Summary

On June 24, 2019, President Trump issued an Executive Order directing the Secretary of the Treasury to issue guidance expanding the ability of patients with HSA-compatible health coverage to select low-cost preventive care for their chronic health conditions. In response, IRS Notice 2019-45 (“Notice”) specifies 14 preventive care services that can now be made available to HSA-eligible individuals with chronic health conditions prior to satisfying the minimum deductible otherwise required under tax rules applicable to their high deductible health plan (“HDHP”) coverage. Action items for employers that sponsor HDHPs/HSAs are identified in the “Next Steps” section below.

Background

In order for an individual (or an employer on behalf of an individual) to make tax-favored contributions to an HSA, the individual must have HDHP coverage and no other disqualifying health coverage. To qualify as a HDHP, coverage generally cannot be provided for any medical expense until after a minimum annual deductible (currently, $1,350 for self-only coverage or $2,700 for family coverage) is satisfied. “Preventive care” services are, however, exempt from the otherwise required minimum HDHP deductible.

Historically, IRS guidance has generally limited preventive care to services designed to prevent the initial occurrence of an illness, injury or disease so that routine examinations such as annual physicals, routine prenatal and well-child care, immunizations, various screening services, etc. were considered “preventive” – whereas treatments for an existing illness, injury, or condition were not. Prior to the Notice, however, the boundaries on “existing” conditions were not precisely defined making it unclear as to whether services for chronic conditions (that, if left untreated or inadequately treated, could lead to worse medical conditions) could be considered “preventive.” In other words, the question persisted as to whether services designed to prevent conditions that are “secondary” to existing chronic conditions (such as the use of insulin to prevent worsening conditions caused by diabetes) could be considered preventive and thus exempt from the required minimum HDHP deductible.

Notice Details

To address this issue, the Notice clarifies that effective July 17, 2019, certain services can be considered preventive (and thus exempt from the required minimum HDHP deductible) when prescribed to treat specified chronic conditions. Although the Notice outlines the criteria that was used to identify the “preventive” services with respect to the associated chronic conditions, it emphasizes that these are the only services that may be treated as preventive care – regardless of whether there may be other services that meet (or may meet) the listed criteria. Additionally, the Notice provides that the specified services can only be treated as preventive care when prescribed to prevent the exacerbation of the chronic condition designated in the Notice or the development of a secondary condition with respect to such chronic condition. These preventive services and associated chronic conditions are as follows.

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

Inhaled corticosteroids

Asthma

Insulin and other glucose-lowering agents

Diabetes

Retinopathy screening

Diabetes

Peak flow meter

Asthma

Glucometer

Diabetes

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

* If an individual is diagnosed with more than one of the above-noted chronic conditions, all listed services applicable to the two or more conditions are treated as preventive care for that individual.

The Notice provides for a periodic review, every five to 10 years, of this list of preventive care services for the chronic conditions indicated to determine whether additional services or items should be added or any should be removed.

Next Steps

Employers that offer HDHP coverage should plan to work with their third party administrators or insurance carriers to determine whether their pre-deductible HDHP coverage will be expanded to include some or all of the preventive care services identified in the Notice and, if so, when the newly added pre-deductible coverage will be effective. Some of the factors relevant to this determination include the following.

  • The services identified in the Notice constitute preventive care solely for purposes of the HDHP/HSA rules discussed above and do not affect the ACA rule mandating coverage of preventive care without cost sharing. Employer-sponsored HDHPs, therefore, may (but are not required to) cover these new services without application of the required minimum HDHP deductible.

  • The Notice does not affect existing guidance with respect to pre-deductible HDHP coverage of preventive care services. Employer-sponsored HDHPs therefore can (or must in the case of ACA mandated preventive care services) continue to provide pre-deductible coverage for services that are currently covered as preventive care – such as annual physicals, routine prenatal and well-child care, immunizations, and various screening services. That said, since the status of preventive care with respect to chronic conditions was not always clear before the Notice was issued, employers should review their existing pre-deductible HDHP coverage to ensure that it is consistent with the Notice.

For example, the Notice provides that beta blockers are preventive care only for congestive heart failure and/or coronary artery disease. Therefore, if an employer’s HDHP covers beta blockers as preventive care for a chronic condition other than congestive heart failure and/or coronary artery disease, the coverage will need to be updated in light of the Notice.

  • Employers choosing to implement this change should generally expect to absorb some or all of the initial cost reduction to employees. However, as discussed above, the Notice is intended to reduce health care costs associated with chronic conditions in the long run.

  • Expanding pre-deductible HDHP coverage for items related to chronic conditions may bolster HDHP enrollment. Employers choosing to implement this change may therefore wish to engage employees in an education campaign between now and open enrollment for 2020 to help participants with chronic conditions understand the impact of the change on their health care options for 2020. If employees understand that treatment for chronic conditions may now be covered before meeting the HDHP deductible without affecting their ability to contribute to an HSA, they may be more willing to choose the HDHP/HSA option over more expensive, traditional health plan coverage options.

Whether or not an employer chooses to treat the services identified in the Notice as preventive care for HDHP purposes, plan documents and/or summary plan descriptions (“SPD”s) should be reviewed to determine if any changes are needed to HDHP documents. For example, if a plan document and/or SPD identifies preventive care (that will be covered without regard to the HDHP deductible) by reference to IRS guidance, the plan document and/or SPD will need to be updated if the employer chooses not to treat the services included in the Notice as preventive care. Or, if a plan document and/or SPD identifies preventive care by listing the particular services in the document and an employer chooses to treat the services included in the Notice as preventive care, the plan document and/or SPD may need to be updated to reflect the addition of these new services.

Employers that offer limited purpose health flexible spending accounts (“FSA”s) and/or limited purpose health reimbursement accounts (“HRA”s) to participants who enroll in the employer’s HDHP coverage option will also need to work with their FSA and/or HRA administrators and review their FSA and/or HRA plan documents if they choose to expand eligible reimbursements to include some or all of the preventive care services identified in the Notice.

With open enrollment for the upcoming 2020 plan year just around the corner, employers that offer HDHPs (with or without HSAs or limited purpose FSAs/HRAs) will need to act quickly to complete the above-noted action items if they choose to implement the changes in the Notice for 2020.