Predeductible COVID-19 Care Permitted in High-Deductible Health Plans

| 3/19/2020
Predeductible COVID-19 Care Permitted in High-Deductible Health Plans

High-deductible health plans (HDHPs) can provide medical care associated with testing for and treatment of COVID-19 prior to satisfying the plan’s deductible, per IRS relief (Notice 2020-15) pending further guidance. As a result, individuals covered by an HDHP still can establish or contribute to a health savings account (HSA).

HDHPs and HSAs

An HDHP is a health plan that must limit the minimum annual deductible to $1,400 (indexed for 2020) for individual coverage and twice that amount for family coverage. It also must limit the sum of the annual deductible and other annual out-of-pocket expenses (other than premiums) for covered benefits to $6,900 (indexed for 2020) for individual coverage and twice that amount for family coverage.

HDHP-covered individuals may establish and contribute to HSAs. In general, an HSA is a tax-exempt trust or custodial account created to pay for the qualified medical expenses of the account holder and his or her spouse and dependents. HSAs generally provide tax-favored treatment for current medical expenses as well as the ability to save on a tax-favored basis for future medical expenses.

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If an HDHP fails to meet certain rules, individuals covered under the plan are not considered covered under an HDHP (and, therefore, are ineligible to participate in HSAs). The rules include that individuals covered under the plan cannot also be covered under any health plan that is not an HDHP or that provides coverage for any benefit covered under the HDHP. Various types of coverage are disregarded, including coverage of any benefit provided by permitted insurance; coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care; and certain limited coverage through health flexible savings accounts.

A significant exception permits an HDHP to provide coverage for preventive care (as defined for this purpose only) before satisfaction of the minimum deductible. Over the years, the U.S. Department of the Treasury and the IRS have provided guidance on the types of limited coverage that constitute preventive care for HDHP purposes. In response to executive order 13877, in 2019 Treasury and the IRS issued Notice 2019-45. The notice includes a nonexpansive list of the specific medications and devices for specific conditions that constitute preventive care for HDHP purposes, and it notes that the list is expected to be reviewed only approximately every five to 10 years “to promote stability and to avoid confusion by participants in, or sponsors or providers of, HDHP arrangements.” Therefore, the relief under Notice 2020-15 in response to the current pandemic is extraordinary.

Relief under Notice 2020-15

The notice provides that it is a response to a public health emergency and is meant to avoid administrative delays or financial disincentives that otherwise might impede testing for and treatment of COVID-19 for participants in HDHPs. It provides that until further guidance is issued, all medical care services received and items purchased associated with testing for and treatment of COVID-19 that are provided by a health plan without a deductible, or with a deductible below the minimum annual deductible otherwise required under HDHP statutory rules, will be disregarded for purposes of determining the status of the plan as an HDHP. The guidance does not modify previous guidance with respect to requirements to be an HDHP in any manner other than with respect to the relief for testing for and treatment of COVID-19.

Looking ahead

Employers should determine if proper procedures are in place for COVID-19 medical services permitted under the temporary relief for HDHPs. Now also is a good time to review whether all preventive care offered under an HDHP prior to satisfaction of the plan’s deductible falls within tax rules and guidance to treat the plan as an HDHP. Be on the lookout for further relief related to COVID-19 from Treasury and the IRS, and potentially from Congress, with respect to employer plans and benefits.

Want more insights on addressing coronavirus-related challenges? 
Go to the Crowe COVID-19 resource center for more analysis and updates. 

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Veena Murthy
Veena Murthy
Principal, Washington National Tax