IRS Notice 2018-12 (Mar. 5, 2018)
Available at https://www.irs.gov/pub/irs-drop/n-18-12.pdf
The IRS has clarified that health plans covering male sterilization or male contraceptives without a deductible, or with a deductible below the statutory minimum deductible for high-deductible health plans (HDHPs), are not HDHPs under current IRS guidance regarding requirements for health savings accounts (HSAs). As background, individuals who wish to make or receive HSA contributions must be covered by a qualifying HDHP and have no impermissible coverage. An HDHP is an insured or self-insured health plan that meets certain requirements, including minimum annual deductible and maximum out-of-pocket expense limits, although HDHPs may provide preventive care benefits without a deductible or with a deductible below the statutory minimum. To qualify as preventive care, a benefit must be defined as such under the Social Security Act (SSA) or in IRS or Treasury Department guidance (see our Checkpoint article and our Checkpoint article). These standards govern whether benefits that a state law requires insurance policies to provide on a no- or low-deductible basis will qualify as preventive care. The IRS has also confirmed that preventive services that must be provided without cost-sharing under health care reform will qualify as preventive care for HDHP purposes (see our Checkpoint article).
The guidance notes that some states have recently adopted laws requiring health insurance policies to cover male sterilization or male contraceptives without cost-sharing. (Illinois, Maryland, Oregon, and Vermont are listed as examples.) These benefits are not preventive care under the SSA or under IRS or Treasury Department guidance, nor are they preventive services that must be provided without cost-sharing under health care reform. Thus, plans that provide these benefits before the HDHP minimum deductible is satisfied are not HDHPs, even if the benefits are required under state law, and an individual who is covered under such a plan is not eligible to make or receive HSA contributions. However, the IRS has provided transition relief for periods before 2020. Under the relief, individuals will not be treated as failing to qualify as HSA-eligible merely because they are or were covered by an insurance policy that is not an HDHP solely because it covers male sterilization or male contraceptives without a deductible, or with a deductible below the HDHP minimum deductible.
EBIA Comment: This guidance addresses an issue that had concerned employers with HSA programs and HSA service providers; indeed, the guidance notes that it was issued in response to questions from stakeholders. The transition relief is intended to provide time for states to change their laws in response to the guidance. Note that the relief is limited to state-mandated coverage for male sterilization and male contraceptives—other benefits must still satisfy the HDHP requirements. Note also that some states may provide exemptions that allow HDHP status to be preserved. For more information, see EBIA’s Consumer-Driven Health Care manual at Section X.H.2 (“State-Mandated Services May Not Be Preventive Care”). You may also be interested in our half-day seminar on HSAs and HRAs or our upcoming webinar “Learning the Ropes: An Introduction to HRAs and HSAs” (live on 8/29/2018).
Contributing Editors: EBIA Staff.