IRS Information Letters Address Fundamentals of HSAs and HDHPs

The IRS has released two information letters that provide general information about health savings accounts (HSAs) and high-deductible health plans (HDHPs). The first responds to an inquiry on behalf of an HSA account holder who claimed that his employer overcontributed to his HSA, and that the custodian of his HSA mismanaged the HSA and failed to provide a corrected Form 5948-SA. The account holder wanted his employer to refund the excess contributions, requested assistance in obtaining a corrected Form 5948-SA, and asked whether he had rights that might protect him from HSA mismanagement. The letter explains that employers that inadvertently contribute more than the annual maximum may—at their option—correct the error by asking the custodian to return the excess contribution to the employer. If the excess is not returned, it must be included as wages on the employee’s Form W-2. The letter advises that the account holder should contact the custodian to obtain a corrected Form 5948-SA. It also states that HSAs may be governed by ERISA and that the account holder should contact the DOL for information about applicable fiduciary responsibilities.

The second letter responds to an inquiry about the benefits that can be provided by an HDHP before the minimum annual deductible is satisfied, and the interaction of copay accumulator rules with the HDHP requirements. The letter explains that HDHPs may not provide benefits—other than for preventive care—for any year until the minimum deductible for that year is satisfied. Whether care is “preventive” is determined under Code § 223, and state-law mandates do not change the outcome. The HDHP minimum deductible may only be satisfied by actual medical expenses incurred by the covered individual. As an example, the letter explains that if a manufacturer’s discount (including a rebate or coupon) reduces a drug’s cost from $1,000 to $600, the amount that may be credited toward satisfying the HDHP deductible is $600, not $1,000.

EBIA Comment: Information letters rarely describe all relevant facts and are necessarily selective in the issues they choose to address. For example, in the first letter, the IRS could have included more detail regarding the conditions and rules for returning excess contributions and the 6% excise tax on excess contributions that are not timely distributed. Still, the letter offers two helpful reminders: first, under some circumstances, employers are permitted to undo contribution errors notwithstanding the usual nonforfeitability of HSA contributions; and second, most employers craft their HSA programs to avoid ERISA, but there are situations—usually unintended—in which ERISA can apply. The second letter highlights how the HDHP minimum deductible requirement relates to the practice of prescription drug manufacturers offering financial assistance to help defray drug costs. Some plans may count manufacturers’ payments toward the participant’s satisfaction of the plan’s deductible and cost-sharing limit, but those payments cannot be taken into account by HDHP coverage, just as they are not counted under a copay accumulator program (see our Checkpoint Question of the Week). For more information, see EBIA’s Consumer-Driven Health Care manual at Sections XII.N (“What Happens If Too Much Is Contributed to an HSA?”), XVII.A (“HSA Trustee/Custodian Reporting Obligations”), XVIII.C (“HSAs and ERISA”), and X.J.3 (“Discounted Prices Can Be Paid Without Regard to the Deductible”). See also EBIA’s Health Care Reform manual at Section IX.B.5.d (“Drug Manufacturer’s Financial Assistance”) and EBIA’s Self-Insured Health Plans manual at Section XI.E.7 (“Copay Accumulator Programs for Drug Coupons”).

Contributing Editors: EBIA Staff.