IRS Permits New Benefits in High Deductible Health Plans

The IRS has recently issued Notice 2019-45, which increases the scope of preventive care that can be covered by a high deductible health plan (“HDHP”) without eliminating the covered person’s ability to maintain a health savings account (“HSA”).

Since 2003, eligible individuals whose sole health coverage is a HDHP have been able to contribute to HSAs. The contribution to the HSA is not taxed when it goes into the HSA or when it is used to pay health benefits. It can for example be used to pay deductibles or copays under the HDHP. But it can also be used as a kind of supplemental retirement plan to pay Medicare premiums or other health expenses in retirement, in which case it is more tax-favored than even a regular retirement plan.

As the name suggests, a HDHP must have a deductible that exceeds certain minimums ($1,350 for self-only HDHP coverage and $2,700 for family HDHP coverage for 2019, subject to cost of living changes in future years). However, certain preventive care (for example, annual physicals and many vaccinations) is covered without having to meet the deductible. In general, “preventive care” has been defined as care designed to identify or prevent illness, injury, or a medical condition, as opposed to care designed to treat an existing illness, injury, or condition.

Notice 2019-45 expands the existing definition of preventive care to cover medical expenses which, although they may treat a particular existing chronic condition, will prevent a future secondary condition. For example, untreated diabetes can cause heart disease, blindness, or a need for amputation, among other complications. Under the new guidance, a HDHP will cover insulin, treating it as a preventative for those other conditions as opposed to a treatment for diabetes.

The Notices states that in general, the intent was to permit the coverage of preventive services if:

• The service or item is low-cost;
• There is medical evidence supporting high cost efficiency (a large expected impact) of preventing exacerbation of the chronic condition or the development of a secondary condition; and
• There is a strong likelihood, documented by clinical evidence, that with respect to the class of individuals prescribed the item or service, the specific service or use of the item will prevent the exacerbation of the chronic condition or the development of a secondary condition that requires significantly higher cost treatments.

The Notice is in general good news for those covered by HDHPs. However, it has two major limitations:

• Only the specific treatments covered by the Notice are covered. Even if other treatments may meet the three-pronged test described above, they are not permitted to be covered. For example, selective serotonin reuptake inhibitors (SSRIs) can be covered for a person who has depression. However, bupropion (which is similar in cost but affects brain chemicals other than serotonins) cannot be covered. Some people respond better to SSRIs, while others respond better to bupropion. The former can have their medications covered by a HDHP, while the latter cannot.
• The Notice specifically says that male sterilization services (vasectomies) cannot be covered. This is an issue for two reasons. First, it means that while a HDHP can cover tubal ligations for women, it cannot cover the less expensive and less invasive comparable surgery for men. Some have suggested that this results in financial pressures on women, rather than their male partners, to undergo surgery. Second, many state laws require that health insurance cover vasectomies. In those states, anyone with health insurance (as opposed to an employer’s self-insured plan) will not be able to have an HSA.

Given the expansion of the types of preventive coverage that a HDHP can cover, and the tax advantages of an HSA to employees, employers who have not previously implemented a HDHP or HSA may want to consider doing so now. However, as with any employee benefit, it is important to consider both the potential demand for the benefit and the administrative cost.