barriers to testing and treating of COVID-19.
The notice states that a health plan otherwise eligible for HDHP (as per Article 223 (c) (2) (A) of the Code) is still an HDHP simply because it provides health services and items purchased related to testing and treating COVID-19 before the applicable minimum excess of HDHP is reached. As a result, a person covered by HDHP does not lose the right to pay contributions to an H.S.A. with tax incentives simply because HDHP provides benefits for testing and treating COVID-19.
The notification does not change previous I.R.S. guidance regarding HDHP requirements, except for the exemption provided for testing and treating COVID-19. Vaccinations continue to be considered preventive care under the Code in determining whether a health plan is HDHP.
Practical Impact
While some employers have already sought advice in this regard, the notification was released faster than usual, stressing the importance of removing barriers to testing and treating COVID-19 as the outbreak unfolds and spreads in the United States. Also, several states have mandated insured health plans to cover COVID-19 testing without cost-sharing.
The notice gives HDHPs the flexibility to offer benefits for testing and treating COVID-19 without applying a deductible or cost-sharing. However, as the Internal Revenue Service, HDHP, and health plan noted, they should consult their specific plan on the benefits of testing and treating COVID-19, including how the deductibles are applied cost-sharing.
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