IRS Delivers COVID-19 Relief for HDHPs

The IRS recently announced that High Deductible Health Plans can cover the testing and treatment of the coronavirus before plan deductibles have been met, and doing so will not jeopardize their status as HDHPs.

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How the IRS is seeking to help people with HDHPs during the coronavirus outbreak

On March 11, 2020, the Internal Revenue Service announced that High Deductible Health Plans can cover costs of coronavirus testing and treatment before the plan’s minimum deductible has been met. This is welcome news for small businesses that offer this type of health insurance plan.

Background

HDHPs have a higher deductible than traditional health insurance plans (such as HMO and PPO) — though they come with lower premiums.

Deductible

Deductible is the amount the employee pays out of pocket for covered medical care before the insurance company begins to pay anything.

The minimum deductible for HDHPs must meet the IRS’s annual threshold. For 2020, the minimum deductible is:

  • $1,400 for an individual HDHP
  • $2,800 for a family HDHP

Out-of-pocket expenses

For 2020, to qualify as an HDHP, the employee cannot pay more than:

  • $6,900 in out-of-pocket expenses for an individual plan
  • $13,800 in out-of-pocket expenses for a family plan

These out-of-pocket expenses include deductibles, copayments, and coinsurance.

According to a 2019 article published by [email protected], the trend of HDHPs began a decade ago; at many companies, it’s the only health insurance option given to employees. HDHPs are also being increasingly utilized by small businesses. However, the high deductible is a concern for many employees.

HSA

To help offset employees’ HDHP out-of-pocket costs, employers often combine their HDHP with a Health Savings Account, which allows employees to pay for out-of-pocket medical expenses using tax-free dollars.

Employees can contribute to an HSA only if they also have an HDHP. Further, the insurer generally does not begin paying for the employee’s medical expenses until the employee has paid their HDHP deductible.

But, the IRS makes an exception for certain medical expenses (such as preventive care) to not count toward the deductible. This means that if the employer adopts the exception, plan enrollees do not have to worry about meeting their deductible when obtaining medical care for the excepted purpose. These exceptions are pre-deductible expenses.

By implementing the relief for HDHPs, the IRS seeks to eliminate COVID-19 testing and treatment barriers.

COVID-19 costs are a pre-deductible expense

The IRS has expanded the list of pre-deductible HDHP expenses to include costs relating to COVID-19 testing and treatment.

According to IRS Notice 2020-15, the minimum deductible criteria for HDHPs do not apply to “all medical care services received and items purchased associated with testing for and treatment of COVID-19.”

The notice includes a reminder that vaccines count as preventive care. Therefore, the IRS would consider any forthcoming coronavirus vaccine a pre-deductible expense. By implementing the relief for HDHPs, the IRS seeks to eliminate COVID-19 testing and treatment barriers.

While many applaud the IRS’s decision, the next move is up to employers that offer HDHPs.

Federal law does not require COVID-19 pre-deductible coverage

The federal government does not mandate HDHPs to regard coronavirus-related medical costs as a pre-deductible expense. However, per an article published by SHRM, “some states have taken steps to require insured plans to provide this coverage.” So, unless your state requires COVID-19 pre-deductible coverage, you do not have to include it in your HDHP.

HDHPs that adopt COVID-19 pre-deductible coverage must comply with applicable legal requirements, including sending HDHP participants a summary of material modifications or a revised summary plan description.

States in proactive mode

A growing number of states — including California, New Jersey, New York, and Washington — are taking additional measures to eradicate or minimize cost barriers for consumers seeking COVID-19 testing and/or treatment.

For example, California’s Insurance Commissioner Ricardo Lara has directed “all insurers providing commercial health insurance coverage” to lower cost-sharing amounts to zero for consumers needing COVID-19 screening and/or testing. This is in addition to the current California law requiring insurers to ensure plan participants can access the necessary medical care in a timely manner.

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